All Forum Posts by: Ben Zimmerman

No offense, but I hate the idea.

You can send someone a bill all you want, but they aren't going to pay it, which means that all you are going to end up doing is turning off their account. And if you are going to ultimately just disable the account, then skip the fine altogether as it sends a bad message to the community. Right now this sounds like most of the HOA's that we all hate that issue random fines for no real reason, and then attempt to justify it with their bass ackwards logic that they are actually somehow doing us all a favor.

I'm not a lawyer, but I would imagine you could also open yourself up to legal action.  How exactly do you intend to define the difference between a fake wholesaler, and a legitimate wholesaler?  Or pretend to be an investor when contacting professionals, versus actually be an investor when contacting professionals?  Are you reducing my ability to network and conduct business and negatively impacting my future deal making ability by calling me a "fake investor"?

Don't use napkin math 'rules' to make investing decisions on.

I hate the 1% rule, for the same reasons I hated the 2% rule a handful of years ago.  When people hear the word rule, they think that if they don't meet that mark, that they are doing something wrong.  Times change, markets change, interest rates change, but we still hear about these same old "rules" decades after they lost their relevance.

The same logic applies for napkin math rules that say that capex, vacancy, repairs, or whatever, should each be estimated at X% of monthly rent.  A 100k home in Podunk Oklahoma that was built in the 1930's, is going to probably need a whole lot more than 10% of rent going towards capex, and likewise a 1m home in San Francisco isn't going to need anywhere near 10% of rent for capex.  Both homes are probably roughly the same SQ footage, the same level of niceness etc.  It's not going to cost you 10x the price to replace the HVAC in SF, than it will to replace it in OK.  

Furthermore, when you chase yields and try to hit 1%, you typically start loosening your investment criteria to chase that yield.  If you can't hit your targets in a B neighborhood, you start looking into C or D neighborhoods instead.  Sure that property property in the ghetto looks like it has a nice yield on paper, but in 5yrs time, you will have wished you had stuck with the B property instead.

Analyze a few hundred deals to get a firm grasp on what the market norms are.  Then the next time you find a deal that meets your investment criteria, at a below average price, then buy it.  Don't think about it, just buy it.

If you are second guessing yourself and wondering if it's a good deal or not, then you haven't analyzed enough deals.  When you've looked at enough deals you recognize a deal when you see it.

If you're willing to pay, then why are you so unwilling to sign a document that says that you are willing to pay?  Tailoring the document to include compensation only for homes that the agent assists you with should only take 30 seconds to type up, and many probably already have a standardized template document that covers that exact situation.

It's a pretty straight forward scenario, so I'm not sure why you keep arguing with people who are responding to your post. It really doesn't matter if you agree with the law or not, no realtor is going to touch you without signing something first. The chances of someone being an agent but not a Realtor, not having MLS access, and yet somehow still have a vibrant off-market deal list, with no buyers system already lined up, is virtually zero.

A decision by a court is law.  There are several different types of law, including case law, statutory law, constitutional law, regulatory law etc.

Most sub2 sales involve a seller who is distressed, but that doesn't necessarily make it a predatory deal.

Just about everyone in the US knows that owning and renting real estate is a tried and true method to wealth, but 99% of people will never own a rental property for a wide variety of reasons, fear being one of the biggest.  Just because someone could make $500 per month renting doesn't mean they will.  In fact in most cases they won't.  Either due to fear, lack of knowledge, lack of capital reserves, or any other number of possible reasons.

I have purchased roughly 50 homes sub2, and in none of those instances was I the only person making offers to the seller. Some of the sellers had previously listed their home on the MLS, some were facing preforeclosure, some were moving and didn't have enough equity to pay closing costs, some were.....

Literally anyone could have made an offer on these homes, and many people did.  But my offers are accepted because I have a proven track record of successfully executing these deals, keep several million in liquid funds, and I can offer them more money than anyone else.  If you want to offer them a better deal, then by all means go ahead and do so!  Surely if my "predatory" deal is able to make money, there is enough meat on the bones for you to be able to offer them better terms and still make a boatload of money for yourself.

I can offer people more money than anyone else, that isn't predatory, for a lot of people that's salvation.

It's apparent that you have never been party to a sub2 deal, or given any real thought to the benefits to a buyer.  Sure you can buy down rates at a bank, but that costs thousands of dollars in lender points and fees, and you aren't going to move the rate very far.  You might turn a 7% mortgage into a 6.5, but your not turning it into a 2-3% mortgage.  

Lets take a standard 400k house and assume you and I both start with 80k in cash.  You could get a new loan, pay 20% down (80k), and 7% interest on the remaining 320k balance, and that would cost you $2,129 per month (principle and interest).  

Or, I can "overpay" and pay 410k to obtain the house sub2 with a 2.5 interest rate, and finance the entire 410k balance, and still only pay $1,620 per month.  So even though I owe 90k more than you do, I'm still saving 500 per month in payments.  Not only that, but you blew 80k in down payment money, where as I still have my 80k sitting in the bank as potential reserves.  So I have a significantly lower monthly payment, and higher cash reserves.  I am simply much more stable financially than you are.  Not to mention you are going to be paying your loan for 30 years, where as my loan will likely be paid off in 20-25 years since the original home owner has already paid into that loan for a handful of years.

I'm obviously not advocating that you should overpay for anything, I'm simply stating that you could overpay, and still be financially solid.  The only way that the total balance matters is if you are somehow forced to sell the property shortly after buying it, and are thus underwater.  But with my lower payments I catch up and offset that extra 10k in purchase price in only 20 months, and my 80k cash reserves in the bank means there is no realistic scenario where I am financially forced to sell immediately after buying it.  That's enough cash to float the mortgage for 4 years without ever collecting a dime in rent.

Yes, there is a growing trend that sub2 is a way to get into real estate with no money.  But that is a guru teaching bad information problem, not a problem of a sub2 deal in general.

The risk with sub2 is the obvious, "is the buyer going to pay as agreed".  There are steps you can take to mitigate this.  

First, check to see how many deals this person has already done.  If he can't provide a track record dating back several years, that could be a red flag.  If he has been successfully paying other peoples mortgages for several years, there is no immediate indication that his intent is to rip you off.  

Second, ask to see proof of reserves.  If he has a large stockpile of cash or liquid assets, this can also help mitigate risk.  

Third, insist on having the loan professionally serviced. This will cost your buyer roughly 20 bucks each month, but its completely worth it. If the loan is serviced in this way, the loan won't count against your DTI after 1 year, should you want to purchase another home later on. In addition, an escrow account can be set up such that the servicing company holds 2-3 months worth of mortgage payments. They will also send you an email status update each month as they pay the bank your mortgage payment. This written confirmation will give you peace of mind knowing that the loan was paid each month, and it also lets you know several months in advance if you are going to have problems because the buyer isn't paying and is therefore depleting the escrow account.

And lastly, hang onto your 10k deposit and keep it handy.  You can use this to help offset expenses if something bad happens while you begin the process of taking back your house.

There are certainly risks involved, but you seem to imply that this is likely the best deal that you will get so you need to weight the pros/cons and see if it is a good fit for you.

The alternative is to ask if instead of doing the deal sub2, if the buyer is willing to buy the home on a wrap.  In this scenario the buyer effectively pays you, and you then turn around and pay the bank.  This makes it easier to take the property back in the event that the buyer stops paying since you can now formally foreclose on him.  However, it is somewhat likely that the buyer won't want to do this, because now it is HIM that is taking the risk that you will pay the bank.  What if he pays you and you simply keep the money?

If it were me, I wouldn't buy down the rate.  I would get the highest APY with the lowest up front fees possible and then refinance in a year or two.  Why spend thousands of dollars in points to get the rate down to 6.1%, if the normal interest rate is 6.1% in a year and you can buy it down to 5% or 4%, etc.

Nobody knows how low rates will go, but with the fed signaling that they will likely begin rate cuts in Sept, it's certainly a good sign.  If Trump wins the election, he will undoubtedly push to get rates as low as possible as fast as possible (for better or worse).

Just about anything is technically doable, however turning 50k into 3k/mo in only 5 years is probably not realistic.  It would take roughly 1.2m in 3% dividend paying stocks to earn that much.  So while 50k is probably enough to get you started in real estate, it is nowhere close to being capable of generating that kind of reliable income without serious growth.  In the long term real estate will make you wealthy, but it won't do it quickly, and the cashflow won't be nice and uniform where you can quickly start living off of it in the first few years to upgrade your lifestyle.

Cash flow can be tricky until you scale to a large enough portfolio where your expenses tend to balance themselves out each month.  Lets assume that you run your numbers, and after accounting for projected expenses like vacancy, repairs, capex, management etc, you think the deal will bring you an average of $300/mo. However, there is never a month where you will actually get 300. Instead your bank account will likely increase by 800 most months because you didn't have any expenses for that month, and then you get hit with a major expense like a new HVAC unit and have to pay $7,000, thus wiping out 2+ years worth of "cashflow".  And then the tenant moves out and it takes you 30 days to find a replacement tenant so you have no income for the month, and you need to repaint the interior costing another 2k.  For this reason, it can often be tricky to try to retire, or otherwise count on your cashflow to live off of during the first few years of ownership.  You can't reliably spend your 'cashflow' on living expenses, because you don't know when that next big expense is coming and therefore you need to keep that cash on hand instead of spending it.

Historically real estate has tended to go up in value by roughly 4% yearly on a nationwide level.  This doesn't sound so great when you consider the stock market averages closer to 10% yearly.  However the key difference is leverage, so if you buy 50k worth of stocks, and it goes up by 10%, you have made a 10% profit, or 5k.

However, if you had taken that 50k and used it to put a 5% down payment on a 1m duplex, or quad where you plan on living in one of the units, and that 1m property goes up in value by 4%, then you have made 40k in equity, which is an 80% returns on your initial 50k investment.  Now add in a little bit of equity paydown as you are slowly repaying the mortgage balance, and add a little bit for some theoretical cashflow, and add a little bit due to all of the random tax incentives landlords and small business owners get.  Once you start adding up all these little bits, its starts adding up to a lot, and when you start compounding that over a handful of years, and using the proceeds to purchase additional properties, it can quickly snowball into generational wealth.

Appreciation and equity paydown are by far and away how the majority of people get wealthy in real estate, the cashflow is a byproduct that tends to come later once you have had several years worth of rent increases. Lets say you hypothetically initially rent a house for 2k/mo and are essentially breaking even and not making any cashflow. If home inflation rates are roughly 4% per year, then it stands to reason that in general you can probably get in the neighborhood of 4% rent increases per year. So while you start renting it for 2000/mo, next year it will likely be closer to 2080 etc. After 6 years you are now making $500/mo in cashflow, since for the most part your big expenses (mortgage) have stayed constant, but you are earning more money from rental income. After 10 years the house will cashflow roughly 1k/mo.

These numbers are of course generalizations.  Some years real estate goes up in value a little bit, some years it goes up a lot, some years it goes down.  But over a long enough investing period the numbers should more or less balance themselves out and become fairly reliable.

As Bruce pointed out, the alternative is to buy and remodel a piece of crap house.  These have the potential to earn a lot of money very quickly.  With the obvious downside that it is a more risky approach, especially if you are not familiar with remodeling, design, appraisals, remodel costs, holding costs etc.  It simply takes more knowledge to be able to consistently have positive outcomes flipping homes, and buying a property that has unexpected expenses can quickly tank a project.  There is also additional risk when first starting because you will need to pay the mortgage for several months while having no rental income to offset the mortgage, as it will take you several months to remodel the property and be able to either sell it for a profit, or get it ready for a renter.  So your carrying costs can be quite large.  Not to mention that this is typically more time intensive and is more closely related to having a second job, than it is to investing.  

You will likely get two different answers to your question, and it ultimately stems from your usage of the word "foreclosure".

The word has technical definitions, and as JD pointed out, in a sub2 deal you don't have a security instrument that authorizes you to foreclose on the property.  So you can't "foreclose".

However, I'm 100% certain that what you meant to ask is effectively, "Do I have recourse and can I get my house back if the buyer defaults."  And the answer to that is yes, just not through the foreclosure process, you would use a different process.

Some states call things by different terms, but look up performance deed, or deed of trust to secure performance, or some verbiage along those lines.  This is essentially a type of deed that will transfer ownership as long as specific conditions are being met.  In this case, as long as the person is making all payments as they are supposed to.  This gives you recourse if the buyer stops making payments as you can have the courts enforce this performance deed and transfer ownership back to you.

Just make sure you have a competent REAL ESTATE attorney review the documents prior to signing them to ensure that everything is properly worded to ensure you are protected.  

I take things like this personally, and I wouldn't bend the knee even if it was easier and cheaper to simply pay out.  I would fight to the death if someone tried to weasel out like this.  Transferring ownership of a deposit the day after eviction is not a "normal" occurrence, and is certainly not normal when the same lawyer does this 80 times per year.  This is clearly a shakedown, and while I'm not a lawyer and wouldn't know what law it violates, it certainly must violate one or more laws to purposefully conceal what the correct address is in an attempt to have the LL violate housing laws, and thus profit from it.

I would request a freedom of information act request, and ask for all documents related to the previous 80 cases, as there are bound to be common themes, such as "attorney claiming to have sent a letter", but all 80 landlords mysteriously never got a letter.  Remember that in court, claiming to have sent something doesn't mean Jack.  If you can't prove it with a certified receipt, then it didn't happen.  And I can pretty well guarantee that nothing was ever sent via certified mail.  80 cases of a lawyer not sending important documents via certified mail establishes precedence, and willful deceit.

If you can establish that the lawyer is acting unethically, or better yet illegally, then you may be able to counter sue the lawyer and his firm for damages.  I'm sure this is taking quite the emotional toll on you, in addition to taking away precious time from your day where you aren't able to source additional deals.

I would also go after the lawyer and report this conduct to the board of ethics.  Even if it's technically not illegal, its still shady and unethical.