Hello New Memeber

[Frank Fiore Jr]

Hello everyone...

Little Overview:
I work for a telecommunications company..... Fun, Exciting, and already bored talking about it.... :)

I purchased a 2 family about 10 years ago. Made many mistakes along the way; when both units are rented I'm still paying about $200 a month on the mortgage payment plus the yearly expenses; I'm trying to figure a way out of this mess. The house is underwater; will not appraise for anywhere near what I owe, needs some cosmetic work but a sound building. I have a 1/2 a mind to walk away from the thing altogether.

The little bit of number crunching I have done; from reading on this site; I don't know if I'll ever make money on this property. Short term expenses (year to year), + long term expenses (repairs, updates etc...), plus the insane mortgage I currently have.... its just not looking good.

What am I doing here? Trying to figure out a way to improve my current situation. I have just enough for a down payment on another multifamily, but I'm not sure if that's the right move; with the other idea being I put the money into my existing 2 family and try to get that Income / Expense ratio to a more reasonable level! But than I'm back to square one with no cash reserves... I'm currently siding with finding a solid investment that is paying out a few $$'s each month.

I am reading through some of the information on this site and hoping to get a better understanding of what I should have already known before getting into this mess.

[Brandon Turner]

Hey Frank Fiore Jr welcome to BiggerPockets! Your situation is not completely unheard of, and it sucks. However, it would be my recommendation to think about "doubling down" and just buy something else that IS a killer deal. Let's say you can find another property that produces $400 per month in cash flow - now you are ahead or at least broke even. However, when the market rises - both property values rise and you end up ahead on both. Worst case - you hold both for 30 more years and retire with 2 properties free and clear.

Tha'ts what I'd do anyways! thoughts?

[Amy Oltendorf]

Not sure if this will be helpful or not, or if you did so already. But have you tried to refinance yet? I was in the same boat (well, I currently live in my 2 family). I had bought and lived in my two family for over 6 years. I bought at the wrong time, when the market turned. I was trying to refinance recently, however, I too was underwater. The first company I talked to it was a no-go, but a few months later I tried again, and I am currently saving over $400 a month. It is called the home affordable refinance program (harp). Your loan has to be owned by Fannie or Freddie. It was great you did not have to provide paper documents (W2's, pay stubs, bank statements, etc.). They asked me all my info on the phone and must have verified it on their end. I am sure your credit has to be good, and your current payments must be on time and up to date.

[Frank Fiore Jr]

@Brandon Turner, I am leaning more towards purchasing another property; I am extremely gun shy at the moment. I have been beating myself up for a long while over the mistakes I made and to top it all off I just had a “friend” become the biggest problem tenant; refused to leave and didn’t pay for months… I finally have him out but he has “disappeared” and I will have to take him to court to get the money, and from what I’m hearing that will do almost nothing in my quest to get paid.
So, I need to take a step back, get my ducks in a row; fully understand my expenses; short and long, income potential, sure up my lease paperwork, better understand the eviction process and my legal rights in Massachusetts; which are not favorable to landlords.
I will also be doing some reading up on rehabbing; my area has a lot of potential in that arena; I have a few solid contractor connections which may assist in a potential rehab / flip.
As you can tell; I’m a bit of a mess at the moment; tired of being aggravated by the whole thing; but I am determined to turn this around and right my ship; I believe there is money to be made in RE; currently I’m leaning more towards long term investment properties, but if I can build a solid network a rehab or two maybe a worthy investment.

@ Amy Oltendorf Appreciate the feedback, I did look into that; I do not qualify, my credit, payment history all of that is excellent, but I miss the cutoff date. This is a bit of a long story but file it under a result of one of my mistakes….
I have a 80/20 loan which also doesn’t help.. .with rates of 7% and 5.5%....
I lived in the place for a long while but for the last year or so I have them both rented out. This is where my thought about paying off the second mortgage and trying to refinance but I’m still not sure after doing that I will get a favorable appraisal.

[Mehran K.]

Welcome to BP Frank!

That does seem like a tough situation. You do have a few options

1. What Brandon said is a great idea.
2. If your credit score is good, have looked into a normal refinance? Also there is the option of the loan mod that AMY is talking about.
or
3. You can try and do a shortsale to get out of the place?

[Mike Hurney]

Hey Frank, I can't hear any violins so I don't think it's all bad.

If you send me the address of the property OFFLINE I'd be glad to send you your field card (Town Assessor's report) and some Comps (Similar houses that sold recently) then you'll know what you could expect if you maxed it out your 2 family?

This is a common exercise we do at Movers and Shakers.
Good Luck Investing and we may see you soon! Mike

[Frank Fiore Jr]

Hello Mehran Kamari;

Here is what I think I know about the suggestions....

1. I agree this is a good idea; but gun shy at the moment and it will deplete my funds significantly - risk / reward situation here....

2. My credit score is excellent; I can't do a "normal" refinance; the home to loan value (if that's the correct term) is way off; I'm to embarrassed to give the #'s here.
Pertaining to the modification (HARP) AMY mentioned I don't qualify; missed the cut off dates....

3. Short sale; funny you mentioned that; I have given it a very little bit of consideration; and without diving into all the details of what it would take I don't think its the best bet for me; I have funds, a good job, etc... its my understanding they are not going to just let it happen; I have to be in a situation where I can't afford the mortgage.... not to mention the time it would take to rebuild my credit allowing me to buy another property....

I do appreciate the feedback, thanks...

[Mike Hurney]

Brandon Turner, "...or at least broke even..." I hope that's a Freudian slip.
Market's been coming back strong here, I'm surprised it's not cash flowing?
By the bye, isn't that the First rule of Landlording "No Friends or Relatives!" (you can rent to my friends and relatives and I can rent to yours)

[Brandon Turner]

Mike Hurney - ha, not quite. What I meant was "cumulative" break even. So if he buys something that cash flows $400 per month using the 50% rule, it will make up for the losses he is experiencing on his other and will, cumulatively, break even but have the properties until the market improves or the loans are paid down.

And yep - first rule of Landlording - no family or friends! I've learned that the hard way, many times.

[Paul Donoghue]

Hi Frank,

I have rentals in Lowell, Chelmsford and Dracut.
Rents in the area have increased.
Are you getting the maximum amount of rent out of your property?
If a tenant doesn't pay rent by the 3rd of the month a 14 day notice is presented to the tenant.

[John Thedford]

Frank Fiore Jr welcome. You found the right place to get answers! As one poster said, refi might be an alternative. Also, can you raise the rents any? Last, Brandon had a great idea of picking up something that does cash flow. You do have alternatives. Good luck.

[Frank Fiore Jr]

Paul Donoghue, John Thedford, thanks for the feedback.

Paul, I am getting 900$ for the 2 bedroom, I was going to raise it by $50 but I know they are on a tight budget and she was non to happy when I mentioned it. They are very good tenants so I decided not to raise it @ this time. I believe the rents for a 2 bedroom such as mine ranges from 850 - 1000$ so I'm in the middle with a great tenant. I'm taking the peace of mind over the extra 600$ a year... It wasn't an easy decision.

As for the 3 bedroom; I was getting 1100$ a month, in January I raised it to 1200$. Not that it made a difference I started having issues with that tenant and I just got him to leave at the end of May; he owes me just under 7K!

So I'm cleaning up the place, buying a new stove (he broke that) doing some painting and I should have the place ready for July... we'll see.

John, I have just started reading posts, articles, etc... and the Beginners guide. I am taking this very seriously and hope to gain all the knowledge I should have had before purchasing my first place a few years back.

Regarding the refi option.... house is underwater; "by a lot" and if I bring cash to the table it will remove any and all my cash reserves; which I just don't want to do.... besides It will be close @ that point if I drop the balance enough to refi based on what the property is worth. +/-. I'd rather use the limited funds to purchase something with positive cash flow and balance it all out across the 2 properties... as Brandon Turner mentioned a few posts ago....

[Frank Fiore Jr]

Mike Hurney by "offline" you mean, not in this post thread I'm assuming. I don't think I can contact you unless we're "Colleagues" correct? I'm still sorting out the details of this phase of the site. I have sent a Colleague request... let me know if are referring to a different method...

[Rob L.]

Hey Paul Donoghue, I have rentals in Lawrence and Haverhill so somewhat close to yours. Question for you on the 14 day notice to quit. I've been doing it on the 5th and was curious what your method of delivery is? I've read certified mail is not good because tenants can avoid pickup. But, its costly for a constable or sherif each time. Thanks

[Paul Donoghue]

Hi Rob L

I show up at the property hand it to them and if not home, I slip it under the door. I fill out a section of the 14 day notice below.

I delivered this notice on __________________________________as follows:
[Check all that apply]

[ ] by delivering a copy, in hand personally, to the above named
Tenant __________________________________________at ______________________________
In the presence of ____________________________________________________

[X ] by leaving a copy, slipped under the dwelling unit entrance
Door, at the above described premises.

I have been in and out of housing court to often, but less now.
The Lowell Greater Landlord Association is a good org to join.
They had a housing judge as a speaker and provided useful information.

Paul

[Paul Donoghue]

Hi Frank,

I sent an e-mail to your private e-mail, stating what the rents in Lowell are going for. Did you get it.

Paul

[Frank Fiore Jr]

Hello Paul Donoghue I did receive your email; thanks; it makes me wonder about my "good" tenant upstairs... they are paying 900$ and I think if I raise the rent 150$ they will move out.... as for the 3 bedroom, I will be putting it up for rent shortly and will obviously be advertising it for 1300$ and see what I can get.

I am a bit curious about your court experiences; I have a tenant; had: who I finally got out of the house and it is looking like I will have to take him to court, what has your track record been like in regards to actually having favorable rulings (judge states they owe the full amount), and secondly how well have you done with actually collecting what is owed? Finally do you take them to small clams court? I am hearing this is the best bet. I still don't understand how taking this guy to court is going to get me the money owed... FYI, I have learned the first rule of renting; Don't rent to family or friends; really well... this was a "friend" and he keep saying excuse, excuse, etc... and it took forever to get him out; he owes me just under 7k.... So I have that going for me, which is nice!

[Paul Donoghue]

Hi Frank,

Did you go through the housing court to evict him?
If not, you have to go through small claims (Herd St Lowell MA).
Do you know where he presently resides?
Do you have a rental application with his signature?
Google AAA constable in Lowell to ask questions. They are pretty good and they do not charge.

[Paul Donoghue]

Hi Frank,

Section 8 (CTI) has a website to list your vacancies.
You can advertise on Craigslist as well. I usually ask my tenants for a 60 day notice if they want to leave. This allows me time to show the property and reduces cash out of pocket.

[Frank Fiore Jr]

Paul, thanks for all the information;

I did not go through housing court to evict him.
I am trying to find out where he is living, I have a rental application with his signature and on the last day he was in the apartment I had him sign a sheet of paper outlining every thing he owed me; which he signed and dated, I gave him a copy and I keep a copy.

Do you usually go with Section 8 for your rentals? I have no experience with that; do you find it to work out better or worse?

Again thanks for the information it will be / is a big help

[Paul Donoghue]

Hi Frank,

The rents I quoted were section 8,and should be similar to the open rental market. You have to comply with section 8 annual inspection. Yes some of my properties are with section 8 and I am receiving good rents and on time most of the time.

I use to send the US post office a standard form showing I had and individual under court order to pay up and the US PO would provide me their present address.

How do you plan to collect if you do not have his current address?

The housing market is heating up. Interest rates are low and the supply of RE is low.

[Ziv Magen]

Welcome aboard, Frank F. - sorry it had to be this way, but still good to see you here. :) As much as I love Brandon's work usually, I'm actually with you on this one - being gun shy until you have a better strategy in place is probably a wise choice (in my book at least).

I'd look into refinancing and also potentially rehabbing and selling to move on - maybe starting from scratch is the best that can be hoped for here, with a new, better informed and better formulated plan.

Incidentally - are you landlording by choice or necessity? have you considered that maybe your bad luck with tenants and payments could have been alleviated by going with a good, locally adept PM?

[Frank Fiore Jr]

Ziv Magen, Hello; and thanks for the welcome

Let’s see if I can make this a short "story" LOL....

I purchased the property; in 2003 +/- for 250k with no money down; NICE; right! And every move I made after that was a negative compounding error of a magnitude seldom seen in Real Estate! LOL... I have to laugh....

A few years later; I refinanced out of the 80 / 20 loan; and used the equity to fix up the place a bit; this was a adjustable rate with pre-payment penalties… long story short; when the adjustable was about to mature; the payment was going to go through the roof; so I refinanced in 2009 (just after the HARP) cutoff date; I swear they held up my closing because they knew that date was occurring in the program! The prepayment penalty was rolled into the new mortgage and the market was on its way down etc… so I currently owe 310K on a house that I paid 250k … today’s market value; maybe 270K, the mortgage is 2300$ a month with escrow; and I get 900$ and 1200$ for rent when they are both occupied.

I have given serious thought to just walking away from this mess! It is my fault; I do feel like I was “taken advantage off” with the pre-payment adjustable refi but there is nothing I can do about it now. I really don’t like making excuses and I tend to beat myself up to much as it is….

So, being that far underwater I can’t refi and I don’t qualify for the HARP program.

The house needs some cosmetic work; paint or vinyl siding, some paint on the inside hallways. I just put another 3k into the house for a new roof on my 2 porches….

My last tenant owes me 7k; which I will be going after in small claims; when I get his new address.

I could scrap together enough of a down payment for a 200k mortgage if I needed to but I would like to find a way to utilize a leverage technique or lower down payment to allow myself to hold onto some of that cash… once my cash is gone it will take a while for me to save another down payment. Any passive cash flow from a second property will just be going into the first one that is operating at a loss.

You would think; with the way I messed this up; I would want nothing to do with REI; but it just makes me want to get more involved and become a REI not just a guy who owns a 2 family property! I am glad I found BP but wish I had many years ago…

[Ziv Magen]

I wish I knew enough about your local market and/or your finance options to give any relevant advice. If you've got money for a down payment, maybe you've got enough for a small cash purchase that'll yield enough to ease the pain a bit on the non-functioning property - at least until the time is right to sell it?

Note investments and/or overseas properties would fit that bill, if researched carefully - as would some of the lower end properties in the areas worst hit by the GFC in the US - up until a few months ago, $50K cash yielding properties were still advertised in the US - haven't been following offers since though...