All Forum Posts by: Brit F.

Not worried.  But, I'm also not sure what to make of the business model at this point:

• $45M losses on 414 houses sold before the pending downturn would certainly make me nervous as a shareholder (I am not a shareholder and don't plan to be...ever)
  • I wonder what they attribute losses to - poor market, poor developer choices, both, other?
• If they currently own 993 houses worth $325M, avg price is $327k (unsure if that's ARV). Trying to reconcile this with the losses is interesting:
  
  • Perhaps needing to deploy that much capital in such a short period drove local rehabbers to make poor choices, like diving into a bunch of high-end flips or larger houses that are harder to do correctly and harder to sell.
  • If Zillow hired lower tier rehabbers who weren't accustomed to those higher end projects, it's easy to understand how rehabbers got in over their heads.
  • If Zillow pivots and has 3000 houses at $325M, it puts those lower tier rehabbers back in their wheelhouse, but it's a beast to manage.  Alternatively, if they stick with 1k houses but hire more competent rehabbers, it'll cost Zillow a lot more (b/c why would a successful upper tier rehabber sell out and work for Zillow?)
• Looking at their new markets, e.g. Austin, TX - they all look like areas everyone already knows about, which means they're buying into areas that are already inflated.  
  • Expansion without a massive change in execution will increase losses.
• It will be interesting to see how patient Wall Street is with this.

Overall, Zillow's execution doesn't seem healthy, creative, or savvy.  Quite the opposite: it's arguably incompetent and on the way to being crushed under its own weight.

Anecdotally, in DFW (a current Zillow market), I hear zero whispers about Zillow's amazing flips.

@Stephanie Cederdahl, don't let the keyboard heroes on nextdoor intimidate you to the point of selling.  But, you should consider doing some damage control to change their perception of you and the property.  Before you re-rent, maybe host an open house for neighbors only and let them see the inside is something to be proud of.  Chat them up and show them you're a responsible & friendly owner/landlord.  

You could offer an incentive to neighbors who bring you the next tenant that signs a lease.  You might find neighbors are a lot more receptive if they feel like they have a sense of control or influence (emphasis on "feel").  Once the tenants move in, maybe host a meet and greet with them and the neighbors.  The point is to drive a lot of human/in-person connections here.  After that, check-in regularly with the neighbors.  But, always make sure anyone with complaints always goes to the tenant first.

If you're not already paying for yard care & landscaping, you might consider doing that b/c neighbors will have zero tolerance if the exterior starts looking suspect.

Sidebar: I wonder if your prior tenant stole someone's identity, which you unknowingly used on your background check.

@Rob K., what a unique opportunity!   I've not had this specific situation, but I'll take a guess.

Since personal funds can partner with their SDIRA, I speculate that if you combined or otherwise co-developed the resi (personal) with the Tri + Com (SDIRA), then you'd have to show equivalent ownership split on the new combined property.  What not to do would be: hypothetically, let's say you spent $100k for the resi and the others are worth $500k; if the new combined ownership showed 1% personal and 99% SDIRA, then that would put the transaction in danger territory. 

After that, on the actual development work and future servicing of the combined property, make sure no disqualified persons are involved.  Share profit & loss accurately based on the ownership split.  

If you keep the Tri + Com in the SDIRA and later sell to a developer, make sure that sale doesn't involve any disqualified persons.

Alternatively, as you mentioned, you could take an in-kind distribution of the Tri + Com, so that it's all personal, then combine it with the resi.  

I'm curious what others think. Did your current IRA custodian give any guidance?

@Filmon "Phil" Haile, they type of loan you're asking about will likely be non-conforming or commercial, which means you'll pay more expensive terms (higher interest rate, shorter term, etc), which drives your payments up - sometimes significantly. It will definitely not improve your DTI. People generally use these when they are forced to because of some other factor (such as reaching the max number of conforming loans Fannie allows), not because they want to.

If you want non-conforming or commercial, you just have to start calling around.  Look at an online map, type 'bank' or 'credit union' and call whoever is in your area.

@Erica Gregory, then you may want to look in other neighborhoods - unless your Cash on Cash return from rental income is extremely high in your current target neighborhood(s).

You didn't mention this, but just in case: don't limit yourself to doing BRRRR for Section 8 just in non-appreciating neighborhoods. You can still do it in an appreciating area with Section 8. The tenants you want are the ones who want good schools, safety, sense of community, etc. Just try to keep your after repair rent price below or near the max of what HUD pays in that zip code.

@Erica Gregory, it can be a good niche, but can you clarify:

• What will prevent the property from appreciating?
• What will prevent you from increasing rent (or what did you mean by 'lack of annual income increase')?

@Account Closed, if I was in your situation, I'd find a federally insured banking institution to hold my money with a reasonable interest rate while I learn and strategize how to use it.  In parallel, I'd stop renting in CA, move to another state, and buy a home.

Advice: you may want to rethink how you ask this question in the future (in-person or virtually).  The way you're doing it invites risk - unless you're doing it strictly for entertainment.

@Dominique Sharp, I had intended to go tomorrow, but something else came up.  You can check youtube for some video's of either the Dallas County or Collin County auctions.  They are fairly representative of what you'll find.

What can be confusing is that Auction dot com may be there representing a subset of trustees.  If you plan to bid on those, get the App and pre-register as a bidder.  The list of properties Auction provides may not include every property up for auction.

Other trustees' representatives will hold their auctions several feet away from Auction's tent.  Look for individuals with large clipboards/binders and follow them; there's a good chance that's the trustee rep/auctioneer.  At some point, they'll start talking/announcing (sometimes very quietly) the auction they are about to do.  At that time, a small crowd of people will surround the person talking.  Then, the bidding begins.  It's fairly rapid and undramatic; so be ready and vocal if you want to bid.  Once their properties are done, the crowd disperses until the next person starts talking/announcing, and then crowd re-forms.  It's like a school of fish :)

One big distinction between Auction and others is that Auction will announce the physical address of the property.  The others will typically only specify the owner's name and property's legal description - not the physical address.  So, make sure your property lists have that because you could easily miss your desired property if you're waiting to hear a physical address.

Last month, two different trustee reps sold maybe 5-6 properties each, and Auction tried to sell 13 or so.  

Another oddity with Auction is how they would bid up the price even if no one was actively bidding, which is supposed to reflect the lender's higher minimum bid above the opening bid.  And, some of Auction's properties had a reserve and failed to sell the first time, requiring them to 'Extend the bid', which means they'll auction it again once they finish the other properties.

Enjoy it and let us know how it goes.

@Erica Gregory, a property that lost 30-50% value in the last 5-10 yrs, no anticipated appreciation in a B/C neighborhood, and with an inherited tenant....it sounds like a risky/poor investment.  Are you sure this is how you want to spend your money? (Maybe I'm missing something here?)

If you're heart is set on this place, have you and your father discussed seller financing? If the HELOC balance can be paid off and then closed, and if there are no other liens, it would be pretty straightforward to have your father act as the lender - presuming he doesn't need the lump sum cash from the sale.

@Allen L., any number of national or local lenders can do personal LOCs.  Ones I've seen max out at $100k.

For secured, HELOC on primary residence is typically what people use because it's widely available from both national and local lenders.

For LOCs secured by non-owner-occupied property, that will likely require a business LOC or other commercial LOC from a small local bank or credit union. Underwriting requirements will vary from lender to lender (e.g. property might need to be unencumbered = no existing liens/mortgages). You just have to call around to local lenders in your area and start the conversation. Few national lenders will do these; I talked to one recently, but they required principal & interest payments during the draw period, which is a deal breaker.

You might be able to find private money to give you a LOC; just have to network and ask, but stay on the right side of SEC regulations.

Sidebar: if you're buying a property with financing that's not secured by that specific property, then you may meet Fannie's delayed financing exception rules, which means you can refi without waiting 6 mo's, but it also limits how much cash you can take out.  Meaning, any costs above your purchase price and closing costs, such as rehab costs, are parked as equity until you do a seasoned CO-refi or sell.