Archive for February, 2010
Should You Transfer the Title of Your Investment Property Into Your LLC?
In a perfect world, banks and/or lenders would lend money to new investment property LLC with no income or credit history, thus allowing you to purchase your investment property in the name of your LLC.
Should you transfer the title of your investment property into your LLC? You could probably ask 10 different people for their [...]
In a perfect world, banks and/or lenders would lend money to new investment property LLC with no income or credit history, thus allowing you to purchase your investment property in the name of your LLC.
Should you transfer the title of your investment property into your LLC? You could probably ask 10 different people for their position on this issue, and receive 10 different answers. My position is that I do not like to transfer title from the individual to the LLC – for a couple of reasons. First, transferring the title when the mortgage is still in your name triggers a due on sale clause within the mortgage/note. Second, if you ever go to refinance, you will have to transfer title back out of your LLC to you individually, creating a strange series of transactions for your lender and/or title company to sort through.
My position rests on the assumption that you have properly formed your LLC, complying with all of the statutory corporate formalities including organizational minutes, bylaws, appointing the Board of Governors, Managers, Membership Units, etc. In addition, all of your business dealings are done in the name of the LLC – your lease with the tenant will be between the tenant and the LLC, the tenant should pay the LLC, and the LLC has a separate bank account and accounting records.
From a legal standpoint, the tenant’s contract is with the LLC, not with the investor as an individual. If something goes wrong, they should sue the LLC, not the individual. That is not to say that someone couldn’t try suing the individual – it is not uncommon for a litigious person to throw everything against the wall to see what sticks. Even if your strategy was to transfer title from your personal name to the LLC in order to “tie” the property to the LLC, the mortgage would still be in your name anyway, thus leaving the same issue for that litigious person to throw against the wall. In addition, if you completed all of the other steps to adequately form and operate your LLC, the argument to be made is that it would be bad policy if a court ruled that in order to receive liability protection from your LLC, that you should have violated the due on sale clause in your mortgage/note.
Again, every new business must start the ball rolling somewhere. Every new business is started with the capital or credit of the owner. Eventually when you have built your portfolio, built your LLC’s credit history and property equity, you will no longer need to purchase properties with your own credit and in your individual name. Your goal will be to get loans through the LLC and thus title in the name of the LLC.
Remember, most banks do not make loans to brand new LLC’s, therefore you must start the ball rolling by purchasing your property personally. Perhaps the bank/lender will allow the LLC to purchase the property with the individual’s personal guarantee or co-signature on the note. If the bank will not accept the personal guarantee, there are several other options to consider. Some strategies could include the individual leasing the property to the LLC, which would then lease the property to the tenant. Alternatively, there could be a written agreement between the individual and his LLC whereby the individual pledges and confers upon the LLC the right to possession of the investment property. All of these alternatives should be documented through company minutes of the LLC that acknowledge and authorize the LLC’s use of the investment property. Having these added formalities can only strengthen the liability shield created by the LLC.
Please feel free to contact me at the number below if you need assistance, have questions or concerns with respect to properly forming your LLC or incorporating additional investment property ownership strategies to strengthen the liability shield created by the LLC.
Matthew A. Engel, Esq.
Aase, Engel & Kirscher, PLLC
2499 Rice Street, Suite 236
Roseville, MN 55113
651-209-6884
matthew [dot] engel [at] aeklawfirm [dot] com
Is a Notice To Quit Required?
Here is a great post written by Matt Engel regarding if a Notice To Quit is required prior to filing an eviction on your a tenant.
A Notice to Quit would be required in a “tenancy-at-will” situation, which means there is no fixed ending date, or the lease has expired and is now month-to month. Minn. [...]
Here is a great post written by Matt Engel regarding if a Notice To Quit is required prior to filing an eviction on your a tenant.
A Notice to Quit would be required in a “tenancy-at-will” situation, which means there is no fixed ending date, or the lease has expired and is now month-to month. Minn. Stat. 504B.001 defines tenancy at will: “Tenancy at will means a tenancy in which the tenant holds possession by permission of the landlord but without a fixed ending date.”
In such cases, this is what Minnesota law says about terminating tenancy at will:
504B.135 TERMINATING TENANCY AT WILL.
(a) A tenancy at will may be terminated by either party by giving notice in writing. The time of the notice must be at least as long as the interval between the time rent is due or three months, whichever is less.
(b) If a tenant neglects or refuses to pay rent due on a tenancy at will, the landlord may terminate the tenancy by giving the tenant 14 days notice to quit in writing.
Notice must be given in writing that the tenancy will be terminated on a certain date, and should state that if the tenant does not vacate by that date, an eviction action will be pursued. The notice should be drafted with a termination date pursuant to the applicable time period from section (a) or (b) of Minn. Stat. 504B.135 – the interval between time rent is due (typically 1 month or up to three months), or if termination is for non payment of rent, 14 days.
Here is some sample langauge for written notice terminating tenancy at will:
- The purpose of this written notice is to terminate your tenancy at will. Please be advised that your tenancy will be terminated on ___________ ____, 2010, [14] [30] [60] [90] days from the date of this notice, pursuant to Minn. Stat. 504B.135. If you do not vacate by this date, an eviction action will be pursued in ___________ County Housing Court to have you removed from the property.
I suggest the written notice be sent to the tenant via certified mail, return receipt requested, as well as a second copy by regular mail, mailed at the same time. In case the certified mail is returned for refusal to sign or failure to pick-up, you’ve also sent the written notice via regular mail to the tenant’s address – save the return receipt, if returned, or the refused certified letter, which will be returned to you – for the court hearing.
After the notice to quit time period has expired, and if the tenant still does not vacate, then an eviction action would be required to remove the tenant. Eviction action hearings are typically set 14 days from date of filing the Eviction Action Complaint. The Eviction Action Complaint must be served on the tenant at least seven (7) days prior to the hearing via personal service with affidavit under the Minnesota Rules of Civil Procedure (by a third party not a party to the action), and if personal service cannot be made, the process server can complete service by posting on the property after two failed attempts, and then completing an Affidavit of Not Found and Posting. See Minn. Stat. 504B.331.
Matt Engel
Aase, Engel & Kirscher, PLLC
2499 Rice Street, Suite 236
Roseville, MN 55113
T: 651-209-6884
F: 651-209-8088
C: 612-385-0554
Why You Can’t Get Your Mortgage News From a Newspaper
OK. I admit it. I like to get a chuckle at the expense of others. Usually it is out of the stupidity of others. Just look at my list of Stupid Property Repairs! I am sure there is someone out there making fun of me, so I guess I reap what I sow.
I was reading [...]
OK. I admit it. I like to get a chuckle at the expense of others. Usually it is out of the stupidity of others. Just look at my list of Stupid Property Repairs! I am sure there is someone out there making fun of me, so I guess I reap what I sow.
I was reading this week’s Carnival of Real Estate and Dan Green’s post on The Mortgage Reports. He has a short example of why you should only be getting advice from professionals in the discipline. Dan found a news article in his local newspaper that had just glaring mistakes. Unfortunately, the unknowing public that reads this mis-information doesn’t know any better. Check out Dan’s post at The Mortgage Reports.
4 Tips for Winning the Offer on a Foreclosed Property
I updated a post I did a year or so ago about how to get an accepted offer on a foreclosed property. When you get a minute, check it out over at 4 Tricks to Being the Winning Bid for that Foreclosed Property.
I updated a post I did a year or so ago about how to get an accepted offer on a foreclosed property. When you get a minute, check it out over at 4 Tricks to Being the Winning Bid for that Foreclosed Property.
Lowball Offers on Retail Homes
I wrote a post almost 2 years ago about making lowball offers on bank owned properties. I use an offer that is more than 20% below list price as a lowball offer. Both then and now, most banks will not even consider an offer that is too low. Sometimes they won’t even respond, let alone [...]
I wrote a post almost 2 years ago about making lowball offers on bank owned properties. I use an offer that is more than 20% below list price as a lowball offer. Both then and now, most banks will not even consider an offer that is too low. Sometimes they won’t even respond, let alone accept a low ball offer.
As I have mentioned before, this market has also been very difficult in the last 6 months as the inventory of properties is much lower than 12 months ago and competition is much higher for both retail and investor properties. In this foreclosure market, many of my customers have been purchasing foreclosed properties to rehab and flip them. Their margins are much smaller than the huge numbers you see on those type flipping homes shows. Most my customers are simply trying to make a modest profit and considering the risk they are taking, it is not that much.
I have been very surprised lately to see my investor customers receiving offers on their completely rehabbed properties at prices that I would consider lowball. My customers price these homes competitively in their neighborhood and so I am disappointed to see offers that are 10-20% below list price. When you are making only 10% on a flip, maybe $15,000 after all expense, you can’t discount the price by 10%!
While I don’t think we will change our model, it is interesting how aggressive the retail buyers are becoming out there right now. Come to think of it…..I have been just as aggressive when making offers on retail properties. Wait, maybe I should delete this post!
Investment Property 201 Seminar: Renting Homes for $1500+ Per Month
[ March 23, 2010; 6:30 pm to 8:00 pm. ] The volume of higher priced homes that are being sold in either short sales or foreclosures is creating an opportunity for investors. The previous owners of these homes are now in need of a place to live. Most have been homeowners for years and have no desire to move back into an apartment or multi-family [...]
| March 23, 2010 | ||
| 6:30 pm | to | 8:00 pm |
The volume of higher priced homes that are being sold in either short sales or foreclosures is creating an opportunity for investors. The previous owners of these homes are now in need of a place to live. Most have been homeowners for years and have no desire to move back into an apartment or multi-family setting. These new tenants probably have good income and a strong desire to remain in the neighborhood. They may have simply had a blip in their financial lives as a result of a job loss, medical problem, divorce or other temporary situation that led them to be unable to pay their mortgage payments.
This type of tenant can be fantastic to have as they understand how to maintain a property, they pay their rent on time as they have good jobs, and there are looking to put root down somewhere. With this opportunity in the market, we want to teach you how to rent to these types of tenants. How do you find someone that is willing to pay $2000 or even $3000 per month for rent? What types of properties work best? How can you command that rent?
Steve Rajavuori, from REI Property Management, will be sharing his experience with renting properties in this price range (over $1500 per month). Come to this free seminar and learn from an expert.
Sign up on our registration form or call 612-281-5419 for more information.
