All Forum Posts by: Dan Bryskin

@Michael H.

Interesting transaction you got. Here are my thoughts

1. Due diligence. Inspect every unit. Look at every lease / tenant. Make sure property is in the sound shape and you understand the occupants. Value each unit individually. 

2. Negotiations. Understand the owners objectives. See how you can help her and add value. In your seller shoes I'd look at establishing trust and putting properties in it. This way she can avoid inheritance tax, probate and what not. From your stand point, you want to buy properties for tax appraised value, so you don't give city / county easy reason to raise taxes. Hence properties may go to an LLC and you may be buying and LLC. Sign a letter of intent, outlining proposed transaction and giving you exclusive for the period of time.

3. Financing. She can finance it as Contract for Deed or Money Mortgage. Difference in 1st case properties are hers till contract is fully executed (last payment is made). In the 2nd case properties are yours and she is a lender. I would be looking at buying so many shares of LLC with each payment and her providing a money mortgage, with your payments going to trust, so it is clearly inherited by her children.

4. In my experience seller wants a balloon, so be prepared for it. One way to address it is to have a balloon every few years with automatic extension hinged on no late or missing payments.  In my area in exchange for seller financing, seller usually gets 10-25% down and +1 to +3 percent to the going rate, so your down / rate are excellent.

5. See if she can discount a rate for a year or two, or do interest only payments so you get a bit better cash flow, will help you with some turnovers.

6. If you help her set this transaction up, spare her an expanse and hassle of dealing with broker and 7 different transactions - here is your value, ask for a discount. If you need to negotiate, look at individual values, tell her I think 3 a priced fair and two are overpriced of something ...

8. If you end up buying property, pay your friendly real estate broker a $500- $1000 or so per property and have transaction go under his license. He has insurance, there is a value to that.

9. At any rate make sure you have title insurance on the real estate. 

To sum it up, it look at properties in LLC, LLC owned by the trust. You are buying shares in LLC with each payment. Your financing is Money Mortgage from the trust.

If you get serious, engage a CPA / Attorney / Real Estate Broker to help set everything up. You don't need them to negotiate / put together a deal outline. Deals are fun, good luck :)

@Kurt Kwart

Talk to the attorney, look at friendly lien strategy to separate assets and equity, get proper insurance ... In Minnesota where is one county, there if landlord is a corp it has to be represented by attorney during evictions. Also, leasing LLC is not in my name. I work with my brother, one of us has assets and credit. The other liabilities. My structure for holding 5 million dollars in assets would be different. So is my structure for flips, etc.

@Federico L.

The assets are in my personal name, so I can get them financed on the 30 year note. But because I have assets I don't want to be a landlord. If something happens in one property I don't want them to go after all assets, hence enter an LLC. LLC has nothing but checking account. Hope that helps.

@John Woodrich@John Woodrich 

I take section 8, if they are relatives of my tenants / employees / contractors. But if you want to avoid section 8, I think one could use a few strategy's:

1. As @Matt Mayotte mentioned, more cash upfront. Section 8 people often rely on emergency assistance for the security deposits. So requiring 1st, last and deposit upfront will for sure filter them out. Or 1.5-2 months of security deposit.

2. Fail section 8 inspection. Like take a window screen out or something.

3. Use other means to disqualify, such as income / credit score

4. I don't know if in MN tenant can pay a difference between what landlord wants and what section 8 will pay, but if they can't, price it outside of the section 8.

5. Steep application fees.

6. Stupid question, can one change advertising from "No section 8 allowed" to "No section 8 inspectors allowed" and refuse to have your unit inspected? Or set something up, to allow for section 8 rental inspections only 1st week of January? 

Any other ideas?

Where are a few questions here. There are operational, legal, insurance, financial and tax implications. You got to think your structure through to make sure you got everything covered. Please talk to the CPA / Attorney, but here is what I think

1. How do you hold your assets? The answer to it will depend on you plans to finance them. You can have up to 10 mortgages, so it makes sens to hold 10 rental individually. I been thinking about a trust once they are financed, but have not set that up yet.

2. How do you rent them? I have an LLC set up. My LLC leases properties from me, and leases them out to tenants. My LLC is a landlord. If landlord is getting sued, they will only get what's on the checking account, since LLC has no other assets

3. If you are going to do something similar, aside from acquisition we used 2 accounts. One for LLC - that deals with rentals, income and expanses. Another one for major construction projects.

Good luck.

@Chris L.

I don't know NJ laws, but in MN lease follows the property. So if tenant has 6 months left on the lease, tenant doesn't have to move. However my month to month leases have 30 or 60 day termination close. Meaning lease can be terminated by both, landlord or tenant. No reason needed, just a proper notification. What I do, I provide a notification in writing then e-mail, and then if possible sign a lease termination agreement, clearly stating a move out date. If you are going to offer intensive, put it in your lease termination agreement as well. Check on NJ laws and good luck :)

@Sergio Najera

In your situation you won't be buying anything with cash for a little while. So the question is, can you get a loan, and what would it take. Debit by itself is not a problem, it is debit to income ratio. Most lenders like to see no more of 40% of net income for mortgage payments. If you can show about $1000 net a month, it should qualify you for about 150k in today's market. Some lenders will go up to 50% of net or higher. 

Here is what I would do:

1. Talk to a few lenders. See if they qualify you for anything, and if not, how much extra income you will need to qualify. 

2. Look at first time home buyer / gov assistance. If you play it right, you may not need a down payment, just a few $K for closing costs.

3. Defiantly house hack. In Minneapolis, if you are lucky you will get a duplex, if not I'd go for a house with as many bedrooms as possible. You can rent each bedroom out and even get married if you are lucky :) This is what my friend did. Got a 4dbr, got 4 ladies as a roommates and been married to one of them for 20 years.

4. Look at the ways to increase your income. I would not suggest a second job, I would suggest  focusing on the 1st one and claiming a ladder in corporate america. What would it take you to double your income? Why? Can you do it in 12 months? In 24? Although I worked multiple jobs then I had too.

With debit, there is no magic. There are some creative strategy's, like teaching in rural area, or may be enlisting in the military, but I don't know much about those.  I think the best way to address your debit is to generate enough income so your debit is a small portion of what you make. Feel free to PM me if you have questions. Good luck.

@John Chapman

"The only way you have to go is up" was not to imply every house you buy will appreciate. What I meant, is if you start in worst neighborhood in the city, anywhere else you go, you will end up in the better one. 

Am I naive? Perhaps. @Jay Hinrichs thinks I am delusional :)  One thing I am not is - "passive investor". I can't speak for the whole country, but I know my market. We do a lot of work in Jordan and Hawthorne, two most disadvantaged neighborhoods in Minneapolis. Everything we ever bought needed substantial amount of work. Being able to produce a quality work at reasonable price is my niche. About 50% of my projects are gut and rehab. For years it was buy, gut, rehab and rent. Economics of it? Rentals we acquired 4-6 years ago are on the books for free. By now tenants paid all 3, acquisition cost, price of the rehab and my holding costs. Tenants? - well, people are people, and it is a small world. There are good people in disadvantaged neighborhoods and there are morons in A class. I hate turnovers, they are a distraction. To avoid them I carefully select my tenants. I am always under market on rents and over the market in quality of my product. My tenants know they can't find comparable housing for the price. I look for people who are interested in some day owning a home they are renting. Couple of the flips we are working on have buyers. One is my present tenant and one is my former one. I bought homes before from relatives of my tenants. Houses decreasing in value? Not today, not in Minneapolis. They will during next crash / correction. But today we are selling paid for assets at at least 3x, closer to 4x of what we paid for them. My appreciation in B &C areas for the same period is about 2.7x to 3.5x. Was or is it easy? No. I work every day, and I had for years. To each their own I guess. 

@Jay Hinrichs

@Jay Hinrichs

Thank you for putting forward a well thought, detailed and professional argument. It is always a pleasure to discuss real estate with the true professional. Again, I thank you very much for your  valued opinion. 

@Chris Vair

Before you get all exited about a possibility, talk to the city planner or zoning department and rental license people if any. You may not be able to get place rezoned. You may also be liable for removing extra kitchen and doing other modifications to confirm. City may not issue you a rental license until you do confirm. Or you may get lucky and things will work the way you want, but I'd count on opposite. Don't sign contracts without due diligence or inspection contingency. Are you working with the realtor? If not - get one. Good ones should be able to answer a lot of them questions / do research.