All Forum Posts by: Charles Situ

I just want to thank everyone for providing feedback on this topic. I just walked away from a duplex that had bedrooms that was converted from enclosed porches without permits. After reading this thread, I am glad I walked. The wholesaler told me that permits were not required because the layout was not altered (just switch out sliding doors with a wall) and that no actually square footage were added. But it was clear to me that the enclosed porches were not part of the original living area square footage and therefore the conversion counts as increasing the square footage. I also believed that HVAC had to be ran, but the wholesaler said the duct work was already there. I was concerned the county/city may fine the buyer and/or force the buyer to put everything back to where it was. But I didn’t realize that the buyer may also be denied dwelling insurance.

@Lisa Foster-Bryant Depending on how the county handles it, you can look at their website and if not just call the building department and ask, just like @Paul Ortiz mentioned. I had similar issue in your area, Conyers, GA, recently. But I wonder if any can tell me the potential outcome if you purchase a property that had additions or conversions done without permits. Could the county fine buyer and/or force buyer to put everything back to where it was? I looked at a rehabbed duplex off-market from a wholesaler. Each side was originally 2 bedrooms and the seller converted enclosed porches to bedrooms to make it 3-bedrooms on each side. The wholesaler told me that a permit was not required since they did not change the layout or change walls--just switch out sliding doors and replaced it with a wall. The wholesaler said that square footage was not added. But it was clear to me that the enclosed porches was not part of the original living area square footage and therefore the conversion counts as increasing the square footage. I also believed that HVAC had to be ran, but wholesaler said the duct work was already there. I emailed Rockdale County building department (I called but they wouldn't answer) and they confirmed that 1) there is no history of permitted pulled and 2) the conversion would have indeed required a permit. I kept on pressing the the county about the repercussions. But they keep on insisting that I need to hire a private inspector because they won't inspect it. Also my home inspector said they would only inspect if things are functioning, not necessary if they are up to code. 

@Jason T. You are definitely seeing a bifurcation between primary residence (at or below 3% for 30 year) and much higher rates (4% or higher) and stricter standards investor-owned from traditional lenders. For Cash-out you just have to look harder. I probably made 4 phone calls before I found a lender that can do it. Lenders are a bit more cautious about potential tenant issues since Covid/lockdown. For example normally the difference between straight refi no Cash-out on invested owned and a cash out used to be about 50bps. Now it's almost a whole 1%. The one lender that was willing to do cash out quoted me at 4% no cash out and 5% cash out with no points. At the LLC level where I have a good relationship at a local bank, there doesnt seem to be a difference.

@Yan Jin Coincidentally I also live in the Boston area and have rentals in GA. I own properties through both my personal name and an LLC. If the LLC is a single member, it considered a disregard entity and will be filed on the tax returns no differently vs personal, basically each property as schedules. Some thinks with an LLC you can write off more items for your business. But that is not necessarily the case.

@Drew Sygit You are totally right about 1. be grateful that I have a good PM, and 2. I need to find ways to source below market value deals. Do you have any good suggestions on finding & hiring bird dogs. I was able to find a few wholesalers, a couple of which I found from BP, that emails me deals. But I guess a bird dog is different. I pay him or her a fee for finding me deals and therefore would have a bit more of my interest in mind versus a wholesaler that sends deals to a whole pool of investors. Lastly, I too believe in running a property by the PM before purchasing them. Fortunately, with the one I purchased from the listing agent, my PM said it is a desirable area (plus he already manage the other 2 I have in the association). But he did tell me to check with him first before buying something for him to manage. With that said, my PM really demonstrated how knowledgeable and instrumental he can be, and have my interest in mind. A wholesaler emailed me a duplex with 2-bedroom that was converted to 3-bedroom on each side initially asked at $220K, but then reduced to $199K, which at that point I was tempted. But my PM told me I should only pay $185K and he showed me all the comps to backed it up. I asked the wholesaler if they could do $185K. They initially said that didn't work. But in a few days, they said they got the seller to come down (along with wholesaler's portion) to $187.5K. So at that point, my PM agreed to take a look at it. One of my biggest concern was conversions of enclosed porches to bedrooms were not be permitted or not done to code. Even though wholesaler told me that no permits were required because the lay out was changed, I contacted county building dept. and looked at the lay out. It seem that permits were actually required because square footage were added to the living area and HVAC had to run to it. With the concern that I would be fined or have to convert it back while I have tenants occupied, I backed out. Also just yesterday I had a  conversion with my about the fee structure that @Jenni Utz suggested (flat fee for fully analyzed deals that he visits but not successful and a commission for successful deals). He said "Okay, but I don't just want to get paid more for getting you to do more transactions." 

@Ben Morand I know the main strategy you are interested in is BRRRR. But maybe you can start off mixing it with other strategies--live-in flip and/or house hacking. It may not be the scale you want right away. But this works well for young people who do not have a family with kids to care for yet, and it gives you plenty of flexibility on the timeline for your first flip. If you buy an "ugly but habitable" home where you think create added value to live in yourself, you get a lower rate through conventional financing with 25% down (3.5% down on FHA, but the ugly home may not quality for FHA). You won't be in a time squeeze to finish the flip and have to worry about paying high rates to a hard money lender. Once you are done rehabbing, you move out, rent it, refinance to get your capital out, and find your next deal.

@Neil Henderson You provided some very insightful information. I done some small rehabs where there were some small value added. But now I am looking for deals where there are bigger rehabs so I can scale BRRRR. All of this is long distance. I think my biggest struggle are 1) finding deals to buy right (low price enough to make it work) and 2) contractors. I am fortunate enough to have some good source of funds to do cash purchases (some equity from my earlier investment I can pull out, my day job salary has increased over the years, HELOC from my primary residence, some cash flow from my existing portfolio). I found a good lender to help me cash out, even for a LLC, although wont amortize longer than 20 years. I found a wholesaler that has steady inventory. But the most capable person that I know that can look at them is my PM, who is also a investor and realtor. He is very busy. So I am thinking how to structure a fee schedule to incentivize him to look at them--maybe a flat fee for each deal he scopes out for me that doesnt result in success and a commission, which is larger, for successful deals. My PM also has good contractors. I am wondering if I am going about this the right way. Any other suggestions?

@Jenni Utz On 1) I didn't mean to make it like listing agent did anything ethically wrong. Rather he was able to make it a win-win for both side. He told me all of seller's concerns and I was able to address them. She had prior agreement fall apart because previous buyer ask for $4k of credit after inspection, she was afraid of a similar situation, and she wanted some flexibility to buy a bigger place with the sale proceed. She also provided me the prior inspection report. I baked into my offer the major items that needed to be fixed, gave an as-is offer, and offer a longer closing and option to rent after closing if needed.

On 2) great suggestion on how I can structure paying my PM for his time. There some times where I sent him wholesale deals that he can quickly provide data that allowed me to eliminate it as a candidate where he didnt ask for any compensation. I guess I could pay him the fee for the ones that he actual goes out to visit and doesnt result in a sale and figure out a commission % for deals that do go through.

On 3) you are definitely right about the type of realtor I should hire. Even though my PM is busy he knows the rental market much better than some other realtors i worked with.

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Worcester.

Purchase price: $371,000

2 Family near hospital and medical school.

How did you finance this deal?

convention financial. I put a bit more than 25% down because it was a replacement property of 1031 exchange in order to make the numbers work. 

Lessons learned? Challenges?

I made had overpaid a bid because Seller was very skilled at pushing more. I could had called seller's bluff and got a bit lower.

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Yes. Great realtor that was instrumental in negotiation process with a tough seller who is also an agent.

Hi, I am new to BP for about a week. I have been investing long-distance in one state for a year and a half and wonder if anyone have good ideas for managing relationships from out of state. I use a PM that is a realtor and an investor. His team have managed my properties well, so well that I moved over one of my properties managed by another PM to them. I decided to use this PM as a realtor also to look find new purchases. But I am finding that he is sometimes too busy and is slightly bias to toward his firms’ listings. One of the deals he was too busy to look at is townhouse in an association where I already own 2 properties. So, I contacted the listing agent directly and told him I didn’t mind him being a dual agent. This turned well as I was able to win the deal even though I was not the highest offer largely because the agent was getting a higher commission from me and, provided that I ask all the right question, he gave me all the information I need to write an offer that pleased the seller. When I told my PM that I have a new property for him to manage, he was a bit disappoint that I used another agent. He said he will let it slide and said I did get it at a good price. I also found a good wholesaler that has a very steady inventory. I need someone to scope out these properties and at the most moment the most capable person is my PM. My PM did agree that looking at wholesaler properties is a good idea. I told him that I know he does earn commission on these and therefore I would pay for his time to look at them. My PM’s insight of the area and referrals for lenders (and potentially contractors when I find good rehab deals) are instrumental to the growth of my business. But I worry that he may not have the time or incentives to look at everything I want to look at. Do I find another point person to scope wholesale properties for me? Can I work with other realtors and not hurt my relationship with my PM? If so, how?