FrequentlyAsked Questions
Whether small or large investments are being made, we want each of our investors to feel 100 percent comfortable working with us. Feel free to ask us any questions about the way we do business or why we do certain things, and we’ll give you an up-front answer. Here are some of the questions we have been asked previously. We hope they help.
How does a Limited Liability Company investment work?
There are two partner entities within an LLC investment group. The Hoover Companies or one of our entities is the Managing Member of the Limited Liability Company. Each project will have a new LLC investment partnership. The limited partners are the investment associates. The Managing Member (The Hoover Companies) is responsible for all phases of the development investment from purchase to profit distribution.
Why an LLC?
An LLC is a hybrid business entity, designed to combine the advantages of a business corporation with the tax advantages of a partnership. Like a corporation, the owners are not liable for the LLC’s debt obligations. Like a partnership, an LLC can be treated as a pass-through entity for tax purposes. This means the LLC is only taxed at the individual level. LLC’s can maintain flexible management structures as well as various income distribution plans.
Why register in Delaware?
- Delaware courts are reasonable and fair when construing corporate law
- The formation fees are very reasonable
- There is no minimum capital requirement
- There is no state income tax for corporations outside of Delaware
- The corporation can keep control of its books outside of Delaware
- It is easier to do business in multiple states while registered in Delaware
What is the general project progression from land purchase to build/sale of a typical Hoover Companies development project?
- Phase I – Land is located and investigated for zoning, build-out and purchase potential
- Phase II – Purchase agreement with landowners is negotiated and executed
- Phase III – Prospectus is written by Managing Member/budget is established
- Phase IV – Managing Member offers project for public syndication to investors
- Phase V – Sub-division engineering is completed, and plans and permits are approved
- Phase VI – Sub-division development process: grading, sewers, wet/dry utilities and streets/curbs installed
- Phase VII – Product to be built (residential, commercial, retail or industrial) is approved by Managing Member
- Phase VIII – Approval of home build-out product by Managing Member
- Phase IX – Home construction completed
- Phase X – New home marketing and sales
- Phase XI – Award investors and close out or terminate LLC
How long does a normal development project take from start to finish?
Normal land development projects, (6-12 acres), take between 18-24 months to complete. It is the intent of The Hoover Companies to fast track development projects toward completion goals within 12-18 months. This can be accomplished based on fast track land purchase contracts, smooth entitlement approvals, onsite management/project partnerships and coordinated contractor agreements.
How are the investment profits calculated?
With the exception of the 5 percent service fee charged by The Hoover Companies (maximum per year of $30,000) all net profits are divided equally, 50 percent to the LLC partners and 50 percent to the Managing Member.
Who pays for The Hoover Companies’ onsite professional?
The Hoover Companies’ entity pays this person out of the proceeds of the Managing Member profits only. With the exception of the service fee, The Hoover Companies does not get compensated until the partners are paid off and the LLC is closed.
Are there any buried expenses within the agreements?
All LLC expenses are spelled out in the operating agreements. The Managing Member pays all fees not spelled out in the operating agreement. At times, a land brokerage fee may apply, but only as a pass-through expense to the LLC.
Where do you get the money to build the homes?
The Managing Member finances the capital to continue with the development. The land purchased by the LLC acts as collateral for the construction loan to build the homes.
Can I roll over my gain from one project into another?
Absolutely, and many do. Consult your tax advisor regarding the possibilities of delaying your tax gain if you roll your proceeds from one project into another. Of course, you may withdraw all your investment and earning gains at the termination of the LLC.
Can I roll any of my retirement investments into a Hoover Companies Project?
It all depends on the retirement account you wish to roll over. It is best to contact your tax advisor for professional guidance.
What makes you choose the building product (type of homes)?
Proven inventory that has sold time and time again. Our homes range from 1400-1800 square feet in size. This product is sound in design and affordable.
How long does a typical Hoover project last and what are the risks?
Many factors come into play with any development project. Each project may face delays for varying reasons including natural disasters, moratoriums, zoning issues/approvals, building criteria/materials, labor resources, economic cycles and capital availability. The Hoover Companies’ strategy is to help mitigate these potential problems by keeping our projects debt-free and simple with proven and affordable housing designs. It is our intent to complete all projects between 12 and 24 months.
What about 1031 exchanges?
1031 exchanges are permissible. Please consult with your financial tax expert to be sure that your specific property exchange can qualify for a VAL/LLC investment property like/like exchange.
What are the minimum units I can buy?
Prospective investors shall be required to subscribe to a minimum of 10 units at $1,000 per unit for a total investment of $10,000.
What public entity oversees the zoning and building approval process?
In the Tri-State area of Needles, California; Laughlin, Nevada; and Bullhead/Mohave Valley, Arizona, there are numerous agencies with which to contract. They range from the city and county zoning boards, surrounding city and county public utilities, state departments of water and environmental quality, federal agencies such as FEMA, Bureau of Reclamation and the BLM, and the Mojave Indian Tribe which controls various utilities, land and water resources.
Why do you ask for the financial advisor letter?
We ask for this as one more layer of knowledge and protection for our potential investors. Over the years, real estate investing has produced incredible returns. It is important you speak with your financial advisor regarding the risks of investing in a real estate Limited Liability Company.
What do you mean by “flipping the sub-divided land”?
Once raw land is sub-divided with entitlements, the value improves dramatically. At times, a larger homebuilder will come in and offer the LLC a value for the land that exceeds short term gain projects and build-out risk. When the sub-divided land is sold to a builder this is called flipping.
It seems like the Managing Member controls 100% of the investment strategies and development dealings. Do the Limited Partners have any input regarding the project outcome?
It is true – the Managing Member is the sovereign leader of the project and maintains complete control over the entire operation. As we know, too many chefs can spoil the soup. A lot of trust must be given from LLC partners to the Managing Membership team. If there is a shadow of a doubt about your land development leadership, then we suggest this program is not one in which you should invest.
Will I own title to land purchased by the LLC?
No, the LLC will own title. You will own a percentage of units of land purchased. In addition, you will own a percentage of units of the final gain when the land is developed and sold. So, if you bought 50 units at $1,000 each ($50,000) and the property developed sold for a net upside profit gain of 60 percent, then your return on investment is 60 percent or a net gain of $30,000.
Does the Managing Member obtain any commissions? How will the properties be sold?
There are two potential commissions the Managing Member may collect. One would be a reimbursement from the LLC for any commissions paid out to purchase raw land. This will only be a pass-through expense with no gain to the Managing Member. The other commissions structure could be via a real estate listing agreement to sell the LLC developed properties. The Hoover Companies’ real estate entity is O48 Realty and all sales of homesites and new home sales will be contracted through the brokerage.
How will I know how the project is doing?
We will update our website at www.thehoovercompanies.com and we will be happy to speak with you by phone anytime you wish.
When and how are the limited liability partners repaid?
After the last home is sold and the books are closed on the LLC, The Hoover Companies will be thrilled to write each partner a closing check for the amount of their original investment plus their unit percentage gain. At this time, other projects will also be introduced for your investment consideration.
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