How Real Estate Investors Protect Their Portfolio,Avoid Lawsuits, & Build Long-Term Wealth|Bonnie G.

Bonnie Galam (00:00)
So you have my little nerve that is like my one thing I don’t touch as a lawyer, which is subject to deals. I won’t touch them. There’s a few lawyers out there across the country who are happy to kind of take on that risk, not just professionally, but it’s risky from both the borrower and the lender spot, right? The seller who’s selling to you on subject to is really putting a lot of faith in credit.

Dylan Silver (01:58)
Hey folks, welcome back to the show. Today’s guest, Bonnie Galam is an investor and attorney out of New Jersey. She built an eight figure portfolio before the age of 30 and then got sued, which prompted her to start a law firm to help investors proactively protect their assets, structure their businesses and plan for long-term wealth. Welcome to the show, Bonnie.

Bonnie Galam (02:16)
Thanks so much for having me. I’m excited to be here.

Dylan Silver (02:19)
Now, when we talk about

a business in the real estate space, one of the things that people often don’t think about until they’re up against it is the legal arm of it, right?

Bonnie Galam (02:31)
Yes, guilty as charged.

Dylan Silver (02:33)
Now, for folks who are starting out, they’ve got so many ways to get started, right? They’re oftentimes maybe putting the cart before the horse and not thinking about the structure of their business.

Bonnie Galam (02:46)
Yeah, I see that all the time. I think there’s a lot of eagerness. And it’s not misplaced to kind of get that first property or project under contract and get it going. And then it’s like, OK, once I’ve made it for real that I’m actually doing this business or I’m actually profitable in this business, then I’ll go ahead at some point and focus on the legal side of things. And maybe I’ll see people involved with lawyers, maybe just as a one-off on that transaction, but rarely from a strategic standpoint until

Dylan Silver (03:06)
Yeah

Bonnie Galam (03:14)
Either they’ve grown or they’ve landed in legal hot water.

Dylan Silver (03:18)
You know, and that’s one of these things where it’s like until you’ve got, I’ll compare it to taxes, until you’ve got a tax bill, you’re not thinking about taxes. know, and until you’re not got a tricky legal situation to navigate, you’re not thinking about the legalities of it.

Bonnie Galam (03:23)
See

Mm-hmm.

Dylan Silver (03:32)
For folks who may be scaling and maybe they’ve got a couple of single family properties, what are some common mistakes that you see people making when they’re on that journey?

Bonnie Galam (03:42)
So I think probably the most common mistake I see is title. A lot of times my early scaling investors will be using, and understandably so in some circumstances, more traditional residential financing, right? They’re house hacking or they’re using FHA loans or they’re just using secondary vacation homes to purchase these properties, which oftentimes prohibit them from purchasing in an LLC.

And then they come to me a few years down the line, and they’re like, hey, Vani, I’ve got all this portfolio that I’ve built up. I’m ready to move it into an LLC. And sometimes it’s a simple thing. Sometimes we need lender approval. And sometimes I’m also listed in Pennsylvania. Pennsylvania is going to charge a transfer tax on that. And so it’s not quite as simple as just saying, oh, we’ll just do a $1 deed. It’s like, plus paying the Department of Treasury over in Pennsylvania, often tens of thousands of dollars. And so while it’s

easy to kind of be a little bit short-sighted as we’re kind of chomping up individual properties, the longer term implications of that can actually be a bit more expensive. Now, sometimes people are like, I’m fine being without the LLC, but like you sometimes you got to make that choice upfront. And if you don’t have someone who’s kind of strategically guiding you to like the pros and cons and what it might look like, you know, three chess moves down the road,

then you may be stuck in a position that you don’t want to be in.

Dylan Silver (05:53)
Yeah, and you talk

about guiding you. think one of the things that maybe sometimes people have a fair degree of caution is they’re thinking, well, who do I go to? Who do I reach out to from a legal side that’s going to understand real estate? And, you know, what’s a fair price to pay? How can people find someone who’s going to provide them a consultative approach and, you know, at a price which they can afford, quite frankly?

Bonnie Galam (06:19)
Yeah, no, it’s definitely tricky. And I mean, that was a big reason why I had started my practice eight years ago was to kind of be that type of attorney that not only understood the legal side of being a real estate investor, but the actual business side of things. Like for me, like I hated having an attorney who billed me by the hour. And then I would get to the closing table and have some surprise number that they wanted to get paid. And so like, always quote my clients of that the upfront and they understand how that gets paid ⁓ before and after closing.

The in terms of affordability, it really will depend. Of course, you never want to be spending more on the lawyer than the down payment. You’d be surprised if you actually look at a HUD. Oftentimes, the lawyers are the cheapest one at the table, especially when you find like lender fees and things like that. Have you ever seen like a hard money lender, like how much their fees are and you’re often paying for their lawyer as well?

These things just like real estate is not a place to be penny wise and pound cheap. And when it comes to investing in legal, it’s one of those things where it’s hard as as investors, like we want to see ROI, right?

Dylan Silver (07:24)
pivoting a bit here, Bonnie, when folks are looking at evaluating their bottom line, right? And they’re trying to determine, well, okay, I’ve got this number of properties. How much should I be budgeting for legal expenses? Is there any kind of feedback or guidelines that you could give folks as far as, this is maybe what you should budget on?

an annual basis for legal expenses if you’ve got, let’s say, 10 properties or less.

Bonnie Galam (07:50)
So no, and not because I’m trying to be difficult in being an attorney about this. It really does depend in large part on a few different things, right? Number one is what is your own risk tolerance? You could say, I just want to have an umbrella policy and never deal with a lawyer. Would I suggest that? Probably not. The way I look at asset protection is that there’s two sides. There’s defensive, which protects you where things go wrong. That’s where LLCs and insurance pop in. And if you just want to say, hey, I just want to do the insurance.

fine. They kind of protect you in similar ways. Offensive is things like your business processes, your leases, your partnership agreements, things like that. If you don’t have a partner, you don’t have to pay for a partnership agreement. If you’ve just got a single family property in one market, then yeah, like my New Jersey clients, they pay me one time for a lease and they can use that until there’s like a major change in the law.

But if you’re buying single family properties in New Jersey and in Texas and Wyoming and in Iowa, like you’re gonna have to pay lawyers to get you up and running in all these different states. There’s not a lot that’s translatable across the states. And so I think a lot of it comes down to the type of investor you are and you wanna be. If you don’t want partners, then you don’t have to pay for partnership agreements. If you don’t want to be paying for a bunch of different leases, then stick to one market. ⁓ And so on top of like, what is your own personal risk tolerance? Like I have clients who…

want 50 different levels of trust. That’s not how I operate my practice. They can go pay another lawyer $30,000 to do something that may or may not work in New Jersey. For me, my approach is like, keep it simple, stupid.

Dylan Silver (09:24)
I would like to ask it somewhat selfishly about, you know, for folks who are getting involved in creative deals, I think there’s a lot of people who are interested in, you know, cash for keys and coming, you know, with little money down and assumptions. If we could dive into just one of these, you know, for folks who are looking at loan assumptions and subject to, you know, putting properties into trust and etc. What’s your feedback in general? Of course, you know, we can’t give out legal advice to everybody, but

What’s your feedback in general for some of these creative approaches and what people might have to be careful of?

Bonnie Galam (09:54)
might be too high.

So you have my little nerve that is like my one thing I don’t touch as a lawyer, which is subject to deals. I won’t touch them. There’s a few lawyers out there across the country who are happy to kind of take on that risk,

not just professionally, but it’s risky from both the borrower and the lender spot, right? The seller who’s selling to you on subject to is really putting a lot of faith in credit.

in you to make sure that like you’re not going to ruin their lives and their credit by actually not following through on the subject too. ⁓ You are knowingly putting them in violation of their mortgage loan. ⁓ And so for me as an attorney, that’s just, it’s one of the very few red lines I have. A lot of times as an attorney, I’ll say, look, it’s your risk, it’s your money. If you understand what you’re going into, then like I’ll be ride or die with you. I have a client right now who refuses to get title insurance on any property he buys. Would I do that? No. But like,

he signs a waiver and we move along with it because he is an educated investor and I’m fine with that. On the other hand, with subject to, I feel like I’m kind of the monkey in the middle facilitating a deal that is, it’s not necessarily illegal, but it’s knowingly putting the seller into breach. And a lot of times these sellers are not represented by their own lawyer. And they’re kind of just taking everyone else’s word that like things are kosher and they’re not quite. On the other hand, things like,

Dylan Silver (11:50)
This is the last.

Bonnie Galam (11:54)
lease options or seller finance or ⁓ rent to own, like whatever those types of situations are, they can be done nicely and ethically and legally. And I do them all the time, but subject to is the one that like I don’t. And I’ve talked with Pace Morby about it. Like it’s, one of those things where it’s like agree to disagree. There’s plenty of people out there who doing it they’re doing it ethically. And that’s fine. I’m just like, as a lawyer, I’m like, it’s just not worth the malpractice risks for me. And that’s, that’s just the line that I’ve drawn in this.

Dylan Silver (12:23)
You know, and I hear it and you you mentioned seller financing. And what’s interesting to me is, is I think that there’s a lot of people right now that are beginning to realize that there’s this opportunity in seller financing and making seller finance offers not just as an investor, not just as an investor, but also as someone who may be looking to buy their homestead or their first property.

Because you’ve got properties right now throughout the country, definitely in the sunbelt. I think it’s a little different in New Jersey, but definitely in the sunbelt where these properties could be sitting for months, know, and sellers don’t necessarily want to lower their price, right? But if you have someone coming in who maybe has rebuilding credit or not established credit, but they’ve got, you know, some money down and they are willing to make payments directly to the seller or through a servicing company, I think that there’s a lot of people right now who would be interested in that.

The pitch is worst case scenario, if I’m doing seller financing and my buyer is unable to pay, I’m gonna get the property back and I can relist it on the market. Otherwise it’s just gonna be sitting there vacant, right?

Bonnie Galam (13:29)
Yeah, 100%. And I do tons of seller finance. Like that is probably like, if there was one thing that like I rank good on SEO and I do it, it is seller financing, because it truly is one of those great like win-win scenarios. The buyer can getting it into a property and the seller oftentimes can still get the number that they want. And on the commercial end of things, there’s tons of tax benefits, right? Of a seller not receiving, you know, a huge amount of capital gain all in one year. It’s a great negotiating point.

I hope it’s something that continues to grow, because it really is often a very win-win. I have it all the time also between family members. Grandma goes into a family, into a nursing home, or someone passes away, and people are able to buy the property off market among family members in a market that, frankly, as you know, especially here in the Northeast, is really hard for first-time home buyers to break into, ⁓ especially in competitive neighborhoods. ⁓ And so it’s…

Dylan Silver (14:17)
Yeah, huge.

Bonnie Galam (14:24)
I’m a huge fan of seller finance. You’ll if subject two is over here, then we’ve got seller finance all the way over here. And I think there’s a lot of misunderstanding around like the regulations around it and what can or can’t be done, but like two thumbs up on seller finance.

Dylan Silver (14:38)
Do you think at all, and I don’t necessarily know that this will be true, but I know that just because of the price of homes and the acquisition costs, even for a property that’s gonna need some rehab in New Jersey can be, I mean, twice to three times as much as what it’s gonna be in the Sunbelt for sure. Do you think people on all sides, both buyer and seller, may start to look at some of these strategies, even if they’re not looking at it from an investment lens?

But just like, I got to try to find a way to buy a home and I don’t have, you know,

hundreds of thousands of dollars to put down in a down payment and I’m not going to be able to qualify even if I necessarily did.

Bonnie Galam (15:59)
Yeah, you know, it’s hard. think here in the Northeast, maybe a little bit less so just because there are a lot of quality buyers. ⁓ And we don’t really have a buyer issue as much as a supply issue. Like we need more sellers. ⁓ The flips, but that’s not to say like I’m up here and I do seller finance all the time and I’m one attorney. ⁓ And so it’s definitely something that’s out there. I think the bigger thing that is encouraging a lot of people to do seller financing is

the interest rates, right? We can make numbers work that otherwise would not work when we can play with interest rate in a really substantial way. The interest rates right now are really high. And so people who could not be able to afford a mortgage at 6.5 % can very much afford that interest rate at 3.5 % or 0 % in a way that for inter-family sales, they’re fine giving each other 0%. There’s some taxable issues that we’ve got to go into there, but like,

Dylan Silver (16:31)
Yeah.

Bonnie Galam (16:57)
That’s a whole other conversation. It is a doable transaction. And even if we do have a market rate, that suddenly makes us a very doable transaction. And it doesn’t always have to be a 30-year mortgage. think sometimes sellers have this idea like, my gosh, I don’t want to be collecting this money for 30 years. Well, I’m like, well, what if we did a five-year balloon or a two-year balloon? Something where we can go in, maybe make some improvements, and do a refi.

after a short period of time and maybe in the interim, the interest rates will come down a bit, or I just plan to have more money back.

Dylan Silver (17:31)
Yeah, I mean, there’s so many reasons why someone might consider seller financing you, you hit on, you know, all of them. And I think it’s not it’s not just one avatar person that’s going to be doing it, you know, like, like we talked about, it’s investors, it’s people looking for their homestead, you know, it may be people looking for, you know, an additional property that that may be their segue into real estate investing. I would like to pivot a bit here, though, ask you about the tax foreclosure space. I’ve had another investor on the show,

Bonnie Galam (17:42)
You sure?

Dylan Silver (18:01)
who was explaining to me that there’s a strategy where potentially people who are investing in tax foreclosures can actually assume the role of the government. where he is typically the government would be foreclosing on properties, that there’s a strategy where certain investors can assume that responsibility and either foreclose directly themselves or they can give this person an extended period of time to kind of make up their delinquent taxes. Have you heard of anything like that?

Bonnie Galam (18:29)
Yeah, it definitely exists. The process varies obviously greatly from state to state. I’ll just talk to you on New Jersey. I’m not a foreclosure attorney. It’s not what I specialize in. I have purchased foreclosured properties myself as an investor. But generally speaking, the way that it would work is almost like a reverse auction. The New Jersey process will be like, someone owes $10,000 in property taxes. You say, and the interest rate is whatever it is in New Jersey. Call it 8%.

you would say, hey, I’ll buy that debt. And you basically bid down on the interest rate. And a lot of these tax liens will go for 0 % interest, right? Like, why wouldn’t I pay $10,000 to potentially have the right to foreclose on a $200,000 property? Like, everyone’s going to do that math all day, every day.

But the issue often becomes the timeline on that. Like it is not something where it’s like, ⁓ I bought this tax lien and I have to wait 90 days or whatever and I can go foreclose on it. It is often years and years before you can go ahead and foreclose on the property. And so it’s not a fast process, but is it a process to affordably get into some properties? Yes. But like I will admit to you, oftentimes what happens is that there is some sort of a…

Dylan Silver (19:28)
Hmm.

Bonnie Galam (19:41)
payback, right? And if they pay you back, then the debt is wiped and you don’t get the property and you don’t get any interest. And so like worst case scenarios, you just get your money back. The best case scenario is that you’re able to go through the foreclosure process and get this property, not necessarily for, you know, I don’t mean to speak about properties in a way like there are definitely people who are like foreclosure is not a good thing. I don’t mean to be insensitive about, you know, the realities of the person who’s going through foreclosure. But it’s definitely a method that can work. And yes,

Dylan Silver (19:47)
Yeah.

Bonnie Galam (20:10)
at least here in New Jersey, a property tax lien is like, it supersedes even a mortgage, right? And so you do step into that position where the government previously was. If a municipality owned that tax lien before, then you are now that owner of that lien in that position.

Dylan Silver (20:27)
We are coming up on time here, Bonnie. Any new projects that you’re working on and then as well, what’s the best way for folks to reach out to you or your team?

Bonnie Galam (20:34)
Yeah, so projects that I’m working on right now, it’s been like a hot minute since I purchased a property. It’s probably about a year and a half, two years at this point. And I think some of it is like, there’s this just dearth of things. I’ll admit a lot of the properties we’ve bought over the years outside of foreclosures have just been like things that are sitting on like Zillow and there’s not a lot of things just sitting on Zillow around us right now.

And so I’m actually starting a small little direct mail campaign. There’s some properties that I just drive by all the time and I’m like, I would love to flip this. I’m kind of in the mood for a flip right now. Frankly, I don’t need more residential rentals. ⁓ And so I’m hoping to, you know, maybe get a flip under contract by summer. If any of these direct mail campaigns pan out. Thanks so much. And you can find me on my website that’ll give for the show notes.

Dylan Silver (21:17)
All right, all right, Bonnie, thank you so much for joining us today. Thanks for the time.