All Forum Posts by: Ben Zimmerman

Rate hikes will pause, at worst they will be .25 raises

I know the Fed talked a big game the last time they raised rates by .5%, but banks are already starting to fail.  And it's not just these 3 banks, everyone is in a fragile state right now.  1 big corporation failing can cause ripple effects that cause 20 other companies to fail, spreading the ripple even further.

It was silly to think that inflation could be 'tamed' within a year by beating it over the head with continuous interest rate hikes.  We just went through an unprecedented full global economic shutdown, and printed trillions of dollars out of thin air, and the fed thought they could fix this problem quickly? In the words of Joe Biden, C'mon man!

Personally I'm still buying, in fact I'm nearly always buying. Currently homes are sitting on the market for months and have multiple price reductions. The more homeowners are scared of the economy, the more desperate they become to offload their homes and take whatever amount they can get. I'm currently offering 30-50k under MLS prices and am getting a surprising number of positive responses.

There are roughly 4800 FDIC banks in the United States. A billion dollars is a lot of money to regular folks like me and you, but in Corporate America a billion dollars is a drop in the bucket. At the limit of 250k per bank, in order to get FDIC insurance on a billion dollars, the company would need to spread its money across virtually every single bank in the nation, and it becomes physically impossible to do if you have 1.2 billion dollars.

When you have a billion dollars, its not just as easy as 'diversify and buy some real estate'. With no leverage that means buying over 3300 SFR homes at 300k each, or 6600 with a meagre 50% LTV. At that scale we aren't talking about just buying some real estate, we are talking about forming a major corporation to procure and manage that many rentals. And once again, remember that a billion dollars is a small number in the corporate world. What do you do when you need to spend 10 billion, or 100 billion?

You mention that markets like this can be beneficial for real estate investors who have preexisting relationships with people who have cash...but where do those people with cash keep their cash?  Answer:  In the bank. 

Banks follow strict regulations when it comes to what they can and can not do with deposits, and how much reserves they are required to keep.  These regulations are put in place to prevent risky behavior.  If the federal government puts in place rules that say that "X is safe to do", and then completely and dramatically changes the financial landscape by changing from QE to QT virtually overnight, and dramatically jacking up interest rates sending the entire global financial industry into a tailspin is that really the banks problem, or is it the government themselves the problem?

And lastly lets not forget that this bank is failing because it invested its money in the absolute safest investments possible.  Treasuries.  So if playing it safe leads to a bankruptcy then what does that tell you about the government changing the rules mid game?

A functioning economy requires a safe place to store your money.  Until crypto takes over and people are able to self custody their wealth, banks are the only option that we have.

 If the lease doesn't expire yet for another few weeks then I wouldn't necessarily jump to conclusions that he won't actually leave.  Have you given him the proper notices of non-renewal?  Someone mentioned 120 days for Chicago and I'll assume this is correct.  If you didn't give the proper notice, or if you gave him a verbal notice, I would immediately send him certified mail (with receipt) containing a written notice that he needs to be out 120 days from today.

More importantly you should evaluate the leasing agreement and update it to include provisions that he is doing that you don't like.  If you don't want personal stuff in the laundry area, or additional parked cars, then your lease should specifically spell that out etc.  At an absolute bare minimum the lease should specify that the tenant is not able to make any changes without your consent.  Changing the locks is simply unacceptable and needs to be reverted back to the original lock immediately.  Refusing to do that would be grounds for immediate eviction in my books.


Get rid of these types of people after year 1, not year 4.  The longer you tolerate bad behavior from tenants, the sooner you get gray hairs... It's just not worth it.

The rule simply says you have to live there for at least 1 year as your primary residence (51% of the time), it doesn't say anything about renting a portion of it.  So as long as you live there as your primary residence then you have fulfilled your responsibilities.  You likely won't be able to claim the income from renting the upstairs portion if you are living in the basement for purposes of the loan or any potential future loans, but that's about it.

As far as the city is concerned, all sleeping areas must contain an emergency exit.  It doesn't matter if you call it a bedroom or call it a basement, if you sleep there - it needs an egress.  However there is roughly a 0% chance the city would ever find out and your liability is probably pretty small if you yourself are the one living there.  Things could get significantly worse if someone else was sleeping there.  For example if someone else was sleeping there and you knew about it and the house burned down killing the person, you could potentially be held liable for their death.  But if you were sleeping there and you died, well then that's just a risk you knew you were taking.

Even if you add a shower, you're still missing a kitchen, and even the ultimate bachelor gets tired of eating microwaved hot pockets every day.  Unless you knew the person living upstairs and had unrestricted access to the upstairs portion then I sure wouldn't want to live in the basement without some serious remodeling.  That combined with the fact that you don't have your own private entrance means that some people will naturally not want to rent the upstairs portion.

Personally -IF- I were going to go that route, I would see if it makes sense to reclassify the property as a tri-plex (quad?) and actually finish the basement correctly with a legitimate bathroom/kitchen area and separate entrance instead of just an egress window.  But the amount of remodeling required is going to get costly rather quickly so you would need to carefully analyze to see if its worth it.

*insert_generic_Im_no_lawyer_comments_here*

If the original owner was family, and was giving a substantial discount to the fair market rent, then the transaction was not at arms length and the lease (in the unlikely event that there ever was one) is automatically terminated at the time of foreclosure.  

I would imagine this is how the law works for pretty much every state.  Imagine a father buying a house, renting it to his son for $1/mo with a 99 year lease agreement and then never makes a single mortgage payment on the home and allows the home to be foreclosed.  That doesn't mean that there is some kind of magic loophole and that the child will suddenly never have to effectively pay rent again simply because "he has a lease".

Obviously consult your own professionals, but if the "lease" is broken at the time of foreclosure, then these people have periodic tenancy and a simple 30 day notice to vacate would suffice.  I would issue a notice of non-renewal and if they ask for their rental "deposit" back I would once again tell them that the lease ended at foreclosure, and the owner of record when the lease ended was the son in law, so if they want their "deposit" back they need to talk to him.  

If they continue to press you for the deposit, or give you a hard time about anything else, I would remind them once again that you are not bound by anything in their 'lease', and then I would take it a step further and let them know that there are tax consequences for renting a home at below market value to family members and that the IRS offers a financial incentive to whistleblowers that report suspected tax fraud.  Let them know that if they want to be petty, that you can be just as petty.  They might be highly upset at what the son in law did to them, but they aren't going to want to open that can of worms on him.  (even if it's likely the IRS wouldn't investigate, the family still won't want to take that risk)

I'm assuming you are trying to see before and after photos and see how the price has changed due to the remodel??

Its a long shot, but sometimes the internet archive can surprise you.  

Go to someplace like zillow and copy the web url of the property you want to see.  Go to internet archive and go to their Wayback Machine and copy the link there.  If it doesn't produce any results click the link right below that that says "Click here to search for all archived pages under *web address*"

Like I said it's a long shot, but it did have an archive of one of my properties from 2019 when it was listed for rent.

https://web.archive.org/

As Jay mentioned, there is a massive difference between intending to buy the property, but eventually changing your mind and wholesaling it, versus never intending to buy the home, and intend for wholesaling it to be your "Plan A", and walking away from the deal is your Plan B.

If DR Horton says they are going to take your property, then they are going to take it.  Maybe they keep it, maybe they wholesale it, maybe they do whatever, but ultimately they are going to take it off of the sellers hands.  

If a new wholesaler (95+% of the wholesalers on BP) say they are going to take it, there is an overwhelming chance that they eventually back out of the deal.  Maybe its because they don't have a proper buyers network, maybe it's because they comp'd wrong, or underestimated rehab costs.  The wholesaler simply walks away from the deal unphased as they only lost their $100 'earnest money' so it's no big deal.  But to the seller they were counting on this house being sold, and may already have a new home under contract to purchase and now that purchase will fall through due to the ineptitude of the wholesaler.  Now people are stuck paying a mortgage for an extra few months while they sell the property to a REAL buyer and can put significant financial stress on a family.

There is reason why there are consumer laws that prevent people from walking in with no training, education, or experience, and tying up hundreds of thousands of dollars in a contract that they know they are currently unable to perform upon.  You can't sign a legal contract and hope that a solution falls into your lap after the contract is signed.  To the wholesaler this is a side hustle, to the seller this is their livelihood that is being F'd with.  

There are legal ways to wholesale, but unless you are already a massive player in the local RE market, then it is highly unlikely that you can actually wholesale a property without breaking 1 or more laws. How is a new wholesaler supposed to find a buyer when they can't market the property for sale, or show the property to potential buyers? You can't say that they are simply 'marketing the contract, and not the house', because no investor is going to simply take the word of a new wholesaler when they say that the ARV is XXX and the rehab is XX. Instead, the investor is going to want to see the property and verify the numbers for himself which is not allowed.

QUOTE:  "Examples of such acts include, but are not limited to, advertising listed property for sale, “showing” listed property to prospective buyers, providing information about listed property to prospective buyers (other than basic property facts that might commonly appear in an advertisement in a newspaper, real estate publication or internet website), negotiating a sale or purchase of real estate, and assisting with the completion of contract offers and counteroffers using preprinted forms and communication of offers and acceptances"

My opinion:  Let the plumbers plumb, and let the investors invest.

I don't know how many times I've seen forum posts by self managers concerning ESA animals, or asking which party is responsible for damages, questions about a lease dispute, or should I accept a highly qualified tenant but has a red flag of X.  A property management company offloads the responsibility of being intimately familiar with tenant screening laws and regulations.  

I don't know how many times I've seen someone run over to their rental unit on a Saturday because the toilet is leaking and they plan on fixing it themselves because it will be a 'quick and easy fix'.  So after driving across town to go to the unit, you see what's wrong and head to Home Depot to pick up the required parts.  Drive back to the unit but realize you forgot to pick up an insert_random_part_here so you drive back to home depot.  Then you go back and realize you need a slightly larger wrench than what you brought with you, but you already own one so instead of buying a new one you drive all the way back home to get the one you had.  Then after watching 30minutes of YouTube on how to fix a toilet, you triumphantly fix the toilet and save yourself $150 in plumber fees, but cost yourself $40 in parts and 4 hours of your time.  Time that could have been used to analyze future deals that would potentially earn you multiple tens of thousands of dollars because you 'bought right'.  It takes a lot of time at $140 per month to offset the gains from being able to better analyze properties and find that diamond in the rough that allowed you to buy your next property at 10k, 20k, 40k under price of what you normally purchase homes for.

Instead of being a shoddy plumber, or manager, I would much rather focus my time on the aspects of real estate that generate long term wealth, which is the acquisition, remodeling, and eventual disposition of real estate. 

That's not to say that in all instances it is universally a bad idea to self manage.  If you enjoy managing then good for you!  If you don't want to scale and just want a few properties to supplement your lifestyle then good for you!  But if you want to scale, you need to let the professionals do their job.  

I think rates will increase slightly or relatively flat-ish for the next year or two, and then start to quickly drop back down.

The reason being that the US simply can't afford high interest rates anymore.  Rates have been steadily dropping since the 1980s as can be seen in the chart quoted several times already.  I don't believe this is a coincidence since the national debt began to spike at the exact same time.

The economy is interconnected, stocks, bonds, Tbills, interest rates etc.  When historical mortgage interest rates ranged from 5-8%, the US debt level was nowhere near what it is today.  At 31 trillion dollars worth of debt, a 1% change in the prevailing interest rates means an additional 310 billion interest payment each year.  The government is already financially screwed, but it will be REALLY screwed if rates climb multiple percentage points and stay there for very long.

For this reason alone I'm fairly confident that the government will push to lower rates as soon as it is realistic to do so and am anticipating back to the 3-4 range in a few short years.  

Until America gets its spending under control, it will continue to force artificially low interest rates upon us as this is the only way the country can economically survive.

If your LLC doesn't own the property, then the LLC isn't actually doing anything and isn't protecting you. If something were to happen (a tenant injures themselves on your property) they would sue the owner of the property which in this case is you personally.

If you are going to have an LLC, then everything needs to be in the LLC name, and none of it in your name. The deed, bank account, and lease agreement should all be in the LLC name and nowhere should it have your personal name. All expenses should be paid out of the LLC bank account and never with your personal bank account or personal credit card.

While it's true the umbrella policy would still cover you, it does mean that you are paying for LLC's that are literally doing nothing.

An LLC provides protection because it is considered an entirely separate legal entity from yourself. When you start mixing and matching your personal name and the LLC then there is no longer any distinct separation and a court will treat them as the same entity which means if sued they can come after everything.