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Buying Condo with Cash - Some Questions

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I am planning to buy a condo (300k) in Chicago mainly for investment purposes, the building has number of units owned/leased by investors and getting loan from Freddie/Fannie will be very difficult.

some other items for background purposes:
-My primary home is already paid-off and have no outstanding debt. 
-I have tenant already identified for the property which should show that I will be able to make the payment


As this is cash transaction, I am worried and concerned about the clean title and transfer of ownership. I have real estate attorney and they provide me following details. Is this enough or anything else needs to be added:

1.  The Seller buys a title insurance policy for you.
2.  The title company will not allow the transaction to close unless there is good title and if they make a mistake, you have a claim against the insurance.
3.  The Seller provides you with an Affidavit of Title that his statement that he has not put liens on the property that might otherwise not show up on title.
4.  The Seller give you a Warranty Deed, which warrants that title is good.

Are there any other concerns or precautions I should take considering this is cash purchase.

Thanks in advance, and please advise.

Edit: removed confusing item

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Can i just do the land trust and not go through the hassle of creating llc.

Refer to link below, it still provides the ve... (more)

fatuser789 (Aug. 15, 2017 @ 10:19p) |

I'm pretty sure that (1) a trust does not provide any "veil", as in, it doesn't limit liability like an LLC does, and (2... (more)

scripta (Aug. 16, 2017 @ 1:34a) |

Got clarifications from the attorney; When the deed is recorded, the Land Trust (Chicago Title Land Trust) is named as t... (more)

fatuser789 (Aug. 16, 2017 @ 12:19p) |

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rated:
fatuser789 said:   
1.  The Seller buys a title insurance policy for you.

  That's kinda like the seller of a used car telling you he will take it to his mechanic to check the car out for you. The insurance is for your benefit. YOU should be the one buying it. You don't think the seller will find the cheapest possible policy with plenty of loopholes?

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atikovi said:   
fatuser789 said:   
1.  The Seller buys a title insurance policy for you.

  That's kinda like the seller of a used car telling you he will take it to his mechanic to check the car out for you. The insurance is for your benefit. YOU should be the one buying it. You don't think the seller will find the cheapest possible policy with plenty of loopholes?


Some states are like that. Sometimes the seller pays for the title insurance and sometimes the buyer pays for it. It's great here when a national bank sells a foreclosure property and pays for the title insurance when normally it's the buyer that pays, just depends what the bank is used to doing.   

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That's a good point. I will mention this to attorney that I would like to select the tittle insurance company and the seller can reimburse me.

Any other items?

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I'm confused - this is a cash purchase, but you're only ready to pay 20-30%?

Regardless of who actually pays in number 1, 1-4 seem rather standard in any real estate purchase?

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fatuser789 said:   That's a good point. I will mention this to attorney that I would like to select the tittle insurance company and the seller can reimburse me.

Any other items?

  The only risk here is the unethical real estate agent on the other side and the whole title co scam setup.  Usually they specify a title agent in the listing (selected by the listing agent NOT the seller, that's why the whole title co setup is such a racket - usually the actual customers dont shop around or select them, but just "trust" their Realtors who don't care because they're not the ones paying.).  The title agent listed is one of their "friends" who might refer others back to the listing agent.  If you specify your own title agency in the offer (which is where it's specified usually), the listing agent may strongly advise the seller it's a bad idea to allow the other title agent because "they trust" the one they had selected and handicap your offer when presenting to the seller.  

If there's one specified already you have to weigh the possibility versus the wasted funds just going with the one specified.  Possibly better off just lowering your offer by the expected fleecing $$ and using the one the listing agent wants.  (Or possibly not)

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Is your family giving you half of the money in cash?

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My mistake, this is full cash payment and no one is paying me.

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Slightly off-topic, but I'm curious how much is the monthly rent?

The ROI is usually worse without a mortgage. Keep in mind that your purchase price should be less and your sales price will be less than similar properties that don't have the all-cash requirement (usually happens when > 50% of the units in the complex are tenant-occupied).

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scripta said:   Slightly off-topic, but I'm curious how much is the monthly rent?

The ROI is usually worse without a mortgage. Keep in mind that your purchase price should be less and your sales price will be less than similar properties that don't have the all-cash requirement (usually happens when > 50% of the units in the complex are tenant-occupied).

  Monthly rent is around 1800-2000. Compared to other recent sales in the same building, it seems that I am getting much better price. 

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Title is from Chicago title, which is supposed to be one of the top title companies in the city. Seller is the original owner since the building was built. Any experience or feedback on the title company?

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Chicago Title is huge, should be fine. Since you may have a choice, entitledirect is often recommended here for being one of the cheapest.

Is there a monthly HOA fee? How much is it? Only one other concern I'd have is if a bunch of units were owned by the same entity that could take over the HOA.

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scripta said:   Chicago Title is huge, should be fine. Since you may have a choice, entitledirect is often recommended here for being one of the cheapest.

Is there a monthly HOA fee? How much is it? Only one other concern I'd have is if a bunch of units were owned by the same entity that could take over the HOA.

  Yes, the monthly HOA fee is around 330. This is high rise building with many units and not sure whether they will have enough control to take over HOA. But, I will ask attorney to verify it as part of attorney review.

Any other precautions for a cash purchase? I am nervous and want to make sure I perform the necessary due diligence.  

rated:
For a condo, I would make sure to review the condo documents/bylaws, ask the trustees for a copy of their latest reserve analysis, ask for a history of past assessments and planned future assessments and, if possible, get a copy of trustee meeting notes.

Are you getting an inspection? Obviously a condo is a different case than a single-family home, but the inspector could still identify issues with the unit and the building structure, roof, etc.

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I worry about cash reserves and maintenance reserves.  Who is on the board?  Are they business minded or qualified to be business like?  Is there an outside accountant/auditor like a corporation that you invest in?   Study up on the HOA terms and covenants. Can the tenant put nails in the walls to hang photos, paintings etc. Most condo common walls are owned by the HOA .. not the owner of the unit. What maintenance is the responsibility of the unit owner vs the HOA? What happens when the kids above or adjoining your unit overflow the bathtub or a pipe breaks? Is the electric system adequate for your tenant. How much sound proofing is in place between units? Will your tenant be allowed to use the common amenities or have overnight guests?

Set aside an emergency fund for the investment property in addition to your personal emergency fund.  Add a few years HOA fees and expenses.  Keep good records for your taxes.

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Another question. I am thinking of registering condo on the name of llc instead on my name. Is this a good option?

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You can if the time and expense of a proper LLC makes sense to you. If you don't do it right, you could lose the liability protection that an LLC is supposed to provide.

You can also look into trusts. A trust could own the property with your LLC being the beneficiary. We have some old threads here discussing this.

The most common recommendation lately is to skip the LLC and just get adequate insurance (landlord + umbrella). But, unlike most people, you are not getting financing, so you have the trust and LLC options.

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scripta said:   You can if the time and expense of a proper LLC makes sense to you. If you don't do it right, you could lose the liability protection that an LLC is supposed to provide.

You can also look into trusts. A trust could own the property with your LLC being the beneficiary. We have some old threads here discussing this.

The most common recommendation lately is to skip the LLC and just get adequate insurance (landlord + umbrella). But, unlike most people, you are not getting financing, so you have the trust and LLC options.

  I am not sure that I will have enough time to form LLC and get closing done by end of this month. 

So, I was thinking of getting landlord insurance and umbrella coverage to protect me against any issues. As there is no financing, I am more concerned of unnecessary litigations and protect my other stuff. 
 

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If you want to avoid unnecessary litigation, you have to make it difficult or expensive. One way to do this is by making it difficult to find you or to attach the property to you.

A standard purchase is public record and will forever be tied to your name (a historical record search will show your name even if you aren't the current owner). If the property is purchased by a trust (one that doesn't have your name in its' name), nobody will know that you own it unless they get a court order to see the (non-public) trust documents. To be more precise you wouldn't "own" it, you'd just be the beneficiary of a trust that owns it. After the purchase, you (well, not you -- the trustee) could update the trust document (which is not public) to make your LLC the beneficiary of the trust.

Again I'm not recommending any of this, just relaying the info I've read.

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Can i just do the land trust and not go through the hassle of creating llc.

Refer to link below, it still provides the veil and privacy. With this coupled with landlord insurance and umbrella, it should be fine right?

http://www.ctlandtrust.com/faq.htm 

Identity Protection/Privacy Of Ownership/Internet Privacy

Under a land trust, unless required by law, the identity of the real owner is not disclosed to the public, keeping parties involved confidential. This can help keep an owner’s personal, financial information out of the public record and off the internet.


Or after the closing is done under Trust, I can use the following steps to create LLC at my own convenience.

  1. Deed the property to your land trust. (On state records Property is shown as  ABC Trust) - At the time of closing..
  2. Create an LLC - After closing is completed, and then work to create LLC
  3. Make yourself as Trustee of Land Trust
  4. Wife and husband to be beneficiary of Land Trust
  5. Transfer Beneficial interest to your LLC
  6. LLC Benefificarys are both yourself and your Wife
  7. Have an Operations agreement which talks about charging order (Covering outside protection)

rated:
I'm pretty sure that (1) a trust does not provide any "veil", as in, it doesn't limit liability like an LLC does, and (2) the name of the trustee is public record, which partially defeats the privacy protection. You need someone else to be the trustee if you want the full privacy that a trust can provide.

rated:
Got clarifications from the attorney; When the deed is recorded, the Land Trust (Chicago Title Land Trust) is named as the owner under the Land Trust Number. It will be like "CTLT Trust 1111 dated Sept 2017"./ CTLT is the trustee, and the beneficiaries could be me and/or my wife, and could also name successor beneficiary or beneficiaries. I will still have landlord insurance with umbrella insurance,

I hope this make sense.

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