All Forum Posts by: Marcus LaGrone

Andy, are you looking to hold the property or fix and sell?

If you are paying 91k before repairs and the ARV is 130k, the property does not have 39k in equity.

Also, you need to take into consideration your costs to sell the property. Even at your most optimal purchase price (from what you provided), this is a bad investment no matter which way you look at it.

If you choose to hold the property, you would need to get close to 2k in rent / month in order to receive a decent cash flow.

If you are looking to sell the property, the equity is not worth the risk. You are investing nearly 100k (if repairs are 9k) to make 30k or less. More than likely, the property will not sell for 130k if this is the ARV. No one is paying full retail price for anything right now.

1) Redefine your strategy and spend some time researching and asking questions on this site and with local investors.
2) Only purchase according to what you define as your strategy.

With 240k you have the ability to set yourself up for life…..if the right decisions are made in the near future. But, a few mistakes can easily put you near 0 and holding property that have little cash flow for the long haul.

My suggestion: Lower your purchase significantly and if you can’t find what you are looking for…..keep looking.

Jason,
Lending to LLC's has always been next to impossible...especially newly organized LLC's, corporations, etc.

Banks have never been eager to lend to new companies becuase of the risk involved. If your banker is acting like this is something new....I would find a new banker.

Also remember, you have duties that must be performed in order to show diligence on your part to keep your neighbors as safe as possible if you are going to allow a tenant to have a pet.

If you allow your tenant to keep Pit Bulls in a backyard with a broken or short fence, then yes…you will definitely be named and probably found guilty in a lawsuit.

I would not recommend that you market to Tenants with Lions, Tigers, and Bears. But...if they happen to have a hotdog I'm almost certain that requiring renters insurance with the maximum allowed medical coverage and Family Liability will suffice.

I had a a couple of minutes free, so I figured I'd jot down a few things that could potentially save you thousands!

1) NEVER label an additional deposit for pets as a “Pet Depositâ€. Many courts will only allow you to deduct the amount allocated for a “Pet Deposit†for repairs caused by a tenants pet. The best wording when dealing with a pet is “An additional deposit in the amount of $??? is required if a pet will be present in the property."

2) Always be as specific as possible when determining Owner / Tenant Responsibilities. Children are normally the reason for costly repairs. Adding a simple clause to your Lease Agreement similar to the following may save you a ton:

Tenant is liable for any damage caused by the occupants of the property including, plumbing, electrical, and acts of vandalism.

Something this simple can save you from having to pay $4000 to replace a sewer line that the tenant’s children stuffed toys in. Or at least will give you the ability to go after them for the money if they skip town.

3) Establish set inspection dates…and stick to them. Tenants seem to always take better care of a property if they know the Landlord or their representative will be stopping by periodically.

4) Never use an Unlicensed Property Manager (even if your State allows it). Licensed Property Managers must have strict bookkeeping and accounting practices. They are also subject to random audits by the State. Unlicensed Property Managers are not governed by anyone and have a greater potential for costly mistakes.

5) NEVER accept partial payment once a Dispossessory is filed. Accepting a partial payment in most cases will automatically void the Dispossessory.

6) Never take certified funds from a tenant who is an employee of the place where the certified funds come. You might as well have accepted a personal check!

James,
I have to disagree with you. Banks are more willing to allow for 203k financing than they are for an investor paying cash. Why? Because banks are getting incentives for selling an REO to an owner occupant as opposed to an investor.

I sell a lot of REO's and I have never had a bank turn away 203k financing. In fact, I have had offers come in at the same net to seller; one with 203k financing and one a cash purchase and the owner occupant 203k was chosen over the cash investor.

I doubt it.... I've never seen this before. Normally wholesale deals show a real generic LLC.

Hopefully someone else can chime in and shed some light. Now I'm curious.

David,
It probably is a wholesale deal.
1) Wholesaler purchases a property in an LLC.
2) The LLC is then sold to the end consumer (new buyer) for a fee (similar to an assignment fee)
3) The new buyer then sells the property to themselves to remove the LLC (shortly after closing)

This is a way to get around the banks not allowing you to assign their contract.

Mark,
I know this doesn’t happen anywhere but in Atlanta. That’s why the government put the 90 day notification rule in place for tenant occupied properties.

I also have a brokerage that sells REO's and we come in contact with about 3-4 families a month that were renting from a landlord that never told them the house was going into foreclosure. Due to the timing of the foreclosure sales in the area (1st Tuesday of each month) they normally just paid their rent and then I or someone from my company stops by and tells them they have to get out. Not only are they out of this months rent, but also any security deposit.

A tenant doesn’t need your credit score, they are not financing anything for you. However, they should have the right to prove the landlord is upholding their end of the deal by performing a basic function like (paying the mortgage).

This is a business, but we are also dealing with people with legitimate concerns about their families future.

I recommend that all tenants put a foreclosure clause in their lease agreement, but there is never any monetary recourse. I feel they have the right to ask these questions and it shows they are fully engaged in the process. Fully engaged prospects always make for better tenants.

This is a clause similar to ours: Tenant has the right to request proof that any mortgage(s) held on the above referenced property is no more than 60 days delinquent. Proof may be requested in writing, once every 4 months for a fee of $15.00, with the first request of each lease term being free to the tenant. In the event that the mortgage is found to be more than 60 days delinquent, the tenant may terminate this agreement with a 30 day written notice. No early termination fee will be assessed. All other provision of this agreement remain.

I don’t have our agreements in front of me, but this is pretty much what it says.

George,

Here a few ways,
Contact management companies or agents that are familiar with helping investors acquire properties and simply tell them what your criteria is and ask what areas they would recommend.

From there, you do your own due diligence according to the information that was provided. One of the first filters for determining if a property is in a war zone is the fraud in the area. Most war zones have had extremely high mortgage fraud in the last 24-36 months and many banks have flagged these areas. I am not saying this will be 100% accurate, but it’s a good start if used with the following .
1) Cross check the selling prices with the median sales price for the area. If the properties are way below the median for the area, its probably a blighted area.
2) Check the income levels for the area. Average household income will usually match up to the sales prices. If the average household income in a given Zip Code (for example) is 80k but the majority of the houses that your are looking at are running $10,0000 more than likely you are in a hard hit pocket.
3) Check the school rankings. The most blighted areas will normally have the worst schools in the area.

Numbers are normally the biggest determining factor. Find the median and work from there and you will have a decent start. Also, if you are looking to really do a lot of business in an area…why not take a few days, fly in, and look around. It could be the difference between a huge success and huge failure.