All Forum Posts by: Chase Gochnauer

Thanks for the thoughts, we'll see how it goes. In the future I will definitely make it more clear up front.

Originally posted by @Matt H.:

Okay so I'm clear there is approx 16k in uncollected rent for Jan. And using Jan 15th closing as an example you should have been credited 8k if he collected. And since he didn't he wants you to credit him the 8k of 1/-1/15 assuming you'll get the 16k later? He's dreaming, tell him to shove off. You honestly won't likely collect any of that and if you do you've earned the entire thing. Tell him he's lucky you're still closing with a bunch of tenants that need to go right out of the gate.

 Also, this $8k in rent delinquency is out of the $50k or so in gross rents, so about 16% of the months rent.

Originally posted by @Matt H.:

Okay so I'm clear there is approx 16k in uncollected rent for Jan. And using Jan 15th closing as an example you should have been credited 8k if he collected. And since he didn't he wants you to credit him the 8k of 1/-1/15 assuming you'll get the 16k later? He's dreaming, tell him to shove off. You honestly won't likely collect any of that and if you do you've earned the entire thing. Tell him he's lucky you're still closing with a bunch of tenants that need to go right out of the gate.

There is approx $11k past due actually, about $8k rent and $3k RUBS(which the utilities aren't billed on a calendar basis so they may not be extremely delinquent). So he's wanting the $3k RUBS and roughly half the rent.

I do believe most of the tenants will pay, they may be slow payers but they have been there 6+ months and this seller likely isn't the type to let them get extremely delinquent. There are 2 of the 13 that are behind. They are all also behind varying degrees. It's not that simply haven't paid January, but that they paid half, or they paid 1/3, etc.

Originally posted by @Matt H.:

Well first you need let the buyer know if you're the seller. Then you can agree to whatever you want. Typically, the seller would assign those rents to the buyer. So if the buyer collects Jan rent on Jan 20th they keep the whole thing. And the seller doesn't pro rate cause they don't have it. It's obviously not great for anyone but that's usually how it would shake out. But as a buyer I'm certainly not going to pay the seller back if I collect since I took on the risk and had to deal with collections and hassles straight away. I supposed you could try and get eh seller to pay them anyway and reimburse them if you do collect, but I don't see that working, I could never get anyone to go for it.

 In my situation my seller wants me to take the first half the month unpaid rent out of my pro-ration, basically assuming that I will collect it. Same with unpaid utilities from the RUBS setup. The contract essentially just says rent will be pro-rated and is just not clear. With a large property this ends up being around $8k out of rent pro-ration for items that have not been paid yet.

Originally posted by @David Crumley:

I appreciate all of the comments and advice. Some very good points. A few mentioned using leverage, and I certainly agree. I purchased this first condo with cash, as it was an off market deal I could get at a good price if acting fast. My strategy initially is to use cash to buy (instead of short term loans), and then after fixing up and getting rented, would refi and take out cash, and roll into more deals. Based on all of my research, podcast, books, etc, I gravitate towards buy and hold, as it gives cash flow and a tangible equity down the road. But, as mentioned earlier, I started also delving into other ideas (notes/tax liens) as I wasn't sure that I could find the return rates needed to hit my goal with just buy rentals. All that being said, still need it to be relatively passive until I hit my goal!

That is the BRRR method and works well. Even better if you have a lot of cash up front.

I know you mention $120k/yr but there are a lot of variables here. I'm thinking there's a chance you're using this number because it's what you make at your day job. If this is the case:

1. $120k/yr at a W2 job is probably more like $84k-$90k/yr after taxes. With the way depreciation works with buy and hold, a LOT of your cashflow will be tax free, so realistically you may only need to be at $100k rental cash flow to be comparable to your current $84k/yr post-tax earnings. 

2. The numbers discussed do not include mortgage pay down. If you're leveraged and making $100k cash flow, you might be paying down $50k-$75k/yr on your mortgage, which is really a profit you are making also you just do not get it until you sell/refi.

Originally posted by @Timothy Casallas:

Hello BP,

Heres my situation and my question:

I bought a condo in Niceville Florida for 110k and I have a mortgage of about 80k. I am house hacking it so I have a roommate and make a great profit. However, I am leaving in April and will have to hire a PM and my income will be way less. Because of this, the house will pretty much break even after all expenses are accounted for. ($30 profit monthly)

I was thinking about getting people to invest in my house (Family, Close friends) up to 80k. The amount that they decide to put in will determine how much return they receive monthly based off the purchase price. 80k = $490, 40k = $245, 20k = $122 etc. 

By paying off the mortgage, I'll free up my debt to income ratio and also be free of paying the bank all that interest. Little by little I'll buy off the people that put money in as if I was paying a mortgage. 

I am not seeing any cons to this, it seems like a win-win for everyone. Is there anything I am missing?

 I assume you have a rate around 4%, and you're only making $30/mo. Therefore, you're making $30/mo or $360/yr on your $30k cash in the deal, which is very low return on your cash. Since you have no extra cash flow to give, the best you could expect your private money people to make is 4% interest, or what you're already paying to the bank. I wouldn't see anybody wanting to give private money for that type of low return.

This one sounds like it does not have good rental potential and you'd be better off selling it.

Can you provide more specifics, such as rental rate, taxes, etc? 

How have others handled rent proration for tenants that have not paid at the time of closing. Example, if closing Jan 15th, and 5 tenants have not yet paid Jan rent and one or two have not paid part of Dec and Jan, how is that typically handled at closing? The contract is not detailed in regards to this.

@Joe Splitrock

I do understand your point there on the low fixed rate. A lot of my properties are financed through a local bank that only give a 5 year fixed anyway. My line of credit rates are fixed for 12 months. So rates could skyrocket and cause an issue. Being able to pay down the lines when you're cash heavy and pull out when you need it is nice though. Then you only make interest only payments when you need it. 

@Juan Vargas I had been looking over that one previously and went ahead and signed up, we'll see how that goes, thanks!

@Gino Barbaro Thanks Gino, let me know when you have more details on the next one. I'll look up Dave Lindahl and see what I can find of his. 

Get a line of credit on an existing property. Example if you owe $100k on your personal residence and have $100k cash, pay off your house and get a $100k line of credit on the property. You're saving a guaranteed 3-5% interest and the funds are available when you need them.