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Stephanie Mojica

LLC for Real Estate Investing

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Image from Pixabay

By Stephanie Mojica

A critical step for new and existing real estate investors is to form an LLC or Limited Liability Company. In the simplest of terms, an LLC protects an investor’s personal assets — whether those are cash, bank accounts, or personal property.

Whether the investor is into flipping houses or being a landlord, an LLC ensures that the person himself or herself does not actually owe any debt. The company is responsible for any contracts, debts, lawsuits, leases, and liabilities.

If business goes bad, the people and companies that believe they are owed money can only pursue the LLC — not the individual(s) behind the company unless fraud or another crime was involved, according to Yahoo! Finance.

However, there are some critical steps to take even after a real estate investor forms an LLC. Any properties must be purchased in the company’s name, not an individual’s name. This ensures the ultimate protection.

If someone buys a home to flip or rent out and ends up owing more on the mortgage than the property is worth, the bank cannot come after the individual if the home is officially owned by the LLC.

Image from Pixabay

A caveat is that many banks do not want to issue mortgage notes to a new LLC, because it’s risky for them. That’s why a business plan is so important. (See our past article “House Flippers Need a Business Plan” for a more in-depth discussion on this topic.)

Other potential drawbacks to an LLC come at tax time and when an individual transfers assets to it, so an attorney is probably a necessary resource, according to LegalZoom.com. Also, each state has different laws regarding an LLC.

However, done properly, an LLC seems to have more benefits than downsides. Other good news is that the costs are usually minimal. As always, before making any major decisions in such areas speak to a qualified real estate attorney.

Sources for this article:

https://finance.yahoo.com/news/form-llc-real-estate-investing-194323289.html

https://www.legalzoom.com/articles/forming-an-llc-for-real-estate-investments-pros-cons

http://reiwealthmag.com/house-flippers-need-a-business-plan/

Retirement Savings Gone After Investment in Fraudulent Company Resembling SDIRA Custodian

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By Stephanie Mojica

A Wisconsin woman lost her entire retirement savings by investing with a now-deceased friend’s business, My IRA, LLC, according to the Milwaukee NBC television affiliate TMJ4. It seems the company attempted to resemble an SDIRA – a Self-Directed Individual Retirement Account custodian.

My IRA, LLC was started by a tax preparer and purported investor, Michael Cuccia, who suddenly died in November 2020, according to TMJ4. When people who had invested in his company sought the return of their assets, they were stunned to learn that most of them were nowhere to be found, according to TMJ4.

Attorney Anne Cohen stated that her client Diane Conklin had a 401(K) account, but needed to figure out her best options when she broke her back in 2012.

Image from Pixabay

“She had learned that she could no longer work and wanted to make sure that the funds she had in her 401(K) were in a secure account,” Cohen told TMJ4.“Because she quickly was learning that was all of the wealth she was going to amass in her lifetime due to her disability.”

According to Cohen, Conklin knew Cuccia professionally and also considered him a friend. Cuccia told Conklin to take her money out of her 401(K) account and invest in his My IRA, LLC company, according to a lawsuit Conklin filed against Cuccia’s estate.

Cuccia claimed Conklin had no risk of losing her assets and she was guaranteed a 5% return on investment each year, according to Cohen.

“…after years and years of friendship and going to him for tax advice, she trusted his advice,” Cohen told TMJ4.

After Cuccia’s sudden death, Conklin and others could not reclaim their assets, according to Cohen.

People had invested anywhere from $5,000 to $200,000 with Cuccia’s company, according to Cohen. The total was $1 million, but Cuccia only had about $200,000 in assets, according to Cohen.

Image from Pixabay

Anyone considering making an investment should be automatically suspicious if they are told there is no risk involved, according to Robin Jacobs from the Wisconsin Department of Financial Institutions Enforcement Bureau.

“When you invest your money in something, it means you’re going to take a risk in exchange for getting a return,” Jacobs explained during her interview with TMJ4.“Of course there’s no guarantee.”

Investors should also steer clear if one or more of the following warning signs are present:

  • A vague or confusing business model.
  • Time limits on when you can invest.
  • High-pressure sales tactics.
  • A lack of disclosure documents.
  • No audited financial records.

Would-be investors should also research whether the person they’re talking to has the proper training and licensure.

Image from Pixabay

In Wisconsin, that can be cleared up with a phone call to the Department of Financial Institutions Enforcement Bureau.

“…we can tell (you) whether that person is registered either as an investment advisor or a broker-dealer and if they’re not registered…I would be very suspicious of that person,” Jacobs said during her interview with TMJ4.

Some broker-dealers and investment advisors must register with FINRA (the Financial Industry Regulatory Authority) or the SEC (the Securities and Exchange Commission), while others do not. It depends on whether the professional does business in one or multiple states.

The regulation bodies for other states include:

  • California Department of Business Oversight
  • Texas State Securities Board
  • Idaho Department of Finance
  • New York State Attorney General
  • Arizona Corporation Commission
  • Nevada Secretary of State
  • Florida Office of Financial Regulation

Any inquiry to your local business licensing or permits office or a quick Google search should point you in the right direction.

Back to Cuccia’s purported victims, the future is unknown.

Conklin and other people who claim they were swindled by Cuccia are waiting to see if the courts will award them any of what’s left from his estate, according to TMJ4.

Attorneys representing Cuccia’s estate declined to be interviewed by TMJ4.

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House Flippers Need a Business Plan

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Image from Pixabay

By Stephanie Mojica

One of the biggest mistakes many would-be house flippers make is operating without a business plan, according to a recent article published by millionacres.com (a Motley Fool service).

However, this blueprint should not focus on a specific rehab property; it needs to be a document that discusses the vision for the overall flipping business, according to the article.

Any solid business plan needs the following basic information:

Image from Pixabay

  • Specific goals for the company, with a realistic time frame set for each goal.
  • Details about the actions necessary to achieve those goals with the desired time frame.
  • An executive summary, which includes details about your experience and education (this is especially crucial for any would-be investors).

A complete business plan has multiple categories and is not a static document. It is a document that will change and evolve as your flipping business grows.

Other aspects of a solid business plan for house flipping include:

Information about the structure of your organization. For example, are you a corporation, LLC, or sole proprietor? Are there other people involved in your company? How and why was your company founded? A strong mission statement, which discusses the principles under which your business operates, is also important.

A market analysis. Basically, you need to identify and analyze the neighborhoods and communities of focus. Why are these neighborhoods good? Discuss schools, crime rates, and other information important to homebuyers. Are you focusing on specific types of properties, such as single-family homes or condos? What are your price points? Who is your ideal buyer?

Image from Pixabay

Financial details. Discuss, in detail, how your first few home purchases and rehabs will be financed. Also, what are your financial projections for the future of your company? Basic documents needed include an income statement, cash flow statement, and balance sheet.

Growth, leads, and acquisitions strategies. How do you plan to grow your house flipping business? How will you find the properties you want to flip? And how will you find homebuyers?

When creating a business plan, it’s important to stay realistic and back up any claims with third-party data, according to millionacres.com. Also, the business plan does not need to be a long document. While it should be thorough, most people nowadays don’t have the time or patience to read long, meandering documents.

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International real estate investors renew their interest in U.S. properties

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Image from Pixabay

By Stephanie Mojica

One of the unfortunate consequences of the COVID-19 pandemic has been significant restrictions on foreign travelers entering the United States, which has caused the number of foreign real estate investors to decline. However, this trend is slowly changing as the U.S. government lifts travel restrictions.

According to CNBC, the main sources of foreign real estate transactions within the United States are Europe, Brazil, India, and China. Because the U.S. government relaxed travel restrictions for vaccinated travelers from 33 countries, people can now enter the country to buy real estate for the first time in almost two years.

Image from Pixabay

Wealthy people overseas have booked numerous appointments with American realtors, especially in cities such as Los Angeles, New York, and Miami, according to CNBC.

In 2018, foreign nationals purchased $267 billion in U.S. real estate; in 2019, they spent $183 billion, according to the National Association of Realtors. Stymied by the unavailability of in-person showings, foreigners bought only $107 billion of U.S. real estate in 2021.

During the pandemic, American housing prices have skyrocketed while the supply has dwindled — especially in common investment hubs such as Miami and Palm Beach, according to CNBC. Areas such as the Manhattan borough of New York City saw a decline in prices and an increase in supply, but this is changing as the pandemic seems to be drawing to a close.

Image from Pixabay

However, this may not pose a major problem to foreign investors. According to brokers interviewed by CNBC, buyers from countries such as China tend to prefer new construction. On the other hand, the United States real estate market might not see as much money from the hands of Chinese nationals. The government of China has created major blockages in its efforts to stop the flight of capital from its country.

The good news is that plenty of other countries and regions of the world do not have such restrictions, which will likely aid the U.S. real estate market as people continue to recover from the pandemic. Buyers from the Middle East, Canada, and Mexico are showing increased interest in investing in properties in the United States.

The most recent data available, from before the pandemic, shows that foreign real estate investors tend to prefer the following areas:

1. Florida
2. California
3. Texas
4. Arizona
5. New Jersey
6. New York

This trend is expected to continue, especially in coastal cities, according to CNBC.

Learn live and in real-time with Realty411. Be sure to register for our next virtual and in-person events. For all the details, please visit Realty411.com or our Eventbrite landing page, CLICK HERE.

Eviction Moratorium

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Image from Pexels

By Stephanie Mojica

Property owners can now take steps to evict delinquent renters, according to a U.S. Supreme Court decision that blocked President Joe Biden’s recent moratorium on evictions.

Over objections from three sitting Justices, the Supreme Court ruled on August 26th that the Centers for Diseases Control (CDC) did not have the authorization to enact a moratorium on evictions, according to USA Today.

The court’s majority wrote the following in an eight-page, unsigned opinion:

“It would be one thing if Congress had specifically authorized the action that the CDC has taken. But that has not happened. Instead, the CDC has imposed a nationwide moratorium on evictions in reliance on a decades-old statute that authorizes it to implement measures like fumigation and pest extermination. It strains credulity to believe that this statute grants the CDC the sweeping authority that it asserts.”

The majority further added:

“Congress was on notice that a further extension would almost surely require new legislation, yet it failed to act in the several weeks leading up to the moratorium’s expiration.”

The CDC’s original moratorium had lasted from September 2020 to the end of July 2021 and was designed to quell the spread of COVID-19, according to CNN Business.

On August 3rd, 2021, the CDC issued a new moratorium on evictions that protected about 90% of the country’s renters and drew the ire of many landlords and real estate companies. The new moratorium applied to areas of the country where COVID-19 infection rates are once again spiking due to the Delta variant.

Critics of the eviction moratoriums state that these allow unscrupulous renters to spend money on other things while shafting their rent obligations and causing undue financial distress to landlords. Supporters of the moratoriums claim that dissenting landlords are acting on greed and do not care that innocent people will be left homeless.

Image from Pexels

According to a recent U.S. Census Bureau survey, more than 3 million renters will become homeless in the next two months if alternative solutions are not offered.

Fortunately, there is $46 billion of federal rental relief aid funding available, according to CNN Business. Only about $5 billion had been distributed through the Treasury Department as of July.

Another blow to renters with financial struggles is that three unemployment programs — Pandemic Unemployment Assistance (PUA), Federal Pandemic Unemployment Compensation (FPUC), and Pandemic Emergency Unemployment Compensation (PEUC) — end on September 4th, according to 13 WREX.