Ask Mike

Got a question you’d like me to answer ? Then fire away below! I’ll post a response and may also talk about it on a future podcast or blog article..

If you have something of more personal nature to ask me (not too personal I hope -;) then please use the Contact form instead.

  • Solutions Kid

    Michael,

    Hope all is well. I have a question for you which may lead to several answers. We have a 26 unit apartment complex we’ve owned in the Cincinnati are for five years. Current loans total $427 and value of
    buildings are $850k+. Now, the buildings are great, cash flow great, have a cap rate around 14% and there is no particular reason we need to sell them BUT we have been thinking. For one, we are wanting to refi the propertiesinto one loan, pull out equity for capital improvements and to use for future deals AND we have toyed with the idea of selling them due to the crazy good market right now. Our financial goal is not unit based but passive income based per year so we are needing some help on two fronts.

    Appreciate any perspective,

    Christian
    Villefranche Properties, Inc

  • Bryan Fullen

    That’s simple John…. Simple yellow letter with , We are brokers script is about your only method since you need to disclose that you have a license, if you’re interested in purchasing their property and not listing it then you can go ahead and use the simple two line, I would like to buy your property @123 main st here is my contact information xxx xxx xxxx I am a serious investor i will not waist your time. Honestly Calling is better, meeting with the property managers. You’re in at a different angle than Micheal Teaches.

  • Bryan Fullen

    Why would it be a disregarded entity unless you didn’t file your structure correctly? Single member LLCs that neglect to make a selection will default to the taxing structure of a sole proprietorship.simply file a schedule C with your personal 1040 tax form. No EIN is needed; your Social Security number will function as the tax ID for your LLC. In essence, as far as the IRS is concerned, your LLC does not exist and you are the one making all of the money. The IRS refers
    to this as a “DisRegarded Entity” (DRE).

  • Bryan Fullen

    I like your response, but its very simple really…. lets consider this, Let’s assume that you own two apartment buildings. One apartment building is held in an LLC taxed as a partnership (sole proprietorship if you are the only member) and the second apartment building is held in an S corporation In either case, if a tenant slips and falls, the tenant will have to sue the entity that owns the building. The attack is coming from the front (company) side of the shield. Assuming the corporate/ LLC shield holds, the most the tenant can get is the assets of the entity that owns the building. Your other assets, including your ownership of the entity that owns the other apartment building, will be safe.
    What happens if the attack comes from the back (personal) side of the shield? Let’s assume you are the sole owner of the corporation and the sole owner of the LLC. Let’s also assume the attack is successful. The spoils of the suit will include your stock in the corporation that owns one apartment building, and your membership interest in the LLC that owns the other apartment building. When the lawsuit winner (creditor) takes over your assets, he gets your stock in the S corporation. The creditor will also get your membership interests(When the creditor gets a membership interest in an LLC or a limited partnership interest in a limited partnership, including a family limited partnership (FLP), the creditor has to get what is called a “charging order” to come against the entity). The charging order limits the creditor to only being able to receive the financial benefit of the owner’s interest in the LLC or limited partnership.
    When the creditor gets a membership interest, he can’t just take over the LLC. Once he wins the lawsuit, he has to then ask the court for a charging order to come against your interests in the LLC. Under the charging order laws, a charging order does not give the creditor any voting or management rights.
    This is very different from being able to seize the stock in a corporation and have all the voting rights and management rights. If the LLC document is written properly, the management of the LLC is intact and free from the creditor’s influence. In fact, the managers of the LLC can basically make life miserable for the new member. having a top notch operating agreement can assure this.
    The bottom line is, you are still in control of your LLC. You can continue to pay yourself and other people wages for working in the LLC. The creditor gets any profit that is distributed out of the LLC which would have gone to the member (you). In some cases, the LLC can shift tax burdens to the creditor without ever giving the creditor any money.
    Basically, you still have the apartment building held in the LLC as an asset.

  • Bryan Fullen

    I can help, Simply ask her what her plans are for the building. What does she want for it? What is the cost to repair? What is the After Repairs Value if you fixed it then you have something you can start working with….who cares about attorneys until you come to an agreement before hand? let them know that you only deal with them through attorney anyways so its all legal and correct but you do not need one to talk to her about buying a condemned property.

  • Bryan Fullen

    My first foundation book was “what every investor should know about cash flow” Everything else can be found in a Rockwell Real estate book for brokers exam focus on the definitions and law for your state. and then I would pick David Lindhals “A Complete Guide to Making Money in Real Estate in Your Home Town” But Honestly Micheal Blank has made it soo simple in his book you dont need anything else except implementation. My opinion..

  • Bryan Fullen

    Learn about Emerging market trends, Possibly go ask a CCIM in your area and ask them about demographic and economic movements in your area and see if it makes sense for you to invest in your backyard. There is always a deal even in a tight market.

  • Bryan Fullen

    Greetings I hope you are doing well, In some ways you are hurting yourself in thinking “No Money Down” It can be done but its harder to get sellers to accept to terms if they are not in a distressed situation. Some things to consider. One could ask for seller financing for a portion of the down payment called seller carry back. Or one could consider Master lease option strategy where you would wholesale or flip to an investor. Just some thoughts.

  • Bryan Fullen

    Find a property thats several million that has good cash flow, syndicate the deal and place only a small fraction of the money you need into the deal to make it better. save your wealth use other peoples money.

  • Julien Emmanuel Plouffe

    Solid advice Bryan.

  • Hi Christian … those are all good reasons to sell … but if you want passive income, must make sure you’ll find another (larger) property asap (which is hard to do this in this environment)

  • Bryan – right on! Also, geography should not be a restriction. If your market is too hot, find one that isn’t. We just closed on a 64-unit in Memphis a couple of weeks ago. People *are* doing deals, but they’re not falling into their laps. They’re hustling to find them.

  • Michael Moreno

    Hi Michael,
    I was reading the Wall Street Journal yesterday and they mentioned that for the first time in a decade, more new households chose to buy rather than rent last quarter. Do you think this is a sign that we have peaked in terms of occupancy rates? -Mike

  • Solutions Kid

    Mike,

    Appreciate the last reply to our question but have another one. We have a great value add opportunity on a property we know very, very well that is being offered to us off market. The company that owns these buildings is not in the apt business and they acquired it five years ago in a package deal and now want to get rid of it. They are willing to seller finance a portion of it and that’s where our knowledge base is empty, we really don’t know how to structure this back to them so it’s a win/win for everyone and how exactly to structure the seller financing portion. They really don’t need the money/income as they own it free and clear but obviously want to give them some reason to do it that makes sense while making it a great opportunity for us. The property is worth around $360-$390k with current market rates and we would not be using a broker which they know will be saving them 6% or more. So basically just looking for what would be considered a good deal for both parties and how to structure the seller financing portion. Thank you

  • Chris Dietrich

    Hi Michael,
    I have a family friend who is selling his 10 unit complex in FL. This is premarket & there is already a bunch of interest @ $539K but he will sell it to me (friend/family) for $500K. It currently generates $5k per month positive cash flow after expenses. I only have $50k cash to put down. Is there any lenders who will do a 90% LTV for first time buyers?
    Chris Dietrich
    you can call me 404-662-6838

  • Hi Michael, I have an interesting scenario here in my little mountain town that I’d like your feedback on… there’s an older motel, been here for a long time, right in the heart of our town. There are many trendy folks moving to town as well as younger people who come here for the recreation options (Colorado). The property is for sale and I’ve thought of converting it to studio apts. Your thoughts about how to approach that?

  • Antony Aspeling

    Hi Mike, everything great so far. Please look at your discussion on Average annual return. The example you use in the video is supposedly the same as the one for download..yet there is a difference. With the download version there is a difference..the AAR is %15.5 and in the video it is %22. The difference seems to be the principal reduction. Can you just speak to this and how you calculated. regards tony

  • Rahul Deshpande

    Hi Michael, Is there a way to validate the rent that the seller is claiming in his listing ? Recently, I came across an apartment community where the seller was claiming a rent of $x per month per unit. Upon visiting the community location in person, I began to doubt his claim as this was very low-scale neighborhood and $x per month would be very high for someone located there to pay.

  • Sam Steinmetz

    Hi Michael,
    On the Syndicated Deal Analyzer in the “P&L tab” how can I edit the avg rents increase to project future returns? I can only edit the first year. I followed along with your “how to buy a 20 unit apt deal” video on my SDA but when you got to the P&L tab my “avg monthly rent” wasn’t in blue like yours, except the first year. I wasn’t able to change year 2, year 3 to increase the rent to my projected rent increases.

    Thanks Michael

  • mike.dymski

    Hey Michael,
    What is the range of market compensation for non-recourse loan sponsorship (i.e. helping the deal sponsor bridge their net worth and liquidity gaps with the lenders’ requirements)? If the compensation is presented as a % of the GP (general partnership), please specify the LP/GP split that goes with it as 5% of the GP is different than 10% of the GP in a 70/30 split versus a 50/50 split (or just specify the % of the full deal). Thanks.

  • Mike

    Hi Michael,

    First I just wanted to thank you for creating the syndicated deal analyzer, I’ve been using it for about a year now and I absolutely love it. I was wondering if you wouldn’t mind sharing some insights based on your experience with syndications.

    I had a couple quick questions that were posed to me by some investors and was wondering what your experience has been.

    1. Have you ever had an investor want/need to cash out of the deal early? Any common themes, e.g. death in the family, or financial constraints.
    2. If so, were you able to find another investor to take their place? Were there any amendments that you needed to do to the PPM docs (I assume if they invested through an LLC then they could simply sell their LLC to another investor, if they’re accredited).
    3. Lastly, just wondering if you’d recommend any SEC attorneys that have worked well for you so far?

    Thanks again for all the great info you share and I wish you continued success in all your ventures!

    Mike

  • Gustavo Valadao

    Michael. I’m juggling quite a bit and am trying to identify how best to generate the most capital for my SaaS company. Given the benefit of syndication, I feel as if it could launch me into my priorities to start, with the flexibility to come back and focus on multi-family investing over time.

    Would you recommend that? One deal to fund a project? Syndicate a deal for a 4 or 5 banger (units, haha), move into one of them as landlord/ building manager? I think it’s a great idea. What do you think? Thanks in advance!

  • Hi Mike … interesting … but hard to say.

  • Really hard to answer this on the quick. You might consider a by-the-hour coaching call (http://www.ultimateapartmentinvestingguide.com/coaching-by-the-hour/).

    Hope that helps …

    Michael

  • 90% might be a bit high, but you can expect to find lenders at 80%. Sounds like a good deal, perhaps you can raise a little bit of money or get the lender to provide a small second mortgage.

  • Very hard to say from afar, Carey … not opposed to it in principal, but you might want to consider keeping it simple(r) if this is your first deal … thanks!

  • Antony – can you please more specific about where you see the discrepancy? I have a lot of different places where I might talk about an AAR 🙂

  • You can normally validate it once you have the property under contract by examining the seller’s bank statements … hope that helps.

  • Hi Sam – good catch. You *can* actually edit the avg rents in Years 2+, and those cells should be blue actually (something I’ll fix in the next minor upgrade). Thanks!

  • Chris Dietrich

    Thx for the reply. I tried to get several friends and family members to pitch in 50K and match my 50K for an 80% LTV but no bites.

  • > What is the range of market compensation for non-recourse loan sponsorship (i.e. helping the deal sponsor bridge their net worth and liquidity gaps with the lenders’ requirements)?

    Around 10% of the GP.

    > If the compensation is presented as a % of the GP (general partnership), please specify the LP/GP split that goes with it as 5% of the GP is different than 10% of the GP in a 70/30 split versus a 50/50 split (or just specify the % of the full deal).

    This depends on how you split the GP vs. the LP, right? And then you apply math to it.

    So, for example, if you give the co-sponsor 10% of the GP and you have a 50/50 split between GP and LP, then the co-sponsor gets 10% x 50% = 5% of the overall deal.

    Make sense?

  • Hi Mike:

    1. No, not yet but …
    2. You can accommodate this in the operating agreement. I.e. provide an early buy-out or transfer permission. If you have my online course (The Ultimate Guide to Buying Apartment Buildings), in the Syndicator Legal Library I have two operating agreements, one of which has this language in there.
    3. I would suggest you contact my SEC attorney here: http://www.themichaelblank.com/rinaldi.

    Hope that helps!

  • Gustavo – hard to say without knowing more … but whatever you do, just DO IT … do just one deal. Move in if you have to, whatever it takes. After that, the 2nd deal happens almost automatically … focus on that first deal.

    Hope that helps.

  • I totally get that – and appreciate your input. I’m mainly curious if you’ve seen it done or could point me to an example. It makes total sense to me and so far the numbers look good. I’m still waiting for a bit more data from the broker.

  • mike.dymski

    Yes, thanks Michael, I have asked around and there seems to be a wide range…anywhere from 5-10% of the overall deal plus 25% of the acquisition fee. Let us know if that appears out of line with what you have seen.

  • Jonathan Siegle

    Hi Michael,

    I’m trying to wrap my head around the appropriate way to structure a deal. Specifically I’m looking for guidance on equity that I can keep in a deal without bringing cash to the table? If I’m bringing cash to the table, the % of equity is clearer. When I do not intend on bringing cash to the table, but instead I’m running the deal, how do I determine equity splits? Do I focus on investor returns and adjust equity that I’m offering based on how the deal will perform? Guidance would be appreciated.

    Thanks,

  • James Maglio

    Hi Michael,
    I am interested in purchasing the deal analyzer but am using a mac system. Will your software integrate or do I need to have Microsoft office installed for it to worK?

    Thank you,

    Jim

  • Hi James – the SDA will work on Mac but you’ll need something other than “Numbers”. I’m not a Mac user but my understanding is that Numbers only works for the simplest spreadsheets, so you’ll need something Like MS Office for Mac. Another alternative is to use Google Sheets. Hope that helps.

  • Jonathan

    > Do I focus on investor returns and adjust equity that I’m offering based on how the deal will perform?

    That is exactly correct! The investor returns drive the deal. However, I stay away from deals where I can’t retain at least 20% equity and pay an acquisition fee.

    Thanks!

    Michael

  • Steve Compere

    – How do I calculate an annual rate of return for my investors, I have an idea but you explain things very well and I’d like some clarity on that.

    – I live in Florida. How can I know what markets in this state are emerging markets? Just by looking at rents that are increasing? Does loopnet give this info?

  • Stanci March

    How do I find out if I am signed up? I seem to remember signing up one late night on your website but wanted double-check and get info on the terms (automated payments, etc.). Thanks!

  • United Commercial

    I realize that in order to get that FIRST deal, I need to both put in offers and be raising money all the time. What would you say is a good ratio of ‘submitted offers’ to ‘potential investor meetings’ on a weekly basis? Is it 2 offers and 1 investor meeting per week, or 4 offers for every 1 investor meeting weekly? Or is it something else? I am trying to get a sense of what you have seen/experienced is a good formula or mix to have the greatest opportunity for success. Know what I mean?

    Thanks in advance for your response and for your valuable contribution to the REI community.

    Lewis

  • Victor

    Hello Michael,
    What would you be looking for in a condo deal that offered 11 out of 88 units (12.5%) and also came with a seat on the condo HOA board (1 of the 3 available seats)?
    This of course assumes that the deal number works and everything else is constant.

  • Vidal

    Hi James,
    It works best with MS Office for Mac!!

  • Vidal

    Hi,

    I’m working with the SDA I have a problem with the Annual Return when:

    1- I put a second mortgage that is repaid at the Refi (let’s say year 5)

    The SDA only considers return the fund to investor without regard to the amount of the 2nd loan. So the rInvestor Return looks Great but false.

    Any Idea?

    Thank you Mike

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