All Forum Posts by: Andy B.

Hey, I'm just glad someone asked a question that I could answer. :wink:

To add, I assume these are commercial leases since the tenant has two locations.

In that case, this language is very common - though written in an older "formal" style.

In general, I find it easier to use amendments to renew/extend commercial leases. With an amendment you do not have to negotiate language that has been acceptable for the past 5-10 years and can just concentrate on the terms that need to be changed.

Of course, you need to be familiar with the existing lease terms so you can make sure you make changes to the proper sections.

I would want to know what provision (a) says, but basically this language is saying that you can recover an amount equal to the difference between what is owed under the lease and the fair market value of the premises. So, if you are due $100 per month and the fair market value of the premises is $100 per month, you can recover zero -but, if the fair market value is $75 per month, you can recover $25 for each month left in the lease term.

The amount you recover will also be reduce to present value by using a discount rate of 4% - I'm not certain how to do this calculation, but from what I understand, it is a common accounting procedure. The idea behind this is that one dollar today is worth more than one dollar tomorrow, so if you are collecting rent that would have been owed I. The future, you should get less today.

there is not enough info in the article, but I am certain that this guy will not get the house.

First, in the best case, the guy has to occupy the house for 3 years without the owner disputing his occupancy and I doubt that will happen. And there is a chance that he will need to be there for 10+ years.

Another issue is that the house is probably owned by the government. According to the article, the house was foreclosed and then the foreclosing bank went out of business, so I assume the FDIC or other gov't entity took possession of the assets of the failed bank, which would include this house -- and, you cannot adversely possess gov't owned property (otherwise, people would be fencing off parks and stuff tog et the land).

In the end though, all it will take to defeat this is for the property owner to tell the guy to get out. They may need to go to court to force him out, but once they request that he leave, his 3 (or 10) year time frame is broken.

What are the issues that make this different from a normal buy/sell agreement? Is your son going to get a conventional loan to buy the house or is he getting a loan from you?

If you are going to accept less money than the house is worth, the IRS will look at this as a gift from you to your son. The gift tax rules would then apply. A similar situation arises if you give him a loan (or he does some sort of payment plan instead of paying 100%). In that case, you would need to make sure the loan meets the IRS guidelines for a family loan so you can avoid the gift tax issue.

As far as the lease goes, the same idea applies. If you are going to pay rent which is normal for the area, you have no issue - just do a normal lease. But, if you are going to pay less, your son could run afoul of the IRS regarding a gift (same applies if you pay more rent, but you would be the gifting person). I have not researched this situation though, so I do not know how this is exactly handled -- I just know that you need to pay market rent to avoid it.

I am not sure how your state handles taxes to know if there is an issue.

As far as the realtor goes - I guess it all comes down to your written listing agreement. What are those terms and how long does it last? I've never signed a listing agreement that lasts more than a year, so I would think there is no formal problem regarding avoiding the seller's commission. If you feel bad about it, you might offer up lunch or something.

the numbers are a little far apart but it has been on the market for a while, so it may make some moves - now that you guys have given me some good info on what I'm looking money-wise, I can track it a little better. If it moves down some I might make a stab at it (or if I can't find another good deal, I might go lowball just to give it a shot).

As far as Rusty's idea - I had thought about it, but am not sure - I just don't remember a good area to create a master bedroom/bath upstairs. It would probably end up taking up two bedrooms to create the one master. Plus, the houses in the neighborhood all have the master downstairs and my realtor says that is what sells there (kids upstairs, parents down). I will look at it again though prior to final plans if I decide to move on it.

Thanks for all the help.

I would be sure to get all the permits before doing any work.

Also, I would check the permit for the garage conversion, but I am guessing (based on the quality of the work that was done) that they got one -- but that is one my checklist if I decide to move on this.

So, you think that the master bath would only be $5,000 -- I was expecting much more.

I'm looking at a house that would need to add a master bath if it was to sell properly. So, I would need to move plumbing about 10 feet from existing plumbing for the washer/dryer (closest plumbing). It is a slab foundation, so I would assume it would need trenching (perhaps the water lines could run through the ceiling, but sewer would need to be in the floor).

I like everything else about the house, but had originally written it off because of the bathroom issue. However, the place has been on the market for about a year and I'm thinking there might be room for negotiation on price...

If you want the full story:

House is a 4/2 2,400 sf.
List price is $79,900
ARV is around $125,000 (conservative - could go for $150,000)

Roof and foundation are good. Needs an outside A/C unit and needs an electric meter (its an REO and it looks like the bank removed these, they do not look stolen - remaining lines seem too neat). Also, all carpet was removed inside (tile in kitchen still looks good).

Garage was converted and the conversion looks to have been well done.

I estimate that it would need all new flooring. The A/C and electric need work and probably a new water heater. Furnace looks old but could probably be repaired (I'd budget for replacement though). The kitchen needs new counters, fixtures and appliances and paint on the cabinets. Also, new lighting and doors throughout. Upstairs bathroom needs to be spruced up (not a total gut). Needs paint throughout as well.

The major concern is that the master bedroom is downstairs and the bath is the only bath downstairs so is shared with the house. I would want to use the existing bath (its small) as the guest bath and create a new bath in a portion of the converted garage (this shares a wall with the master) to create a master "suite".

I don't have my spreadsheet with me, but rough estimate I had $30,000 just for the necessary stuff (flooring, paint, A/C, etc.) and with the existing numbers, that will not work (much less leave room for the master bath) but if I can get a price reduction, the number might start to look better -- just need to know what costs would look like for the master bath.

The tenant can claim that a good plumber would have completed the repair in a timely fashion and since the Landlord hired a bad plumber they were unable to use their home for another week.

From what I know of the situation, it appears that the tenant is not exactly reasonable (like you would be for the same situation in your home) - they think dust on furniture is "damage" - so they could claim a bunch of things and it will be up to the Landlord to defend against the claims.

I don't understand why they need the plumber's insurance information -- the insurance company didn't do anything wrong.

I'd give them the name and the contact info for the plumber. If they want to sue someone, that is all they need. It is up to the plumber as to whether or not they get their insurance involved.

In regards to this particular part of the situation, I'd stay out of it. It is between the tenant and the plumber - you do not belong in the middle.

In regards to your potential liability, you could get dragged into any dispute between tenant and plumber since you hired the guy and therefore should be responsible for his actions or because he was acting as your agent (or something along those lines).

Also, the tenant can claim that their quiet enjoyment of the leased premises was unreasonably disturbed and they should get a rent abatement during the period they were unable to use the premises.