Editor’s Note: Dennis Fassett is a former corporate finance executive turned real estate investing “Cash Flow Mercenary.” Dennis specializes in single-family and multi-family cash flow properties and thoroughly enjoys assisting his fellow investors with their own strategies, including how to buy your first apartment building.
As an ongoing contributor to Mogul’s “Market News Updates,” Mr. Fassett provides us with his own unique, lively, and thought-provoking commentary on the timely industry news and events of today that are impacting our industry. And be sure to check out his other super-helpful Market News Updates. For now, enjoy...
From Dennis Fassett, Cash Flow Mercenary...
Having been in this business since 2004, I’m painfully aware that we’re among the cheapest SOBs on the planet. Me included.
Thankfully, the mistakes I made early on were small and didn’t cost me much money.
And I’m happy to say that I wised up enough that by the time I started buying apartment buildings, I knew enough to hire first-rate – and expensive – legal representation.
And it paid off in spades on the second building that I bought.
I had put together an investment syndicate to buy the building, so it wasn’t just my money at stake.
So when we were putting together the closing documents, my high-priced attorney recommended adding a couple of seemingly benign clauses to the documentation in order to minimize our risk.
I didn’t think anything of it. And the other side didn’t blink an eye or even bring them up in the back-and-forth negotiations.
But guess what?
Just one of those clauses ended up saving our investment syndicate, avoiding a catastrophic loss when the market turned.
I seriously doubt that a cut-rate attorney would have known to add those clauses.
You’ll be sorry
Since then, I’ve never skimped on getting the best advice that I could – and paying for it. Happily.
I mention this because of a growing thread in my local real estate investing group on Facebook.
To start the thread, a brand-new investor – who had never done a deal – posed a couple of questions about LLCs…
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How to use them
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When to use them
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What they’re good for
That’s when the flood started. I could not believe it.
Seriously, 8 different people responded with answers. Some were good. And some were downright stupid.
But the worst were the people who didn’t know anything… and yet answered anyway.
One guy told the newbie to go to the forum on a popular real estate investing site that’s best known for the staggering volume of wrong answers that get tossed around as “facts.”
Another guy explained how he (incorrectly) used LLCs to “shelter” his investments.
But the worst of all of them was one clown who wrote – definitively – that using an LLC would completely eliminate all the risk to the investor personally and any other properties that he owned.
And the new investor ate it up. Blindly.
Thankfully, a couple of more experienced investors chimed in to say that that wasn’t the whole story. And also suggested that he actually spend the money necessary to get real legal advice on his questions – and talk to a CPA as well.
Is this what it has come to?
Getting legal and accounting advice – from Facebook?
I get that we want to save a few bucks. And I get it that there’s a ton of good information available online.
But…
What I don’t get is why we cheap out on such critically important items like legal advice.
Does it really make sense to take advice from people who have absolutely no vested interest in what you do?
The stakes of a mistake are enormous.
It just doesn’t make any sense to me.
What about you?
Does getting legal advice online make sense to you? Share below.
Dennis Fassett
earned a BS in Economics and followed that up with an MBA in finance. After working and corporate finance and banking for several years, he started buying single family houses, and quickly built a very nice portfolio of cash flowing rentals. When the credit markets started to dry up and he couldn’t get any additional single family mortgages he shifted his focus to apartment buildings. He now has over $3 million in rental real estate. He manages most of it his self and still has a day job. Dennis has even created his own Private Equity fund to buy apartment buildings.