Posted on July 3, 2008 @ 12:45 am - Written by BawldGuy
Warning Warning Warning — Pictures found while reading this post have absolutely nothing, nada, zilch, to do with the subject at hand. I just like inserting them. I am open to requests though. Ok, that’s it — you may continue. 
Estoppel is a silly sounding legal word sometimes used in purchase contracts when tenants are involved. Of course there are many time an attorney might use the concept of estoppel, but since it doesn’t say lawyer on my expansive forehead, I’ll stick to the purchase of real estate investment property.
I’ve taught the concept, been taught the concept, partnered with a real estate attorney for a decade and listened to him pontificate endlessly on the concept. It’s a giant pain in the patute. Yet, I’m still gonna give it a shot here. If you really insist on confusing yourself you can click the above link, but I recommend you take two aspirin first.
Here Goes
You’re lookin’ to make an offer on some income property. You’ve gone over the offer to purchase three times, and are finally satisfied yer covered. Due diligence period — check. Subject to your inspection and approval of interiors/exteriors — check. Seller’s gotta turn over income/expenses last 2-3 years — check. 23 other things — check, check, and check. Eyes begin to blur, and the thought of watching a soccer game between East Toilet Seat, Wisconsin and Rubber Chicken, Kentucky is soundin’ pretty dang good about now.
Got it covered, right? Not so fast estoppel breath. Read the rest of this entry »
Posted on May 8, 2008 @ 11:13 pm - Written by BawldGuy
Lately some have asked how many of these axioms there are. I don’t know. There’s a bunch though, and many have been taken from Dad and other mentors, some of whom were literally industry giants. I can claim originality on none of them, as they’re time tested over literally centuries — at least most of them. Come to think of it, I’ve been told my paraphrasing on many of them is original.
Here are a few.
BawldGuy Axiom: About the time the farmer trained the ol’ mare to work without eating — she died.
We can fool ourselves all we want when it comes to where, when, how, what, and why we invest in real estate. We can even appear to defy gravity for periods of time. Sooner or later though, Investment Physics win out. The core, or maybe better said, foundational principles of real estate investment are defined as such for a reason. As has gravity. Being a contrarian as I am much of the time, is one thing. But you’ll notice you’ve never seen me jump off a roof expecting to fall sideways. So sure, we can get a starving horse to work for us — until she dies. Then where are we?
BawldGuy Axiom: The words ‘Free & Clear’ have no magical powers. In fact they’re often the central figures in Grandpa Economics’ unintended consequences: Not a retirement supporting the Golden Years, but rather a mind numbingly financial life sentence. (See Grandpa Economics podcast.)
Grandpa retired with a retirement income quadruple his salary when he was 35 and a free and clear home. Read the rest of this entry »
Posted on April 12, 2008 @ 11:47 pm - Written by BawldGuy
Some random factoids (read: slang) about real estate investing that seem to confuse many. Then, ‘cuz I talked a bit about real estate investing, some cool music. Hey, it’s Saturday night and The Boss is in New York — give me a break.
What the heck is an upleg? Simple — it’s the property(s) in a tax deferred exchange into which the investor is trading. They sell their existing property, then search for their upleg(s).
Cranked my San Diego fourplex — Took money out of your property by refinancing it for some cash. “How’d you buy those new units, Agnes?” “I cranked my fourplex for a hundred grand last month, if you must know.”
Wow! That’s A-Bag product fer sure. ‘A-Bag’ means prime property an investor would have to get a premium for if he decided to exchange it. “Yer yankin’ my chain with that offer right? This is bona fide A-Bag. Read the rest of this entry »
Posted on March 25, 2008 @ 8:21 pm - Written by BawldGuy
So, you own property or want to buy some. And you want to maximize your value and minimize your risk. What do you do?
The most common answer I hear from inexperienced investors is this: “Oh, my friend/relative/neighbor/co-worker/stranger I heard of/guy I saw on a TV infomercial said to do X [insert bad advice here]. That person’s really, really smart, so I’m sure the same approach will work for me.”
Wrong, wrong¸ WRONG, WRONG. Actually, as a lawyer I should love hearing stuff like this come out of the mouth of a prospective client. Why? Because I then get to spend thousands of dollars trying to fix (not always successfully) problems that clients create because they are penny wise and pound foolish. But I don’t, even if it means making less money.
Listen, you may do the same thing that Jack down the street did and it may work out all right. If you do, count yourself lucky. You rolled a 7 this time. But what if next time you throw a 2, 3 or 12? You’ll have no one to blame but yourself.
When you buy or own property you have to consider carefully what your goals are and match those goals to the proper structure of the transaction. Some big, big investors will have a page full of different entities on the page owning a property because of different investors, developers and various profit-sharing structures, tax reasons, exchange reasons, exit strategies and the like. They also have to think about complicated things such as UBTI (Unrelated Business Taxable Income) and other sophisticated stuff way beyond the scope of this little piece (and best described by a tax expert anyway).
When making these considerations, the things that you see the most these days are: (1) limitation of liability, (2) structuring deals to minimize tax liability and (3) keeping the properties you own legally separate from one other. Why?
Let’s start with limitation of liability. Yes, you have insurance policies and all that. But what if something happens that insurance does not cover fully? 
What if you do something that exposes you to liability? What if something just doesn’t work out? You want to be protected, right? Of course. This is where limited liability companies, corporations and limited partnerships (not general partnerships; they provide no protection at all unless combined with another limited liability entity) come into play. There are other possibilities and types of entities you can use, too, but this is not a comprehensive treatise on structuring real estate transactions.
The LLC is the entity I am almost always seeing these days to own investment property, and usually as a single purpose entity that owns one property or a number of smaller properties with the goal in mind of limiting your exposure when a problem arises. So long as you maintain minimal formalities, you limit your exposure to the value of the property owned by the company. (There are exceptions such as fraud, dumping dioxin, or if you have a recourse loan with your lender as many investors do. But even with those exceptions, an LLC is still worth the money because you know your exposure is capped.)
But the second reason for properly structuring a deal, taxes, may also come into play here. In the past, with the help of able counsel in other states outside Illinois (California, Florida and Texas come immediately to mind), I’ve had to use limited partnerships and corporations –- and combinations thereof — to achieve the same goals that I can with an LLC in most states. Why? Because LLCs don’t always get preferred tax treatment in every state!
Again, just because an LLC works to own property here in Chicago does not mean it will work as well in San Diego. We don’t have minimum franchise taxes here.
And depending on your state, the nature of the property and your corporate and LLC laws, you may not want to even use an entity that is registered in the state where the property is located. For instance, some people in Illinois are using Colorado LLCs to own property because they are cheaper to maintain. Illinois law allows that. Other states don’t, so you end up paying double fees. Ouch!
Entity considerations are also important when doing a 1031 exchange. The general rule is “same party in, same party out.” However, if you have the same parties in the outbound side of the exchange as the inbound side of the exchange, you can use different entities to sell and then buy properties in a 1031? Why? Because the IRS understands that lenders require new, separate entities as borrowers in deals, so they will consider LLC1 and LLC2 to be the same party so long as the members of LLC1 and LLC2 are the same. Neat, huh?
We’ve pretty much covered (3) above. Again, think about what happens if there’s a bad slip and fall at one of your properties, and a claim is made for beyond the value of the property and the 
insurance policies. If you are sued individually, guess what? They can go after all you own! Probably not so with LLCs or similar entities; even if you are sued individually the judge should throw that lawsuit out unless there’s a good reason not to. And remember, lenders often like separate companies owning each property because it makes life easier for them in the event of, say, bankruptcy or foreclosure. Just make sure your lender understands what you are doing –- and oh, don’t just transfer property you currently own into an LLC without talking to the lender and your lawyer and your accountant! Do you want to accidentally commit an event of default under your loan or cause some taxable event nightmare? I’ve seen that too many times.
All in all, if you want to take your chances, by all means do so. Then call me or your lawyer when things are a complete mess and I can charge you a ton of money to try and get you out of the morass. Or listen up and get good professionals behind you now. They’ll ask the hard questions. They may come up with things you have not considered. They may even drive you batty! But it’s all with a great goal in mind: making sure your Purposeful Plan is not derailed.
The usual disclaimers: I’m not your lawyer and I am not giving you specific legal advice. I am only admitted to practice in Illinois and California (inactive for now), so when I work out of state I have to get one of my able friends there to check and bless my work as local counsel. Get your own people to help you with this, and again please remember: real estate investing isn’t rocket science, but it is also not something you do cavalierly unless you want to open yourself up to a big can of pitfalls.
Posted on March 24, 2008 @ 9:45 pm - Written by BawldGuy
So many folks in brokerage end of real estate talk about teams. Investment real estate by necessity brings the concept of a team or teams nearly to an art form. Back in the late ’80’s I was forced into the whole team concept. Getting things done and done right was becoming problematic. This is irritating when representing buyers & sellers with their homes. When it comes to investment properties, problems can escalate beyond irritating faster than your radar gun can track in real time.
20+ years of team building and before you know it, yer kinda good at it.
I’ve always had access to real estate attorneys, as they can not only provide answers to thorny issues arising at exactly the wrong time, but also help you avoid myriad potential disasters 
altogether. See? Purposeful Planning. Asset protection is tossed around at the neighborhood BBQ (that’s BBQ grille for you purists) these days as if it was as easy as falling off a log. Did I say access to real estate attorneys? For Heaven’s sake, back in ‘77 when Brown and Brown opened for its first day of operation, one of the partners had a full head of blonde hair, and the other was not only a real estate broker, but — wait for it — a real estate attorney too.
Protecting assets isn’t, and should never be, an afterthought — au contraire.
David Stejkowski (pronounced however it makes you feel best) is a dirt lawyer. In fact, he’s The Dirt Lawyer — and beginning tomorrow will also be a contributor to these pages. He and I have been going back and forth for several months now, and I’m convinced he’s my best find in some years. I’ve been floating around using different real estate attorneys since my all time favorite died some time back.
We’ve also talked about the cost of the average real estate attorney, a subject near and dear to David’s heart. Brown and Brown clients will learn quickly how a The Dirt Lawyer can make things happen without tearing your wallet a new one.
David is the real deal — but I’ll let you decide for yourself.
All he does is investment real estate and related issues. Calling David a specialist is abusing the concept of understatement. I’ve closed millions of dollars of transactions. David? He’s closed billions of dollars in real estate transactions. Right — with a ‘B’.
We’ve already had several conversations, both by phone and email. He’s what I’ve been searching for the last several years. He’s also a principal in a brand new title company — but that’s an entirely different, albeit interesting post.
So look tomorrow for David’s first post — first as in ‘of many’.
Welcome to the team, David.