All Forum Posts by: Paul Choate

I am basically doing the same thing. 

Here are my issues:

Refinancing is difficult and I am getting loans at 50% LTV so it is taking longer. I have to look harder for houses that I can buy and fix up for price I need.

You need to plan on going slow or having outside cash flow (your job) if you want to grow this model quicker. Be very conservative on vacancies and repairs.

The positive is the cash flow from the rental itself. It can make up for a lot!

Good Luck!

@Rhett Tullis

Is a great property manager and active real estate investor. Good luck!

@Chris Brock

I am an investor in Shawnee, Oklahoma. Please contact me at your convenience. Always interested in deals and opportunities. Thanks!

@Jon S.

Employment

Sec. 525 of the bankruptcy code prevents public and private employers from discriminating against individuals who filed bankruptcy. There are some exceptions for fiduciary roles (i.e. stockbrokers etc). 

I should make it very clear. Bankruptcy is a negative as a whole. No one goes into bankruptcy planning to do it because it is fun. There are very few ways to game the system without crossing the line into criminal acts. There are individual bad actors out there. That is not those who took chances or believed the advertisements of creditors or even overextended themselves with bad choices. Hind sight is 20/20. No one plans for a job loss, medical problems or other common set backs.

But, bankruptcy can be the quickest, fastest and cheapest way of dealing with debt. The point is a fresh start for honest debtors to get them back on their feet and moving forward.

As to future credit, I have no inside knowledge about lending underwriting standards. I really can't comment on what the future holds. The fact of the matter is the current debt is here and is generally at high interest rates. I know my clients get new debt after filing as they have to contact me about it for various reasons. From what I can tell, if you have a good income and keep your credit clean, your credit score increases rapidly after filing bankruptcy. If you do the same things, your credit stays the same.

As for private lenders, I use them extensively. I have never provided a credit report to any of them. Everything I do is based on what I have done and the deal in front of them. 

@Marcus Auerbach

Its not about whether they can afford it. Its the fact they actively participated in the creation of the debt. They took a calculated business risk. Win some and lose some. The fact that they win the vast majority of the time should say something about the game.

@Account Closed

Background: I am a bankruptcy attorney.

Well, you asked for advice and after reading through all of the responses I think you got what you paid for! 

I am not going to give you advice to file or not to file. Only you can decide what is best for you. I will however try to correct all of the poor advice given.

First some simple facts-

Bankruptcy stays on your credit for 10 years. Your credit will probably be better or the same after filing bankruptcy as it was before filing. Why? The two biggest parts of your credit score are how much debt you have (currently a negative) and your payment history (unknown). Most of my clients are between 630 and 680 a year after filing. Bankruptcy is a negative but it is not given the same weight as the debt you are currently carrying. It is fairly easy to recover from a bankruptcy but it is dependent on what you do going forward. I have a steady flow of clients who have to file bankruptcy to keep their military clearances or gaming licenses because they are less of a risk after filing bankruptcy than before. There are over a million people who file for bankruptcy every year.

(For all of you getting your undergarments in a twist- please see the morality section below.)

Debt consolidation!!!!!!!!!!!!!

Debt consolidation is a scam unless you do it yourself or go through a true non-profit like Consumer Credit Counseling Services (CCCS). But guess what? Debt consolidation and debt management plans wreck your credit worse than bankruptcy. Why? Because you are not paying according to the terms of the agreement. Therefore, late payments are being reported and the final note will say something to the effect of "settled for less than full". 

Debt consolidation works like this: you hear a commercial promising to pay your debts for less than you are paying now over the next 3-5 years. You sign up and start making a monthly payment. 8 months to a year later, you get sued and the consolidation company says, "sorry, we can't help you, we are not lawyers. Oh, and by the way, all of the money you just paid us was applied to our fees. The next 2-5 years was going to go to the creditors." Debt consolidation companies can not control the creditors. They use the normal collection cycle to milk you out of a couple grand and then they are on to the next one. If you want to go this route- read Dave Ramsey and do it your self. (It is possible, hard, but possible if you have the extra income.)

You can only do three things in your situation:

1. Do nothing ( the- can't get blood from a turnip- idea; only good if you have no income and no assets and you do not plan to change that in the foreseeable future).

2. Work with your creditors (everything from settling the debt to paying them in full through wage garnishment or asset seizure). 

3. Bankruptcy

How do you decide what is right for you?

Everyone has a line.  This line is the mathematical point where one penny over it and you can not recover. It does not matter how hard you try or how much you work, you can never pay back what is owed according to the terms of your agreement. Are you there? I can't answer that for you. 

I have filed bankruptcy for people who owed millions of dollars and for a person who owed $3000. What would the commentators here say? The first was "justified" and the second one wasn't. The second was a 70+ year old man bringing in $850 a month in Social Security and his debt was loan companies charging 119% interest. His payments were more than his total income and he could not work due to his health. 

The point is there is a line. The amount is not important. The line is. Only you can figure out what that line is. You can work the next 10 years and still end up filing bankruptcy. One of the leading causes of divorce is conflict over finances. Why on earth would someone prioritize the quarterly profits of Capital One over their own marriage? Because of advice as given in this thread. 

Now my opinion (the morality section).

Quick note if you are a religious person- bankruptcy originates in the Bible. Forgiveness is a part of every religious belief I am aware of. No one is perfect. 

An underlying assumption of most of the posts is one of a "moral" obligation on the part of the individual contemplating filing bankruptcy. This makes me see red. 

 Every single lender on a national level has committed criminal acts against consumers. (Remember too big to fail and its aftermath anyone?)

Every. Single. National. Lender. Many smaller lenders do as well.

Guess what happens to the bank? Pay a fine. (Not to the people who were hurt of course; but to the federal regulatory agency.) Move on. 

(In my best announcers voice)

In this corner we have Big Bank X spending billions of dollars on research and marketing with hundreds of years of institutional memory in the smartest minds from the best schools, all laws and regulations are influenced and approved by their lobbyists, all regulators either worked for them or will some day

and in the other corner 

a 22 year old. 

The world is different than it was 200 years ago. The banks are big boys and they know what they are doing. It is business to them. They created it! They are making money all the way until they push you off a cliff. There is a culture trying to keep you on the edge for as long as possible. Who do you think benefits from this attitude? (Hint: its not you.)

It is a business for them and it is time you treated yourself as a business. Make your own business decision. That may mean doing everything you can to avoid bankruptcy or recognizing that you have crossed that line. 

Good Luck!

As a bankruptcy lawyer, I find your post inaccurate and only perpetuates myths about bankruptcy. 

Bankruptcy does not allow you to keep your home and not make payments. Chapter 13 Bankruptcy gives you time to catch up your past due payments. If you could not afford it before, it is going to be much harder in the future as the payment will include your current payment plus a portion of your delinquent payments. (Not to mention Court costs and Attorney fees...)

Bankruptcy is a tool to help you get back on your feet. It is not magic.

Chris,

This issue is owner financing. If you owner finance, you may have to file a foreclosure to remove the purchaser not the easier/cheaper/quicker entry and detainer (eviction). 

There are different arguments to be made from a legal stand point depending on how you structure the deal. I often represent debtors so I would argue that you must file a foreclosure even on rent to own deals. Other attorneys and individuals may argue differently because the average debtor in this situation knows they are on the way out any way. They rarely fight. Doesn't mean they couldn't- which is a potential cost to you.

@Chris Swindell If neither you or your mother want the property, I would sell it outright. The margins are too tight for the amount of risk and work. I am assuming many things here about the future appreciation and what your time is worth, among others. You could arrange for the sale through a local realtor as a way of helping her.

I think the biggest risk is owner financing to an owner occupant who depletes the property's value by not maintaining the capital expenditures (roof, systems etc). Then you have a property 5-10 years down the line that is not worth anything close to your original asking price. You would be forced to sell it to an as-is-buyer like myself. Those are the properties I look for. It is always sad to see the result of a poorly maintained and managed property. No one plans for houses to fall to this state. It is just a series of decisions that slowly go down hill. If you are not local or do not get a good property manager, it will be hard to watch over it properly.

You asked for pitfalls. This is very common for out of area owners. 

Your financing terms from your mother are great. The problem/value is the buyer is going to be an owner occupant. There is nothing here for another investor. The buyer could be great and pay it in full after taking care of it. They could also have a problem and bail on you after draining all of the value they can out of it. NOT LEGAL ADVICE- In Oklahoma, if you owner finance you may have to file a full foreclosure regardless of how you set up the contracts. 

I am a bankruptcy attorney and invest in fixer uppers. I only see the times it goes wrong. Take what I say with a grain of salt.

you are paying her out over almost 8 years and you said she doesn't require a down payment.  At the end of that time, you will own the property free and clear and start pocketing the $425. 

If you do a lease purchase, you might make $200 per month for 8 years and $700 for 2 years if the buyer pays it all.

My experience is these types of lease purchasers don't maintain the property and if anything changes, they bail.  

If you don't want to manage or maintain the property, you need to get a bigger down payment to account for that risk. This coming tax return season is a good time for that strategy. I would suggest a minimum of $5000. 

I would just rent it but it will be a slight alligator until it is paid off.