All Forum Posts by: Julian Caiceros

planning on being there. thanks!

I'd be up for it. I agree with some place informal. Maybe lunch at Jackson's Richland on a weekend?

@Edward Synicky 

Thank you for the welcome! I appreciate your kind words.

@David Fritch  @Brandon Luke 

David, yes, I would be very interested in a group getting together here in the Tri-Cities. Although I've been a landlord for 4 years, I still consider myself a rookie in the real estate investment world. I would like to continue to purchase long-term investment properties and would appreciate an opportunity to talk to others who have similar interests locally.

@Casey Stratton,  heads up!

@Michael Otranto 

You bring up some good points regarding the owner financing terms. The seller is not very motivated at all to negotiate and seemed surprised and worried about the DOS clause when I mentioned it.

For tenant screening I use Airfactz out of Spokane, WA. They were recommended by my RE broker and they seem to do a good job as far as I can tell. I handle all my own routine low-level maintenance and have working relationships with a local drywaller, a painter, a plumber, an electrician and an HVAC guy in case any big projects arise.

For the security deposits, I set up a separate savings account at my local credit union and do the "set it and forget it" mentality. After all, that's not my money to play with, it belongs to my tenant. To the best of my knowledge, Washington state does not require you to set up trusts for security deposits, but I'll double check and be sure to follow the letter of the law.

I think at this point, I'm going to try to convince my wife to move in to the 4plex in order to take out an owner-occupier loan and purchase outright just the one 4plex from the current owner.

I took out an owner-occupied FHA loan when I bought my duplex four years ago. If I understand current lending standards correctly, I'll need to refinance my current FHA loan into a conventional loan (my LTV should be about 75%) and only after I do that will I be able to get another FHA loan to buy the 4plex, right?

I think doing that, at a 4.75% (or so) interest rate instead of the owner financed 8%, my cash flow will improve to an acceptable point. And it'll be easier to jump from managing 1 side of a duplex to managing 1 4plex as opposed to (2) 4plexes.

As a general question, do you know if banks still let you do a loan for 80% and then a 2nd lien home equity loan for the remaining 20% that you're down payment doesn't cover? I'd rather do that and pay off the 2nd loan as quick as possible than to have PMI for the life of the loan. Any input there?

@Michael Otranto 

RE: PITI/PI

Well, that brings up a good question. If structured as a subject-to where I'm replacing them as the owner, how are the end of year taxes going to be handled regarding property tax-related deductions? As it is, the sellers are already going to take some convincing to follow through on the subject-to deal.

I've heard the term "Master Lease" thrown about in the forums. Maybe I should propose to do a Lease contract for the two properties from them for whatever their PITI is plus a certain premium, with the provision that I can sub-lease the units at my discretion and am responsible for any and all maintenance and repairs, with a secondary Option contract stating that upon satisfactory completion of the 60-month Lease contract I will have the option to purchase at the pre-determined price.

I'm very new to all this, Michael, what do you think? Is this doable and is it legal? Any insurance ramifications on their end considering I'm planning to sub-lease? This might be enough of a gray area to ease their fears of the DOS being called.

I WILL make it clear, though, that this does not eliminate any and all risk regarding DOS. Depending on the bank and depending on if interest rates rise and they're likely to make more money, they might call it due anyway. And to clarify, I do plan to use an attorney to structure the formal lettering of the agreement. Opinions? Concerns?

ps: thanks for the link. I'll be checking it out later today. I second @Clay Manship 

How does the land trust sale agreement help nullify the DOS clause?

I'm interested in 2 Four-Plexes but after running all the numbers for rental income (all units are at fair market value) and deducting all expenses (incl. Utilities, maint., cap repl., ins., vacancy, etc) due to my meager down payment I'll only cash flow about $365 per month total for all 8 units. The seller is offering owner financing at 8% 30 amortization with a refinance expected in 5 years. I'm planning to keep 10,000 in cash reserves.

I plan to hire an inspector, but overall the units look in great shape with no deferred maint that I can tell. Nevertheless, I'm being conservative with my planned expenses.

Budgeting 8% vacancy, 8% maint, 10% capital replacement costs (roof's in good shape but about 15 years old, hvac systems are pretty old as well), and while the 4-plexes will pay for themselves and accumulate equity, the low cash flow has me concerned. Unless the properties achieve unheard of increases in appreciation, I'll be one catastrophe away from not being able to save up enough down payment and the required cash reserves to refinance within the next 5 years.

The seller has had these properties on the market off and on for about 2 years and state they want to liquidate their rentals in preparation for retirement. 

In casual conversation in order to encourage me, they told me they had minimum cash for a down payment when they purchased 11 years ago but their good credit and a great mort broker still got them the loan. I pulled their purchase amounts from the county records, the current interest rates at the time of their purchase and calculated a ball park figure of what their mortgage payment could be. Needless to say, significantly lower than what my payment will be.

I'm considering offering to do a subject to purchase agreement to allow more cash flow and have a greater chance to put together the cash I'll need in 5 years. Structure it where I'll pay in full their CURRENT asking price in 5 years, minus a $15,000 down payment given upon signing the agreement, and minus however much the principal drops in the next five years. I'll provide semi annual reports with bank statements showing my progress accumulating the refinance monies and also detailing what work is being done to the property and/or ongoing maintenance/upkeep. Maybe couple it with a semi annual walkthrough?

In exchange, not only will they get their asking price but they will also no longer be responsible for the upkeep and property management of their buildings. Once the refinance is done with a 20% down payment and depending on current interest rates in five years, the cash flow should experience a measurable increase.

I'm aware there's a risk of the DOS clause being called, the unknown factor that their mortgage payment might be higher than I've figured if they've done any refinancing since purchasing the property and that interest rates are at times volatile so in 5 years my cash flow may not increase at all. That being said, what do you all think?

@Matt Kissler 

Regarding your brand new properties...as long as your cash flow is there and you're getting good discounts, have you considered Leasing them with Option to buy? From what I've read, these tenants take better care of the property in the long run and you can have them take care of most menial maintenance issues below a certain dollar amount preset by you, of course. Most of the articles I've read state that you still want to make sure to take care of any big ticket items to avoid "equity stake" issues.

Also, the price set forth in the Option contract could be set up at current market levels plus whatever percentage of appreciation the region is expected to achieve between now and the day their Option comes due. Just my humble opinion. I'm by no means an expert in the field of real estate investing, but I have been learning quite a bit thanks to BiggerPockets. Have a great one!

@Matt Kissler 

@Angelique Tinney 

Regarding the Prosser area...the Yakima region, lower valley in particular, has seen strong growth in the viticulture industry and also agricultural industry in general. Katherine is probably much more knowledgeable and can correct me if I'm wrong. Although the population count of the small towns in the Yakima Valley may be on the low end, they get "fresh blood" due to the hiring of highly educated agricultural professionals.

Many of these people are here for a contracted term of one or two years at most and earn 50k and above. Coming fresh out of college and making good money or from large metropolitan areas, they don't blink an eye at what locals would consider higher than normal rental rates as long as you provide a good product.

I had one applicant that was a biochemist/engineer from Chicago working for a company that specializes in growing roses, of all things. He had no problem with my rate, but I had a slight problem with him wanting to have a pit bull terrier in the duplex. I don't particularly think the breed is bad, per se, but my insurance company told me they'd drop me if he moved in. Turning him down was actually a good move in the long run. I love my current renter, and she has been with me for quite some time.

Many of these professionals fall in love with the region and end up staying long term. You'd want to subscribe to some of the local business journals and see if they have free e-mailed newsletters so you can get a feel for the state of the market and long term rental viability...that's my suggestion, anyway.

@Michael Noto 

Thanks for the info. I'll have to head over to my local public housing office and touch base with them there. Every state has it's own particular regulations and procedures, but it's good to hear that at least in ONE part of the country this is allowed. I'll check back in and provide an update once I have the 411. Best of luck to you in all you do!