Are you a modest investor in commercial real estate? A modest investor is defined as someone who is not in the category of, let’s say, Mark Cuban, but more in the range of a $100,000—maybe a little more, maybe a little less. If so, then this is the podcast for you. Jim Kelley of Champions DFW Commercial Realty welcomed Boone Nerren of AMZ to his radio show and podcast.
Whether you’re a modest investor of any kind of an investor, this podcast is for you. Read this excerpt and then listen to the entire conversation in the free download.
Jim Kelley: Can we talk just quickly about how you go about seeking the funding and putting that team together on a project?
Boone Nerren: Sure. Most of what we do, especially on the smaller purchases, when I say smaller one to five million, I don’t mean to dismiss it, I can remember 12 years ago when one to five million sounded like a giant purchase. Will Form known generally as LLCs, let’s say you’ve got a million-dollar property, and you need $250,000 down, you’ll have another X percent or few percentage points for closing cost, etc., but you’re probably in for less than $300,000 to purchase that property. That’s reasonable, if you have three partners putting in $100,000 each. There’s your LLC, and everybody becomes an equal partner pro rata on their invested dollar.
If all three, if one or two are going to be passive and a third party is going to be the operational, day-to-day manager, do the tax returns, do the operations, take all the call phone calls, handle broken HVAC needs, handle roofing needs, after there’s been a hailstorm we just had more hail here just last two or three weeks ago.
Whoever is going to do that actually gets a piece of the deal, too. And that can be negotiable amongst the group, maybe 20% of the deal goes to the person who’s going to handle the day-to-day operations. And then the 300 grand then is equally divided amongst the other 80% of the ownership. So that’s a basic template of how we go about structuring an investment entity.
Ron Taylor: Ask you real quick, Boone. How does insurance factor in on something like this? If someone has a short term that they’re going to turn this property down the road, how does insurance factor in that they want to insure this investment, or how does that factor into this?
Boone Nerren: You have financing, you’ll have an insurance need. Exactly. The bank will make sure. But in addition to that, you may also want personal liability, and I have personal liability umbrella to cover me just in case there’s an accident, the wrong strong arm of the law, lawyer steps in and wants to sue you for something that was on your property that was really tenant fault or neglect. They can still sue you, right? There’s no protection. Just because you’re not in the wrong doesn’t mean you can’t get sued.
What you want to have is personal liability on top of property insurance. Naturally, the bank will require the property and casualty insurance, so you’ll have your PNC. But your personal liability you want to have, and that’s actually three are affordable, it’s not expensive, certainly compared to the property coverage.