Bonnie Galam
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Avery Carl: [00:00:00] Welcome to the Short-Term Show, the show about short-term rentals and long-term wealth with real property owners posting real properties who are crushing it in the vacation and short-term rental space. And here’s your host, Avery Carl.
Avery Carl: This episode of the Short Term Show is brought to you by the Short Term Shop. If you’re interested in buying a short-term rental in one of the top vacation markets in America, just go to the short-term shop.com and click Get Connected with an agent. If you purchase a home with the shop, you’ll have access to all of our client only benefits, such as training on how to manage your short-term rental.
Avery Carl: So we’ll teach you everything you need to know from how to set up your Airbnb and VRBO listings, to how to use the property management software that you’ll need to streamline your business. All the way down [00:01:00] to helping you source your local boots on the ground, like cleaners, handy people, et cetera.
Avery Carl: We’ve taught thousands of people just like you, how to buy and manage their vacation homes from anywhere in the world. So head on over to the short-term shop.com and click get Connected with an agent. To get started, I do have to mention that we’re brokered by exp or else I get in trouble. We’ll see you guys over there.
Avery Carl: Hey everybody. Welcome back to the short-term show. We have not had an attorney on yet, and I know you guys have a lot of questions about different things that go on in the real estate investing world and in the real estate transaction world that I always have to say, Hey, I’m not an attorney. You should consult one, but.
Avery Carl: Now I have one on that. I’m gonna ask a lot of your questions that I see all the time, and I think this is gonna be a really, really helpful episode for you guys. I think you’re gonna learn a lot. So I’ll go ahead and introduce my guest. I’ve got Bonnie Gallim. She is a real estate attorney, excuse me, and educator, [00:02:00] and she has a program called The Landlord Law School that helps educate you on.
Avery Carl: These types of things that we have to always say, oh, I’m not an attorney. You need to ask one. And she is. So Bonnie, uh, thank you so much for coming on and why don’t you just tell us a little bit about yourself real quick and how you ended up in the real estate investing world. Sure. Thank you so much for having me, Avery.
Avery Carl: I got involved in real estate because my boyfriend was in real estate. I met my now husband. When I was in law school, did not go to law school to become a real estate attorney, a real estate investor. I wanted to be a criminal prosecutor. And I actually did criminal and civil litigation for several years out of law school.
Avery Carl: But during that time, my husband was already a real estate investor when I met him, and we were just kind of quietly growing our portfolio in the background, uh, for years. And it, it got to the point where. I got more involved in the business. It wasn’t just his anymore. It was, I was buying properties, I was getting in on these deals and I knew enough to be dangerous at that point to [00:03:00] realize, you know, where the red flags were.
Avery Carl: I wasn’t, you know, a real estate attorney yet, but I was involved enough in the business and having my own legal brain to be able to kind of start connecting these dots. And I also started, you know, realizing that I didn’t love the way I was working with our existing attorneys. And so I eventually. Put one hat on and took the other one off.
Avery Carl: And so I stepped full-time into the role as real estate attorney for our portfolio and for, you know, hundreds of other real estate investors to help them with asset protection strategy transactions. Um, and just kind of like general consulting on like the business of being a real estate investor. Okay, so I have so many questions.
Avery Carl: That’s a lot of stuff and I think that, that it’s definitely a, a hole in the market that I think there’s a few people kind of stepping into that space now, but it’s definitely been a hole for a while. And I think one of the biggest things that real estate investors, especially in this space get. Hung up on that.
Avery Carl: [00:04:00] They get either bad advice somewhere or just see, you know, a lot of different, a lot of different answers, a lot of different places from people who are not attorneys and sometimes they are attorneys. Um, is, is asset protection and LLCs. So I know. That it’s gonna be super dependent on each person’s entire picture, but one question that people ask a lot is, do I need a separate LLC for each property?
Avery Carl: What would be your answer to that? Generally speaking, I know you can’t answer on, you know, specific tions. Yeah, sure. My, my general answer is, no, you don’t. Um, I think. Do you get incrementally more as a protection through that? Yeah, but like I’ll tell you that God’s honest truth, I don’t structure my properties that way.
Avery Carl: It became, we have over 120 doors, we have dozens of properties. It would be an administrative QuickBooks nightmare for us to run our business that way. And so there’s. With everything, whether it’s legal or you know, marketing strategies, whatever you’re doing. As a real estate investor, there’s always a cost benefit analysis to be had, and that’s [00:05:00] not to say one direction is right or wrong, but anyone who tells you you have to do that as your asset protection strategy is projecting their own risk tolerance onto yours.
Avery Carl: And so you just have to figure out for yourself like. How, how am I comfortable and balancing LLCs with other types of asset protection, like insurances and having good contracts and just straight up understanding the laws of the business that you’re operating in, in are ways to protect yourself. And so once you find that sweet spot for yourself, then that’s it.
Avery Carl: You don’t have to feel like you need to do more just because someone says it gives you more. Yeah, it does. But there’s also a cost to that as well. Yeah, I totally agree with that. So when somebody says, okay, I need to have an LLC for every property, what would be your general recommendation? Maybe like a holding company with a few properties in each LLC that are held under the holding company or what, what, what would be an alternative, not necessarily recommendation, an alternative to structuring it as one LLC per property.
Avery Carl: Well, the first thing I ask people when they come to me [00:06:00] with that request, ’cause that it honestly happens a lot, is they ask them why? And they’ll usually tell me, oh, I heard it, you know, in another podcast episode, or I heard it in a Facebook group that this is what I should be doing. It’s not based off of like any like true self originating belief about.
Avery Carl: How they perceive their risk tolerance to be. And so I don’t talk people one way or another, but when I explain the realities of how these entities work, a lot of people will then self choose, you know what, why don’t I start with one? Maybe we’ll put two or three properties in there and then we’ll circle back and have this discussion again.
Avery Carl: And I think that’s the great way to, you know, to do it. Just kind of take it one property at a time and figure it out from there. If you, you know, are to structure things kind of the way that I have where it’s honestly, when you do holding companies and then you have. Um, you are still kind of having a lot of the same administrative and operational work as if they were all just in separate LLCs to begin with.
Avery Carl: The exception sort of being series LLCs, but they’re only available in about a dozen states right now. And so I don’t really talk about them a lot ’cause they’re not [00:07:00] readily available yet. Talk to me in 10 years that might be a different story, but right now, series LLCs are like a special little thing that are only available in a few states.
Avery Carl: Um. But what I say is like, balance it off with insurance. All LLCs do is they put a cap on your exposure, your liability. And so the other way to do that is to cap yourself in other ways. And insurance can be probably, frankly, more expensive than creation of an LC. Most states LLCs are like under 200 bucks to make with maybe, you know, a hundred dollars annual registration fee, but they’ll cause, you know, increases in, you know, uh.
Avery Carl: Financing costs and things like that. There’s, you know, ancillary cost to having properties in an LLC, whereas insurance, it insurance pays the bills. LLCs don’t, they put a cap on it, but if you get sued and there’s a judgment, depending of course on the type of lawsuit that it is, insurance pays the bill.
Avery Carl: All the LLC does, and, you know, does for me is it makes me sleep a little bit better at night than I know I’m not gonna get wiped out. But it’s still like, if something went wrong, I’d [00:08:00] be, you know, in the position of selling a property. Going into my own pocket to pay a judgment going into some other bank account to pay the judgment like a business bank account.
Avery Carl: And so the, I love insurance. If I was to say, if you’re unprepared or just unwilling or uninterested to put one property per LLC talk with your insurance broker structure things that way. Yeah. That’s something that I see a lot is people kind of having this, this idea that, oh, I put it in an LLC, they can’t get me now.
Avery Carl: Oh, no. Uh, I’ve been sued twice, and I can tell you that the LLC didn’t matter yet. It made me sleep a little bit better at night. Um, but it didn’t, it, you know, it wasn’t gonna do anything. It, it wasn’t gonna, I definitely, definitely think LLCs give a false sense of confidence. A false sense of protection.
Avery Carl: All it does guys, is put a cap on your exposure. Your liability exposure, period. So what do [00:09:00] you mean by a cap? Is there a certain dollar amount that, uh, it covers? Uh, and this might be a law, this might be a regulation. I have no idea. Is there a certain dollar amount that it says, okay, they can’t get you for more than this, or they can only get you for what’s inside the LLC or what’s, what do you mean about that?
Avery Carl: That’s exactly it. It, it’s, they, it’s a cap for whatever’s inside the LLC. And that’s not to say that it’s just the physical assets. It could be the recurring income. It could be, um. Any other asset, like just straight up cash that that business bank account has in it. But it’s all of the assets of that business, whether it’s one building or 10 buildings, um, it just puts a cap on it.
Avery Carl: You can’t go after any, it’s maybe a cap is not the better word. It, it creates a bubble. Everything in that bubble stays in that bubble, and that’s it. And you have to use it correctly or else they’ll pop the bubble. Well, okay. That was gonna be my next question because I see, so we’ve got a huge Facebook group.
Avery Carl: You guys aren’t in it. It’s called short-term rental, long-term wealth. It’s public. We’re in there [00:10:00] just talking about short-term rental investing all day. So the next response that I typically see. To people who are saying, yeah, you need an L. LC is somebody, there’s one in every crowd. It’s like the guy who hollers Freebird at the band always says they can just ask the judge to pierce the veil.
Avery Carl: They can just ask the judge to pierce the veil. What does that mean? So if you don’t use any entity, whether it’s an LLC or a corporation, if you don’t use these legal structures. Properly. Then essentially you don’t get the benefit of them. You can’t eat your, you know, have your cake and eat it too. And so LLCs and corporations are a little bit different.
Avery Carl: I’m gonna focus on LLCs ’cause that’s, frankly just what most investors choose to invest in, is you have to, you know, the big thing is keeping your money separate. And that’s a problem. I frankly see a lot when people have too many LLCs. They have the LLC, the LLCs on title, but then they’re filtering all the money into maybe just one or two LLCs.
Avery Carl: And then they’re kind of co-mingling the money and it gets to be a mess. And once you start doing that, it’s not truly its own separate entity. It’s now being [00:11:00] mushed up with, you know, maybe your personal finances, maybe another LL C’s finances. And at that point. It’s like the LLC doesn’t exist because you’re not treating it as a separate entity.
Avery Carl: So in order to have the benefit of an LLC, you have to follow these rules. I mean, in some of it, it’s just as simple as like paying your annual registration fee. You’d be surprised how many people they form the LLC and then they never realize that they need to go pay an annual fee again and the the entity goes dormant.
Avery Carl: And a lot of cases, you know, within reason, I’m not talking about 10 years later. But you know, within, you know, a few months, maybe even a year out, you can reactivate these um, um, entities and it’s not a big deal, but it’s not something you want to like slide by for years and years and years on end. Gotcha.
Avery Carl: So if somebody sues your LLC for something and you’re in court, I’m not gonna pretend like I know exactly how this works, but you know, you’re going through the legal process and they find that you maybe used this bank [00:12:00] account to pay for like a trip to Disney World for your family. They found you’ve co-mingled.
Avery Carl: So now that makes it easier. As a separate bubble. Yeah. And, but I mean, it goes beyond just more than that. ’cause I know a lot of people, you know, maybe they only have the one credit card with them when they’re out at shop. You know, I will say shop, right? That’s a local grocery store does. But maybe they’re going to, you know, or they’re at Disney World and they swipe the wrong credit card.
Avery Carl: Does that mean your whole entity is blown? No, but what you’re gonna wanna make sure you do is when you go back home in your QuickBooks, just count that as income to yourself. Count that as an owner’s distribution and that it, you’re not expensing it. Once you start expensing Disney World as a business expense for your kids, that’s when we’ve got the problem.
Avery Carl: And, you know, a one off thing, like if you miscategorize, you know, one or two things in your QuickBooks, that’s not gonna be a big deal. But when you’re miscategorizing and you’re basically using your business credit card as. Your personal bank account, that’s not correct. What you need to be doing is you need to be getting your income into your [00:13:00] business bank account, cutting yourself a check, doing a, you know, a wire transfer, whatever the case may be, is moving that money into your personal bank account and then using it as your personal money.
Avery Carl: But it’s that really important step because I see a lot of people just think that you know it, it’s just all their money at that point. Once it’s in whatever bank account, it’s thirds and they can kind of do with it as they wish, and that’s just really not a good practice. Okay, that makes sense. Hey guys, if you’re enjoying the content of our podcast, but you have additional short-term rental questions, we host a weekly live question session that you guys can join for free.
Avery Carl: It’s at 1:00 PM Eastern on Thursdays, and if you head over to t questions.com, you can sign up. So not only am I the host of this show, but I also own and manage my own properties, and I’d be happy to answer any questions that you have about short-term rental investing. So please join us. At anytime for a free weekly live q and a on Zoom, sign [00:14:00] up@strquestions.com.
Avery Carl: So when you’re forming an LLC for a property, does the LLC need to be in the state that the property is, or if you live in a different state, does it need to be in the state that you live in, or does it need to be in one of these states that people start a lot of LLCs in like Wyoming or Delaware? Yeah, I call them those.
Avery Carl: The designer bag, uh, states to, in my opinion, they basically do the same thing as other states do with a few other little benefits that, like when push comes to shove in a lawsuit aren’t gonna make a lot of a difference. Generally speaking, you can open an LLC in whatever state you want to. You see a lot, for example, in California, California’s a, I think the most expensive state to form an LLC in.
Avery Carl: And so a lot of California residents go outside to form their LLCs. That being said. If you own wherever you own property, that is where your business is doing business. So I’ll give you an example. I live in New Jersey. I’ve got properties in Pennsylvania. We happen to live in Pennsylvania when we purchase [00:15:00] them, but that income is being generated in Pennsylvania no matter where in the world I live.
Avery Carl: And so I’m always gonna be filing a tax return in Pennsylvania. And so. Say I had a New Jersey LLC that went and bought a Pennsylvania property. Now I would have to still register that entity in Pennsylvania as well as a foreign entity. So I’d be paying New Jersey fees and Pennsylvania fees on that LLC and so is a hundred bucks a year gonna make you know a world of a difference on your rental income?
Avery Carl: No, but keep that stuff in mind. It may just be simpler to create LLCs in the states where you are. Investing talk with the CPA, see if that’s gonna cause a headache for them. I’m always thinking about like, how do we, you know, minimize these administrative costs. But if you create, you know, an LLC in your home state, which is different than the state where the property is, expect to pay two registration fees, that’s all.
Avery Carl: Okay, well that’s not too terrible. No. [00:16:00] And I know the, the CPA answer to this question, but what is the attorney answer? Where I’ve seen some people say, oh, should I run it as an LLC or as an S corp and like pay myself a salary and do all this, you know, try to do all this tricky stuff with taxes. What would be, is there anything legally that would favor one or the other?
Avery Carl: Sure. So I know you guys had Amanda Hahn, who thankfully we agree on almost everything. Me and Amanda know each other quite well and we look an LLC is the legal entity. An S Corp is just a tax classification. And so when my clients come to me and say, Hey, should I. Form an S-corp. I said, Hey, what we’re actually forming is still an LLC.
Avery Carl: You should talk with your CPA about the S-corp election if your income warrants it, and it will give you a benefit. Most of the time, I would say with investors, they’re not making that S-Corp election. There’s always exceptions to the rule, but a nice thing about making this election is that you can [00:17:00] really do it at any time.
Avery Carl: You can do it at any tax year. You can do it basically any time during the year. You’re supposed to do it in the spring. But you can file a late form. And anecdotally, after talking to many CPAs, they’ve never heard of someone you know, getting denied in November or December, making that late S-Corp election.
Avery Carl: And so what I always say is, see how your tax year goes, come November, talk to your CPA if you’ve got a ton of profit and you wanna see if there’s a way that you can, you know, decrease that by making the S-Corp election and paying yourself differently. Um. Generally speaking, at the moment of formation when you don’t have any income to begin with, I, across the board almost never, ever, ever form it with the S-corp election.
Avery Carl: Okay, that makes sense. So let’s take this one step further, uh, to. Owner anonymity. And I’m gonna give you like a little anecdote here that’s happened to me personally. It can happen to anyone. Uh, we had a property that over the summer, ha got [00:18:00] bedbugs, which, you know, it happens. It’s gross, it’s nasty. It’s, there’s no point in dwelling on how it got there.
Avery Carl: It can happen to anyone no matter what preventative steps you take. Um. So this happened and the guests that, the unfortunate guests who happened to be there and discover them, um, obviously we got ’em out of there. We, uh, refunded them their entire trip. He, they actually wanted to just continue to stay there, which we were like, no, no, you gotta get out.
Avery Carl: We gotta fix this. Like, you don’t wanna stay here with this. This is gross. Uh, so they were mad because they wanted to continue to stay. They found it like on the second day of their five or six day trip. Um, and for obvious reasons. That is not something that anybody should want to do. But anyway, so they were really mad about this.
Avery Carl: They got all their money back, but they wanted to stay. They were mad. They had to go to a hotel and. It got to be a situation that this was one of those one in a thousand people, or maybe it’s less than that. That was just really crazy and I didn’t realize that [00:19:00] somehow you could see on the tax records our home address when you looked at the address of this property on the tax records.
Avery Carl: And this guy, uh, got to the point that it was almost like a har harassment thing over the course of like weeks and months after he checked out. He like just never let it go. That really scared me because I was like, wow, this is clearly a person who’s not, you know, reason is not something that they’re gonna be okay with, um, or logic.
Avery Carl: So I was like, man, how did they. What if they look at this? This is so easy to find, uh, even though this property is in an LLC. So what do you recommend in terms of preserving anonymity? I know this is really important to like physicians because they get sued a lot. Um, so what do you recommend in terms of keeping your self both name and home address and other assets anonymous?
Avery Carl: So I differ actually from, I think a lot of other attorneys when it comes to anonymity in that I think it’s chasing [00:20:00] an impossible standard. Like you are just never going to wipe yourself off the map. Um, I. Even if you spend, you know, tens and tens of thousands of dollars on legal fees to, you know, try to bury as much of this as you can, like, in my opinion, like that’s just, it’s kind of a waste.
Avery Carl: Um, I think that there’s a lot of fear mongering in the legal industry about pursuing anonymity, but the reality is, is like crazy is gonna be crazy. Like, you, you can’t eliminate it. And when you think about, you know, what we do as real estate investors, we’re, we’re business owners at the end of the day.
Avery Carl: And no other business owner. Behaves out of such a place of fear that I think a lot of attorneys try to put us into. And so I would rather you, you know, take that $30,000 and use it as, you know, a down payment on another property before. I would hate for you to, you know, try to bury yourself, you know, in entity upon entity.
Avery Carl: Because the reality is, is there is. Just such a huge public record paper trail when it comes to real estate that to try to eliminate any of the, you [00:21:00] know, let alone all of this stuff, it’s, it’s just not worth the energy in my opinion. Uh, can you make it a little bit harder? And I think that’s what, you know, some physicians try to do is just try to make it, like, if I was to search my name, it’s not readily available, but the, the god’s honest truth is like.
Avery Carl: Whether it’s medical malpractice or a slip and fall or whatever the case may be, it was like someone is truly hurt. You are going to get sued, and that’s just it. Like no one is gonna say, well, oh, they only have three properties. You have one property. You know what everyone knows? Every lawyer knows is behind one property, there’s one insurance policy at least.
Avery Carl: And so they know that there’s a payday, and so trying to hide yourself. Because, you know, their harassment is like unexcusable. It shouldn’t happen. But like, like you said, it was a one in a thousand. Crazy is gonna be crazy. And you know, if they didn’t find you there, they were gonna find your office number and they’re gonna start calling you there.
Avery Carl: Or whatever the case may be, is like, we have a paper trail, whether it’s on social media or in, you know, the chain of title. And so I just, I [00:22:00] wouldn’t, you know. Put too much energy into that. That’s my 2 cents. There’s plenty of lawyers out there who will be happy to scare the bejesus out of you and tell you otherwise.
Avery Carl: And if that’s what makes you sleep better at night, you know, to have some of that stuff, then like have at it. As always, I don’t wanna project my risk tolerance onto yours. I just think you’re kind of chasing something that is honestly, um, close to impossible. And I think that reality is something that, uh, more attorneys should be talking about than they are.
Avery Carl: Wow. That was super helpful because I was like, how do I get my name out of it? Um, but I guess, you know, you just, you just can’t in some cases. Um, okay. So that’s, that’s super interesting and I think a lot of people are gonna appreciate that viewpoint because I’ve seen, I mean, I’ve seen, um, particularly physicians get like.
Avery Carl: Insanely mad at their lender or the title company because like, oh, they could see who I am. I’m on the chain of title before, before this became my LLC. And it’s good to know that like no matter what you do it. They’re gonna be able to find you if they wanna find you. [00:23:00] Right? Like good to know that. But yeah, I mean it’s not good, but it’s also like America, like in theory, like I always think about it from the flip side, like, God forbid, like a doctor actually hurt me or you know, I did get hurt at, you know, some place.
Avery Carl: Like, I should be able to sue you. Do I need to know all of your business from the outset to sue you? No, but like when it comes time for recovery, like this stuff becomes known. Like judges are gonna ask like, how are we gonna fulfill this judgment? And again, like that’s where LLC is and insurance and all that stuff can come great.
Avery Carl: Where it’s like, great, here’s the bag that’s up for grabs and here’s what’s not up for grabs. But being able to find your name or not like. I just, I don’t really see it moving the needle in terms of like true asset protection when it comes to like a lawsuit. And when I think about asset protection, that’s really what it is, um, because you’re never just that paper chill is just always kind of gonna be there.
Avery Carl: Good to know. It’s like, you know, check one one box of like, things that I’m not gonna worry about then go ahead. Always happy to do [00:24:00] that. Yeah. Yeah. All right, so let’s, let’s switch gears a little bit now. So we talked about asset protection and then I, as a real estate agent, running a big real estate team who’ve done several thousand transactions.
Avery Carl: I have the unique perspective of seeing a lot of people threaten to sue people on the other side of the deal all the time. Being, being involved in all these negotiations, you know, buyers and sellers, whoever we’re representing. Can get heated. Well, I’m just gonna sue them. Well, I’m just gonna, so let’s talk about some of the common things that we run into there.
Avery Carl: The most common thing that I see, the, the biggest mistake that I see people make is earnest money. So. Even though the contract says typically, okay, if you can’t come to an agreement on the inspection stuff or if you cannot get financing and you can prove that you can’t get financing with like a denial letter from a lender, then the earnest money should be returned to the buyer.
Avery Carl: What people don’t. I think fully understand is that the seller does have to sign a release in order to give that back to [00:25:00] you. So even if you fall completely, if you’re, if you’re terminating a contract for a reason, that falls completely under the contingencies of the contract that say you should be entitled to your earnest money.
Avery Carl: If that seller just doesn’t feel like signing that release, it’s not automatic. You don’t just get the earnest money back. So. Can you provide a little attorney insight into that and what that can look like? If you get into a situation where there’s an earnest money dispute. Yeah. I think the first thing to think about when it comes to earnest money disputes is like, where is the money actually held?
Avery Carl: I don’t think a lot of people think about the escrow holder, whether it’s a title company or an agent or an attorney’s office who is like the fiduciary holding the money, but their duty is not to you, the buyer, and it’s not to you, the seller. It’s just my job is to hold this money until someone tells me what to do with it.
Avery Carl: And it has to be a unified decision as to what is done with it. It can’t be like, Hey, this was my money, because they’re not, you know, judge, jury, and [00:26:00] executioner like they are holding money, period. And so if someone says, give me the money back, and someone else says, don’t, they’re not gonna make the call, they’re not reading that contract.
Avery Carl: Even if it says as clear as day that the buyers to get the money back, that’s not their role. They are holding money. Period. And so if the seller’s being a jerk and they don’t wanna sign the document for whatever reason, or perhaps there’s a gray area, I mean, sometimes there’s a god’s honest gray area.
Avery Carl: I’ve seen a lot of buyer’s agents write really sloppy or not convey things I. As good as they could, whether it’s a mortgage contingency. Most often this issue comes up during inspection contingencies where they just, they don’t trigger the contingency. Right. And there’s a little bit of like a loophole or a gray area.
Avery Carl: And, you know, my opinion is, is like, keep things simple. You know, clear the money. Like let’s not hold someone into a deal. It’s just gonna get messier and messier from there. But not everyone is of that mindset. [00:27:00] Um. And so that escrow holder short of having a signed release by both parties is not going to move that money.
Avery Carl: In fact, they’ll probably move it to the court and then you’ll have a lawsuit to determine actually now with a judge what’s supposed to happen with that money and, and the tough pill to swallow. I think, and we talked about this briefly before we started recording, is that. Those types of lawsuits, those are just out of pocket.
Avery Carl: Like, it is incredibly frustrating because maybe it’s, you know, a $10,000 deposit, maybe it’s as little as like, you know, a $1,500 deposit. But I can guarantee you your lawyer’s fees are gonna get close to that. And just because you win, another thing to keep in mine is doesn’t mean the other side has to pay your attorney’s fees.
Avery Carl: Uh, a lot of people think that, you know, winner gets the, their cost paid by the other side, and if your contract doesn’t say that. Or it’s not like a general fee shifting type of lawsuit, like some lawsuits just by statute, the winner gets their attorney’s fees paid for them. Then you are just out, like you just have to eat it.
Avery Carl: And, um, I’ve seen, you know, [00:28:00] from my own experience, some people just say, you know what, screw I, I’ve got 1500 bucks on the line. An attorney wants $3,000. Like, why? Like it’s just bad math at this point. And so a lot of times they’ll just let the escrow money sit and then we’ll circle back on this maybe in a year when the seller has now since, um, maybe found a new buyer or something like that.
Avery Carl: Because technically. You shouldn’t be releasing them from the contract until they release your money. And at least in this market, that’s been a little bit of like leverage where it’s like, well, you can’t get a new buyer until, uh, you release my money and we release each other from this contract and most sellers want to move on, get a new buyer.
Avery Carl: Um, but that could be changing a little bit right now. Uh, and so it’ll be interesting to see if these types of escrow disputes are a little bit tougher to get out of because a year ago, as you know, there’s probably 50 buyers in the wings. They’re like, fine, you don’t want it. I’ll go to the next guy in line.
Avery Carl: But that has changed a little bit in like the last three or four months or so. Yeah, yeah. Last year it was [00:29:00] a lot easier for, even if it was a gray area or even if the buyer wanted to terminate for a reason that was not necessarily inside the contingencies. Sellers were much more apt. To just let it go because there were, you know, there was a line of 50 buyers out the door ready to just close on this thing.
Avery Carl: Whereas now it can take longer to resell it. So sellers might be of the mindset of trying to, you know, maybe they don’t care so much about the earnest money about keeping it because maybe it’s 1500, maybe it’s 5,000. They’re not worried so much about that. As about maybe kind of scaring and pressuring you into just closing it because there are a hundred percent.
Avery Carl: Because they, it’s gonna be hard for them to resell it. So why would they not kind of try to strong arm you into, well, okay, let’s, let’s take this to a lawsuit then and see if you’ll just buy it, like if you’re bluffing. So, um, that’s definitely something that we have to watch out for a little bit more on the buyer side now than we used to.
Avery Carl: It, it’s just sometimes different types of legal problems happen in different types of economic [00:30:00] environments. And you know, last year the, the problem was everyone was waiving, you know, inspection stuff and then finding, still doing the inspections and finding things and getting really frustrated that they were stuck and that no one wanted to negotiate with them.
Avery Carl: And we’re like, well, you negotiated away your right to negotiation. And now it’s just things like the legal red flags, I think that are more common just. It changes as the market changes. Absolutely. So what are some other common, uh, lawsuit triggers, just in your general, like garden variety real estate transaction that you think that investors who are listening to this episode might want to be cognizant of?
Avery Carl: Lest they find themselves in one of those. Gosh, outside of the inspection issues, one that I’ve seen a lot happen in the last, just generally over my career, are walkthrough issues like day of closing, day before closing. They walk through and they expect to see X and they see one and closing that [00:31:00] gap. I mean, I’m sure you’ve seen it where like sometimes agents are trying to fix the problem, either by chipping in commission or hiring a pinger or whatever the case may be, is to try to just.
Avery Carl: Get the deal to the closing table. Um, things get really messy when they get close to the date of closing, especially if the contract is time is of the essence and no one wants to sign the extension ’cause everyone thinks the other party’s wrong and unreasonable. And then you end up in this mutual like breach situation and things just get really stressful.
Avery Carl: People’s rate locks expire and it just gets to be to this point where you’re like. We’re going from bad to worse. And you just have to decide, especially when you’re looking at like fully furnished types of places with short-term rentals. We have that a lot here along the Jersey Shore where it’s like it was fully furnished, but they took a piece of art or they took, you know, all the linens and you’re like, well, and they just thought, oh, we just threw them out.
Avery Carl: Like we didn’t think anyone wanted the old gross linens. And you’re like, well now I have to go spend $500 on, I. To me and you, it probably [00:32:00] sounds like, come on, like it’s a business close the deal. What are we gonna, you know, do this or we find a scratch in the hardwood floor. Like those types of things get really messy.
Avery Carl: So I would say definitely walkthrough issues. Um. I would also say financing extensions, um, anything that’s going to shift the date of closing, especially if you’re in like a, one of those like chain reaction types of closings. I feel like that happens a little bit less in the investment property space than it does in like the traditional residential real estate space where you have this person buying your property and that person buying the next property and that one buying the next property.
Avery Carl: And you’ve got like. Four or five closings that are supposed to happen within like a 24 to 48 hour period. But there when like someone says, Hey, my lender needs another three or four days to close, what’s gonna be the reaction on the other side? A lot of this, unfortunately, comes down to like buyer actions.
Avery Carl: Like sellers, they sign the contract, they show up to closing, they sell like they provide the [00:33:00] deed, and hopefully there’s not like a title issue that pops up in the middle. But buyers have a lot more responsibilities. They have financing, they’ve got all this other stuff. They’ve got to type of line up.
Avery Carl: And if it all doesn’t come together perfectly, like you have to go to the seller and kind of like ask for permission. Yeah. In a lot of cases to do these things and just kind of hope that you’ve got like a reasonable or at least flexible party on the other side. Yeah. Yeah. And I, I, now that you bring up the final walkthrough thing, I have seen in my career, I’ve had people, uh, one time there was a, like this.
Avery Carl: Wall hanging, and it was like a bunch of sticks glued together in a circle with like a mirror in the middle. It was a complete piece of garbage and it was my, my buyer piece of garbage. Yeah. My buyer was like, I, I’m not closing. If they like, it meant something to the seller somehow, like, I don’t know. It was.
Avery Carl: Sentimental, it came outta their mom’s house or whatever. It was ugly. It was like junk. And my buyer was like, [00:34:00] I’m not closing on this. And it was a great deal. The house was an amazing deal. It was the cash on cash return was gonna be ridiculous. They were getting a great deal. They’d already gotten like several, like tens of thousands of dollars off on inspections.
Avery Carl: And they were like, I’m not closing this house. They don’t, if they don’t leave this piece of art. And I’m like, my fucking God glue together. And so eventually. They, they agreed to leave them the stick art. And then I had another time too, where it was linens and it was like 11 o’clock at night and the buyer insisted on again.
Avery Carl: It was a great deal, amazing view, insisted on the linens, and I was like, listen, I, I’m gonna buy you brand new linens. You don’t want other people’s like, you know, nasty stains. Like people been getting it on in there. Let’s get you some new linens. You don’t have to have it. From these people and they’re like, no, no, I want them to leave it because they wanted, but I paid for it, but I paid for it.
Avery Carl: It’s like, yeah, they wanted, wanted to. And I’m like, no, I I will buy you nicer ones. Um, ’cause it’s 11 o’clock at night. I’ve got a newborn. I’m pregnant at the time. Like, just, I’m gonna buy [00:35:00] you brand new ones. But they, they really just wanted to, it’s like the principle of it. Yeah, yeah, yeah. And I’m like, it just.
Avery Carl: Off of that. The other, the last thing I’ll say when it comes to transactions and issues is kind of like post-closing issues. And this is usually in the form of disclosure issues on part of the seller’s behalf. Oh yeah. And so. As much as to say, like, the sellers don’t have to do anything. Like you have to tell the truth and you have to pull back the curtain.
Avery Carl: And so if you don’t do that stuff, and I’ll say, you know, this usually comes up around mold, water filtration, things like that, where something, you know, wasn’t raining on the day of inspection. And so it wasn’t clear that the basement gets water or that there’s, you know, puddling in this one area or whatever the case may be is, and so.
Avery Carl: Just over disclose. Yeah. Over absolutely. We’re still in enough of a seller’s market. Uh, even if it wasn’t the law that it’s still not gonna be a big deal. There’s gonna be a buyer out there who is gonna say, that’s not a big deal. I now know and we’ll just deal [00:36:00] with it. Yeah, I totally agree with that. And, and one more thing on walkthroughs.
Avery Carl: So what do you think, uh, especially with buying remote, so a lot of investors buy remote. Sure. What do you think the liability is of having a real estate agent do the final walkthrough, who, you know, isn’t a licensed contractor or home inspector or anything like that? And I’ll give you another anecdote here.
Avery Carl: I’m just like giving everyone the history of my real estate career. So when I was new, uh, I was a newer agent and I had somebody buying remote and they had an inspection and it came back, you know what we negotiated, whatever. I did the final walkthrough, took a video, everything was fine, and about a month later, the buyer came back and was super pissed because there was, um, around one of the toilets the.
Avery Carl: The floor was really, really soft and the inspector hadn’t seen it, and I didn’t catch it in my final walkthrough [00:37:00] because I didn’t go like, walk really close to tap it around that. Yeah. So, uh, what, what do you think the liability is there with agents doing final walkthroughs for remote buyers like that?
Avery Carl: Look, I mean, one of the things I’ve noticed recently at the closing table is more documents from agents to cover their own butts, and, uh, talking about this from an agent’s perspective, not necessarily from the inspector’s perspective, if someone’s never going to step foot in that property before they close on it, that is their.
Avery Carl: Choice. It is not, you know, superseding, you know, the agent’s job to sit there and like crawl all over the floor and feel for like soft spots and floors and walls and, you know, break out the microscope. Um, and so I would, you know, consider perhaps having a form that they sign. I would probably not do it at the closing table.
Avery Carl: I would probably do it at, you know, the time of, you know, having a buyer’s agreement or going under contract and saying something to the fact like, you know. What if you choose not to [00:38:00] physically visit this property at this choice at this point, that is your responsibility. You know, this is not going to be the agent’s responsibility to do that.
Avery Carl: Like we will physically go through and, you know, walk through the building, but like, this is not our, you know, job to that degree that it would be as yours as the buyer. And so that, that’s my 2 cents. I would just get the buyers to sign some sort of like a. Disclaimer under that they understand that and that they’re not gonna put it on you if they find stuff later.
Avery Carl: Yeah. Yeah, I think that’s a good middle ground also, a lot of people don’t, don’t realize that, um, home inspectors will perform final walkthroughs. So, you know, they’re the ones that found the initial issues. And if you negotiate that X, Y, and Z are gonna be fixed or not fixed, they will for a small fee go back out and verify those things, or, you know, just verify that it’s in the same condition that it was when they went through and inspected the first time.
Avery Carl: Yeah. So I think, so I think that’s a really good option too. Yeah, that’s a, a good option. The other thing, and one thing you [00:39:00] kind of touched on there, and this could just be me with a lawyer having like the nuance for every fact in a situation is it’s a month after closing and they’re discovering this, who’s to say that in the month?
Avery Carl: Between when they closed and when they discovered that soft spot that like the toilet didn’t just spring a leak and made it soft, then it’s, we’re not talking about something that they saw the day after closing. I mean, I can tell you from my own personal experience, I remember when we bought our first like single family primary residence, the day after closing a toilet exploded.
Avery Carl: Like the flange broke on the inside and it flooded that whole bathroom. And so if that happened and we weren’t there, like that would’ve caused a soft spot. And so, um. I think some of it just has to do with, you know, yes, we’re investors. Yes, we can’t always be everywhere every time, but like we have to take a little bit of ownership in the process as well.
Avery Carl: You can’t just, everyone says build a team and delegate and do all this and that, but the buck is still always gonna stop with you the buyer, period. Sure they’re being like fraud on the part of the seller. Like that’s a different situation. But like [00:40:00] certain, like parts of this, like, it’s just, it’s on you.
Avery Carl: You don’t, you know, and it sucks. It’s a tough pill to swallow. No one ever wants to do that. And that’s why I think there’s a lot of finger pointing and sometimes lawsuits, uh, because it sucks to admit that like you kind of left yourself open to that. Yeah. Yeah, I, I totally agree with that. And man, there, I could, I could ask you questions all day, but we are to the end of the show and so we’ve got three questions that we ask everyone that comes on the show.
Avery Carl: And the first of which is what advice would you give 20-year-old Bonnie. So the advice I would give myself at that age is yes, learn the fun fundamentals, know them inside and out, but then don’t be afraid to improvise. If you’re following directly in the footsteps of other people, you are limiting yourself.
Avery Carl: You’re limiting yourself to what you can discover to buy to become. And so learn the fundamentals and then have some [00:41:00] fun with it. Don’t just stick to the tried and true path. That’s great advice. And along the same lines, but slightly different, what advice would you give a new investor who’s looking to get started today in today’s market?
Avery Carl: So I will learn what things are flexible and what things, um, are not. And so things that are flexible and can change with you as a real estate investor as you grow and get more experience or things like, you know, your financing. Like maybe you start off as an FHA house hacker. Uh, maybe you are doing, you know, conventional financing, but that can change over time.
Avery Carl: Like the way you acquire properties, the financing around that can change. Even your exit strategy can change. I mean, there’s plenty of people who go from short term to long term, long term to short term. Add midterm rentals in there, like all of that kind of stuff is flexible and can change Some things though, like legal, you really wanna start doing that stuff right from the get go because it’s expensive to redo.
Avery Carl: It can be really expensive to clean this, you know, the messes up if you do it wrong from the get go. [00:42:00] And so. Just learning like, Hey, what are things that I can learn and have fun with and explore with and change over time? And what are things that like, I really need to, you know, create this foundation for now.
Avery Carl: Uh, because it’s going to support the rest of everything that I’m doing also. Great advice. Thank you. And last question, I see a lot of great books behind you on your bookshelf. Uh, what is your favorite book that has impacted your mindset? So. I don’t know if it’s my absolute favorite, but it’s one that’s sticking with me right now.
Avery Carl: It’s this book called Radical Candor by Kim Scott, and it’s a book about communication and I purchased it for myself actually when I first became like a manager and I had employees, uh, to be able to communicate with them, but the place where I feel like I’ve. Used it kind of the most is as a real estate investor and being able to communicate with, frankly, our tenants and the people who we deal with contractors and things like that, which is, you [00:43:00] know, different than the employer employee dynamic, but it still has this, you know, perceived hierarchical dynamic that we are in control and they kind of just have to follow our rules and like, how do we create.
Avery Carl: Conversations that don’t feel confrontational. Landlord tenant law can feel very confrontational. So how do we keep everything in our business just really feeling friendly? And I really like the perspective that Radical Candor brought. No one has suggested that yet. I’m, I’m putting that on my, on my Kindle list.
Avery Carl: I. It’s a good one. Yeah. Awesome. Well, thank you so, so much for coming on. Uh, I think we’re gonna have to have you again for a part two. Love it. So, tell us a little bit about before you go, uh, about Landlord Law School, where people can find you, where people can find that and how they can sign up. Sure. So you can find me@bonniegall.com, or I love hanging out on Instagram probably more often than I should at Bonnie Gall Esq.
Avery Carl: Um, my program Landlord Law School actually came to be because I saw that my law firm wasn’t helping investors be [00:44:00] proactive the way that I. Wanted it to, uh, I wanted to be able to help prevent problems. But the traditional law firm model just isn’t designed to do that. It’s designed to help you clean up your mess, not necessarily prevent them.
Avery Carl: And so, landlord Law School is a DIY, uh, legal Education and Asset protection program to learn how to, you know, do everything from form your own LLCs, make sure you’ve got the right insurances in place, how to legally onboard and offboard tenants. And it’s got 25 plus video lessons, 32 legal templates. To help support, uh, landlords of all types, uh, be able to kind of become their own best advocate.
Avery Carl: That’s awesome. There, you’re right. There is nothing preventative out there. It’s all, all, everything is for after the fact. Like after you screw up, come to us. Right. And that’s fine. But like, I would rather do it the other way around. When I got sued, I was like, why did nobody tell me that I could have done X, Y, and Z and I wouldn’t even be in this position to begin with?
Avery Carl: And so it has been a labor of love. It’s a lot of fun. I, I love being able to work with investors in this more, I think, [00:45:00] positive way than just cleaning up the messes. Awesome. Well, Bonnie, thank you so much for your time today. It’s been super informative and we will catch you later. Thanks so much, Avery.
