fbpx
Global Investors Podcast
GI86: Legal Concerns When Investing in US Real Estate with Ronald Rohde
February 11, 2021
0

Ron learned Mandarin Chinese growing up and has fully fluent staff who read and write Chinese.

Ron Rohde is a Texan with a long history in North Texas real estate. As soon as he had a driver’s license, he was delivering keys to tenants, supervising contractors, or delivering notarized closing documents for a variety of rental properties.

Watch The Episode Here:

Listen To The Podcast Here:

Transcript:

Announcer:
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host Charles Carillo. Today we have Ronald Rohde. He was on the Global Investors Show in episode GI4 if you want to check that out but he is based in Texas and an attorney that focuses on all aspects of residential and commercial real estate. Ron is also fluent in Mandarin Chinese and works with a number of US and international investors. So thank you so much for being on the show again, Ron.

Ronald:
Thanks Charles. Good to catch up with you again.

Charles:
So I know we touched base on it. I think it was a couple of years ago, but can you give us a little background on yourself, both personally and professionally prior to your current law firm?

Ronald:
Definitely, definitely. So personally, you know, I, I grew up in Texas. My family has always invested in real estate, so we’ve held, you know, professional licenses. We’ve been landlords, we’ve done flips, we’ve done notes commercial office we’d really done it all. And, and from an early age, I was exposed to real estate and the benefits of being a landlord. And I’ve, I’ve really embraced that, you know, I think I’ve taken my own career with with the law, but found my own niche, but still going back to what my parents instilled in me and which is, you know, the benefits of, of passive investing in real estate and the strength of the market. Fast-Forward to now, you know, I, I went to college in New York, went to Cornell, went to Florida where I am still licensed in the state of Florida and went to the university of Miami practice for a few years. And then I been in-house for a real estate developer doing ground up new construction for multi-family and other senior living projects large subdivisions as well. But since then I have my own practice where I focus on transactional real estate. So that means forming your LLCs, forming your entities, operating agreements between partners financing documents, PSA’s your purchase and sale agreements, as well as the maintenance or the operations of your projects. So leasing tenant notices, city violations, that sort of thing. And really, you know, I’m an investor’s attorney that helps you maximize the return, which I know is so critical to all the investors. I, I am an investor myself and I personally invest in industrial. I have a couple of warehouses here in DFW. And so, you know, again, that’s my, my background and my experience is an investor itself. You gotta be able to make decisions.

Charles:
That’s awesome. Yeah. Industrial is such a great asset class. It’s not, we really talk about too much, but in Florida in general, which I know, you know, the market down here, we have such a lacking of industrial, especially cold storage, which is something new that’s happening with all of these delivery companies. And you’re getting food now delivered in hours and they have to store it somewhere. So it’s, it’s, it’s interesting how everything changes, but with what we focus on of multifamily, I mean, it’s, if you’re in these areas that are growing it’s as well exploding, so absolutely, absolutely. So I want to jump in about half of our listeners are based outside of the United States. Are you able to give us some background from an attorney’s perspective of what a new foreign investor should consider before or when investing in us real estate?

Ronald:
Definitely. I think as a foreign investor, it’s important to understand how your goals differ that from a US-based investor. And what I mean is figuring out your own priorities and what makes a successful investment for you. It might be something different than local investors. So whether that’s wealth preservation, whether that’s obtaining U S dollars and you want to get cash flow and, you know creative us dollars as a hedge, a currency hedge, these are all vastly different goals than US-based investors. And so once you understand yourself, you’ll be able to go to a market and put criteria for your properties that are different and that suit your needs. And, you know, once you do that, I think that lends itself to direct CRE investment. I think of majority of my international investors, they are somewhat experienced maybe in their home country, but they want to take that step to direct ownership. They’ll have an LLC at the local level, but you know, my best advice is the, the biggest challenges for you are not the same challenges for us investors. And so it’s key to work with the right people that you can trust. And in the U S you know, lawyers, CPAs, we have a fiduciary duty where not a you know, commission based person. So like your re your, your agents, your brokers, they’re a little bit, they can be biased because they only get paid on commission. So they’re going to want you to close the deal versus other service providers that are paid that way. Right.

Charles:
So what, what are usual concerns or obstacles that your clients who are foreign investors face when investing that they met, you know, they come to you and they asking you questions, what are those usually concerning?

Ronald:
Yeah. number one is probably money transfers, I think, depending on your country of origin, whether you are you know, obviously you can’t be a, an OFAC designated country, but there are definitely concerns about moving money. And usually they have to do with the foreign country restrictions on monetary movements. So it’s not necessarily inbound us, but getting money out of China, Vietnam Iraq you know, some of these countries, they have currency controls. And so my clients would come to me and say, how can I solve this? Where can I move this money? And, you know, kind of do like a Daisy chain. And, and basically it, can I move this in time for closing? And then, you know, there was actually, I just did a short YouTube video on the new defense act, had extra reporting requirements for all state registrations for LLCs. And this is just, this is something completely new previously, all of the LLC and corporate entities are registered at the state level. There is no federal requirement, no federal registration and no penalties for failure to comply under this most recent defense bill that that Trump vetoed and then Congress overrode his veto. They’re gonna put in some anti-money laundering and reporting requirements, which are really going to hit our international investors. They’re going to have this affirmative obligation to disclose a lot more information than they previously work. So my advice for anybody listening now is create your LLC is now I think, before the reporting requirement kicks in, because you may have a lot harder time creating an entity in the us in a couple of months, once they come out with the regulations and they start rolling that out.

Charles:
Right. Yeah. And then in regards to the O factors, if people don’t understand what that is, that’s a, I believe it’s office of financial asset control or something like that wherein there’s like two dozen countries. I believe that’s on that, that we cannot, there, there can’t be any type of money exchanges or it’s a huge hindrance, I guess you would consider it. Yeah.

Ronald:
Yeah. I mean, you definitely can’t have a transfer from a bank account in those countries directly to the U S so that’s yeah,

Charles:
Yeah. Argentina is another one of those big countries that I hear from people that they can’t, they such a problem trying to get even a few thousand dollars on up. So it’s it’s definitely definitely important to speak to someone that’s a professional. That’d be able to kind of walk you through that. So this is like, we’re, we’re in 2021. And we’ve been into this. The United States has been into this COVID for like nearly a year right now. How has COVID effected real estate investors outside of eviction moratoriums, which is affecting, I think everybody with multifamily real estate, are there additional factors that need to be addressed or added to contracts or leases to protect investors?

Ronald:
I would say absolutely. I mean, regardless of the initial reaction to it, what we have seen as a result happened is, is a real impact. And so beyond the individual sectors that have lost tenants or lost the ability to host as many, you know, visitors or, or guests, there are changes to the way that we structure the contract. We have COVID provisions, which are usually just extensions, but they also could be expanded or they are expanded into termination rights. And so I think buyers and what buyers and sellers are accepting these clauses, and what it’s doing is kind of putting a little bit more uncertainty into every transaction because buyers want that right. And they’re willing to pay for it in the sense that if they have to give more consideration to purchase a building and to have that clause in their determinate they’re willing to pay for it. And so we’re putting COVID in that says, if the state of California and next a, an additional ban on, you know, bowling alleys shutting down a bowling alley, then I could terminate this contract if I want. And it’s really a difference in how it used to be that the contract was sacred. And, and once two parties entered into an agreement that they were mostly bound, you know, they, they were going to forfeit their earnest money or they’re going to close. And that was really the only one of two outcomes. But now COVID introduces a bit more uncertainty, or maybe you could say flexibility to allow the parties to terminate or to wiggle out of a contract if they, if they get cold feet. And so we’re definitely spending a little bit more time negotiating the exact language of that. COVID for leasing, for example, we’re definitely putting in rent abatement, possibly countered with rent lease extensions. So what I mean by that is, let’s say you have an office lease, and if they close your office and you’re unable to access the premise by government order, not a voluntary thing and not a decision by the building, but if there’s a government for shutdown and it extends for more than two weeks at a time, every day after those two weeks, you get a base rent abatement for those days, countered with an extension of your termination date by an equal number of days. So it’s kind of just deferring that rent to the back end of the lease, but that’s a very popular clause that has worked with say office tenants because it’s kind of a win-win for both parties. The tenant gets to avoid paying rent for some of the time period that they’re unable to use it. And then the landlord gets to extend their lease so that their, their total lifespan of that tenant is longer. So that’s just one example. And we’re putting in unique clauses to suit every single buyer. I mean, whether it is the financing, whether it’s the quality of the rent roles, whether it’s you know, not really eviction, like you said, but all sorts of stuff. I have some on multifamily as well. Okay.

Charles:
Interesting. Yeah. For office and retail, I believe those are going to be, those are where it’s most important because those are going to be the hardest ones at this point to actually rent. So if you’re able to rent it and you’re able to those those caveats in there for the the new, the new lease holders, then they’re able to have a little bit more, like you said, flexibility during their, their rental.

Ronald:
Yeah. So we’re definitely building in a little bit more flexibility. Although the retail environment has been really interesting. It’s kind of a a, bipole a bi-modal distribution because some of the shopping centers and the locations that were doing well before, they’re still way in demand. And those landlords are not conceding, anything at all, either, you know, COVID, they don’t, they don’t even care. And then on the other hand, you have the, the weaker shopping centers that didn’t have as desirable of a location or a build out, and they’re really suffering. And their tenants went under and, you know, 70% is dark now. So it’s really interesting for me, it’s not a blanket statement to say that all retail tenants have more power, maybe that’s true in the aggregate and true average, but I’ll tell you, you know, I’ve tried negotiating with some landlords even in COVID and they’re like, no, we’re not conceding anything. So yeah.

Charles:
Yeah. I’ve heard it go both ways when I’m reading articles on it and speaking to people in CRA and I’ve, it’s, it’s amazing how people well, I mean, at different companies in different stances and they are in different financial positions, so they can make different decisions, but with smaller residential deals, partnering is not really a priority, but one in an investor wants to scale their business. Usually partnering becomes a requirement. Are you able to give us some advice or direction to an investor that’s considering partnering to grow their real estate business?

Ronald:
Yeah. so when I assume you mean partner, you mean like a, an equity sweat equity, somebody kind of a direct Sarner, right. Not, not just like a,

Charles:
Yeah, not a passive or general or a limited partner, but it would be someone such as a, another co like a joint venture they would have, or an operating co our operating partner.

Ronald:
Yeah. there’s, there’s lots to watch out for. I actually have a partnership checklist, so I’m happy to share that link. It’s free download is just a two pages. It talks about these items, but the, the key is to understand the rights, the responsibilities and the obligations of each partner. I think the biggest conflicts that I see in my clients is one person will end up shouldering a lot more of the work to, to achieve something that they think is a worthwhile goal. And then they kind of resent the other partner for not committing as much time. And so having a really clear understanding of what each partner is expected to do. So, for example you know, I’m going to handle legal, I’m going to handle all the lawyers and the accountants hiring firing bills. That’s on me that becomes very clear that they’re responsible for hiring that person. And then you have another person whose job is acquisition and leasing. Their job is really to find the properties and to find tenants that kind of clear discussion, as opposed to having a structure where it says, okay, well, we need to hire a lawyer. We need to find tenants, you know, do you want to do it this time? Or do you want me to do it? It can cause a lot of ambiguity in terms of, you know, did you call that person back? And so that that’s one example, clear delineation of responsibilities. Another thing that I recommend is not doing a 50 50 split. I know that it sounds attractive, but it unnaturally creates a log jam. You know, it’s 50 50 is equal, but 51 49 is a lot cleaner from a legal perspective because while the numbers work out nearly identical, you can even do, you know, 50.5, if you want. And 49.5 at the end of the day, you know, who is the main partner and that’s, that’s the majority owner. And so let’s say we really disagree on something. If you have a 50 50 partnership, you may have to look at some weird third, third rail to, to find a solution. When you have this little bit of an offset, the 51% or majority owner, he can put his foot down and say, look, Charles, you’re my friend. I really respect your opinion on this, but I’m the owner. And we’re going to go with this route. And again, that decisiveness is really critical to building a business. You need to be able to make decisions in a timely and decisive manner without creating resentment. Because again, if I’m coming into a partnership with you, Charles, and I know I’m the 49% owner, I’m accepting that I I’m, I’m acknowledging that there may be some times when you have to pull rank, so to speak, and you say, look, I really respect you. You’re my partner, but we’re gonna do X. And I’m, I’m okay with that. I, you know, I, if I respect you and I, I understand your thought process, it’s not going to be a horrible decision. Obviously I shouldn’t be partners with you. I think if, if I thought you were capable of horrible decisions, but that’s one tip that really can, can make the decision disputes resolved a lot easier.

Charles:
Yeah, that’s a great, I haven’t heard of that from other attorneys before. So if you, after just send me the link over for your checklist and I’ll put it in the show notes. What mistakes do you normally see real estate investors make at some example or situations where clients have lost money in real estate?

Ronald:
So again, in, in this market especially in multifamily, let’s say value, add class B workforce housing. It is probably the single most competitive sector. They are doing a lot of creative things to get their, their offers accepted. And this is probably the only way that I’ve people lose money. And it’s not so much of losing money as a calculated gamble, but you put earnest money that goes hard on day one. And that’s a really attractive offer to a seller because even if somebody else is offering more poor per door, there’s a risk that they terminate at the last day of due diligence and they get their earnest money back. And you as a seller, have nothing to show for it, except for, you know, a waste of your time and maybe some attorney’s fees. But if you have an offer that says, look, I’ll pay you pretty close to the other guys, offer a little bit less, but I’m going to put 50 K Hart. So you get 50,000, no matter what, once we sign the contract, I wire the money it’s yours. That’s, that’s very attractive to a lot of sellers. So I don’t know if I consider that losing money, but they have terminated contracts with the hard money on day one. So that’s one way but you know, other mistakes, I would say that people trying to do it all in the first deal and trying to cover every single possible contingency. You know, your first couple of deals in the U S or as a step up, they’re not designed to make you your fortune or, or make a ton of money. I think your first couple of deals, your first one or two are really to learn. They are designed so that you can complete the cycle. You can purchase, you can manage, you can lease, and then you can have a successful exit, but a successful exit for your first one or two projects is not to make a huge IRR or a huge return on equity. The success is if you complete it and you learn about the whole process and you know what not to do on your next deal, that’s, that’s probably the single biggest mistake is I have people multiple, multiple iterations of their proforma, and they spend so much time trying to make it perfect. You know, perfection is the enemy of good. If you want a quick, that’s a mistake. I say, that’s a mistake. You try to make too much on your first deal.

Charles:
Some of our listeners have possibly never enlisted the services of a real estate attorney since they are new to investing. Can you tell us a little bit and discuss how a new investor should be prepared to make the initial calls most beneficial for both parties when they are enlisting the services of an attorney like yourself?

Ronald:
Yeah, absolutely. I mean, I think the way to understand the role of the attorney in the U S is for a deal advisor. The biggest piece of advice that I have for my new investors is look, I I’ve seen a lot more deals personally, you know, I’ve invested in an exited a lot of deals, but then also I see a lot more deals just in my day to day. I probably have six, five or six PSA’s you know, in my active files right now that I’m negotiating that I’m working. And that, that includes like some large leases, but that’s a lot of deal flow. And this is across markets. This is multi, you know, mostly multi-family, this is industrial. Haven’t done a ton of retail lately. But we are doing some, and that’s my experience. That’s the value. So what people should ask me is, am I approaching this legal structure correctly? Am I approaching the process or explain to me how, you know, sellers expect to receive the money, how they expect to hand over due diligence? Can I get, can I ask for, and can I receive this type of document or not? That’s, that’s really what a real estate attorney is there. And then when you’re making changes to your documents, I’m the one that’s going to actually type it up in a way that reflects exactly what you mean. And I think that’s maybe a difference than a broker. The broker will happily write up the contract, but they’re plugging information into a form and where it gets here and that’s perfectly fine. You know, I have no problem. You know, brokers can, can fill out contracts. All they want. What happens is when there’s amendments, when there are additional clauses that the broker starts typing in full sentences, that’s when you really need an attorney. If you’re putting in binding language that is more than just numbers or, or addresses that’s when you need an attorney you know, and again, that’s in addition to reviewing any of the due diligence that we do or title easements, there are a lot of restrictions on property that in the us it’s buyer beware, it’s really caveat and Tor. Once they provided all the documents, it’s up to the buyer to S to Wade through them and understand what are they getting with this property? How are we able to use these parking spaces towards our square footage? Are we able to build an addition on this section of our land? And when you buy the land, you make the, the seller will tell you sure you can do anything you want, it’s yours be simple, but the reality is there’ll be deed restrictions. There will be zoning that prohibit that. And without an attorney to review those, you’re really not going to know the extent of the property that you’re purchasing. At least not with some certainty.

Charles:
Yeah, no, for sure. As especially anybody purchasing any type of commercial real estate should always have an attorney draft their PSA and review their LOI, maybe not every LOI, but at least the the language that you’re sending out in that one or two pages initially before you start sending it out to deals. But how can listeners learn more about you and your firm run?

Ronald:
You know, I, I, I love doing YouTube, so I have my YouTube channel here. That’s the best way to stay up to date. Otherwise I will put my website and I have an email list where I will email new videos to the list before they go live on YouTube. But that’s, that’s best way to get ahold

Charles:
Of me. Okay, perfect. I will put links to your YouTube channel and your website, and anything else that you provide me with in the checklist, in the show notes for the podcast and YouTube. So thank you so much for coming on again.

Ronald:
Awesome. Thank you, Charles.

Charles:
Have a great rest of your day

Charles:
Hi guys! It’s Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in get involved with real estate, but you don’t know where to begin, set up a free 30 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com. Thank you.

Announcer:
Thank you for listening to the Global Investors Podcast. If you’d like to show, be sure to subscribe on iTunes or Google play to get new weekly episodes. For more resources and to receive our newsletter, please visit global investor podcast.com and don’t forget to join us next week for another episode.

Announcer:
Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of Syndication Superstar incorporated exclusively.

Links and Contact Information Mentioned In The Episode:

About Ronald Rohde

Ron learned Mandarin Chinese growing up and has fully fluent staff who read and write Chinese.

Ron Rohde is a Texan with a long history in north Texas real estate. As soon as he had a driver’s license, he was delivering keys to tenants, supervising contractors, or delivering notarized closing documents for a variety of rental properties.

With both parents as licensed real estate brokers and mortgage lenders, it was a natural evolution to advise clients on real estate transactions.

After attending Lake Dallas High School near Lake Lewisville, Ron attended Cornell University in New York. A few years in corporate America led him down to Florida where he graduated from the University of Miami School of Law. Knowing that he always wanted to return home to raise a family, he passed the Texas Bar and moved to Dallas.

Today, Ron focuses on all aspects of transactional residential and commercial real estate. He advises clients on LLC formation, residential leases, short term rentals (Airbnb), contractor disputes, lien issues, and even evicting the most difficult non-paying tenants. With many clients working full-time or living out-of-state, Ron brings the best use of technology to the forefront to save his clients time and money. Whether you are new to single-family rentals, or an existing property management company with hundreds of units, Ronald Rohde Law is focused on helping you solve your legal problems.

Our goal is to deliver honest advice with your long-term interests in mind. We rely on client referrals and are proud to handle the needs of dozens of repeat clients.

Outside of the office, Ron and his wife Bethany have a beautiful daughter, Violet. They live in East Dallas and enjoy being able to walk to all their favorite spots. He is also an avid motorsports fan and can be found at the racetrack in his Honda S2000.

0

About author

Admin

Related items

Youtube Thumbnail

SS11: How to Hire a 3rd Party Property Management Company

Read more
Youtube Thumbnail

GI88: Raising $75 Million and Purchasing Over 3,000 Apartments with Maureen Miles

Read more
Youtube Thumbnail

SS10: Understanding Multifamily Real Estate Property Classifications

Read more

There are 0 comments

%d bloggers like this: