All Forum Posts by: Jeff Copeland

For real estate market statistics, look for the local board of realtors for that market. Most of them have a "stats" page with regular updates. 

For economic indicators, look for the local chamber of commerce, regional planning commission, or convention & visitors bureau. 

There's really not much you can do until it is listed for sale. 

HUD will do what they have to do, at their own pace, as far as title work (which can take months) and property preservation, and then they will list it with a realtor and via the HUD Home Store. All offers will have to be submitted through a HUD registered agent via the HUD website, and it's a very nameless, faceless, emotion and negotiation free process: You submit your offer, and you get a yes or no answer a week or so later. 

There is usually a 2-3 week "first look period" for owner occupants and non-profits only, then they start accepting bids from the general public. 

In the meantime, keep an eye on the MLS and the HUD Home Store.

Quote from @Ruby Trinh:

@Jeff Copeland: Do you mind if I ask what information you need to send non-paying tenant to collection? I am sure you will need SSN but is there anything else?

I am taking back my properties from my PMC and they said they no longer have the tenant application to provide me. So far they have only provided me with name, phone, email and that is it. No SSN, no emergency address, no work address. Can I request them? 

You can request them, but that doesn't mean they can or should provide them. Many software systems gray out the SSN or only store it for a certain period of time. The privacy Act requires procedural safeguards to prevent the unauthorized disclosure of PII. 

As far as what data your collection agency of choice needs to pursue the collection, you would have to ask them. 

Your HML would normally wire the funds directly to the closing agent (and the closing agent needs to know there is a lender involved, because they will need to prepare and record the mortgage and note - dropping this on them at the last minute will cause delays).

Your cash to close would come directly from you to the title company. 

As far as sourcing the funds later on for a refi, your source for the HML portion is "private lender, secured by a mortgage"). That part shouldn't be an issue, as that mortgage will need to be paid off in order for you to sell or refinance anyway (for more info, see https://www.biggerpockets.com/... - although the title of the post is about seller financing, it explains financing in general, and hard money works exactly the same way). 

As far as sourcing the remaining cash to close, as noted above, how they are treated will depend on whether they are considered a loan or a gift, etc. But this really only matters for the first 6 months after closing. 

@William Barr

I posted an update, but not sure if it saved/published:

Correction (typo): at 5% market cap the value would be $2M, not $500k. 

If investors are willing to accept a lower return, that means they are willing to pay more for the same NOI. Sorry for any confusion (need more coffee)!

Value of $100k NOI at different market cap rates (NOI/Cap):
3% = $3.33M
4% = $2.5M
5% = $2.0M
6% = $1.66M
7% = $1.43M
8% = $1.25M
9% = $1.11M
10% = $1.0M

To qualify you for a conventional refinance (which will get you the best rate and terms), the lender will look mainly at four things:

1. Credit

2. Income

3. DTI

4. Employment - As a general rule, conventional lenders don't like self-employment. A $50k W-2 job is probably better than a $100k self-employed gig, as least in the short term (because conventional lenders will require two years of tax returns showing stable self-employment income before they will consider it). 

So you'll want to be very strategic about how and when you quit your W-2. 

In fact, sitting down with a mortgage broker and discussing all of this in advance (like now) is certainly a best practice - they can help you develop a strategy and timeline that will keep you "financeable" when it matter most to you.

An appraiser will use both methods: The comparable sales (comps) approach, and the income approach, when valuing the portfolio (and possibly a third approach as well: replacement cost).

Then they will assign a weight to each derived value (probably with a heavy emphasis on comps, since these are SFH) and then determine their professional opinion of the value of your portfolio as of a given date.

When using NOI to derive value using the income approach, one would use the "market capitalization rate" or market cap. What cap rate are other similar assets selling for in your market? That determines the market cap (and it almost certainly isn't 10% right now). 

If your NOI is $100k and the market cap is 5% (and I'm not saying it is, I know nothing about your market... the market cap will vary from market to market, and vary over time in the same market), then your portfolio would be valued at $500k, rather than $1M.

@Carolyn Yates has experience in commercial appraisals and might be a another good resource here for general questions. 

I would certainly not engage the tenants prior to closing, especially not without the seller's knowledge and consent (and any seller in their right mind would tell you "hell no"). The fact is, you do not own the property yet, and thus have no standing to negotiate with the tenants. There are dozens of reasons your transaction might not close, or might be delayed, and you'd only spook the tenants. 

Worst case for the seller (and this happens all the time): The buyer scares off the tenants, then the deal falls through and the seller is left with an unwanted vacancy. 

As to whether or when you can give the tenants notice of termination, or notice of a rent increase, it depends on three things:

1. What does state law say? Most states define month to month tenancies in statute, and specify how much notice either party must give the other (for example, in Florida, it's "15 days before the start of the next rental period" - which is a very short notice requirement). 

2. What does the local municipality say? Even though our State law says 15 days as noted above, this is only in the absence of conflicting local ordinances. Many of our local cities actually require 60 days notice for rent increases or terminations (and some of these are recent, post-pandemic changes to local laws). 

3. What does the lease say? Even if the lease is expired, it forms the basis of the tenant's month to month tenancy. If they lease requires 90 days notice (or whatever), that is generally what a judge is going to honor. 

Our typical approach is to do nothing (other than communicating new payment instructions and contact info, obviously) immediately after closing, and give it a couple of months for the dust to settle and see if the tenant pays on time and maintains good communication, etc. If they do, then consider a phased in rent increase. If you tell them their rent is going up by $500, but it will be phased in over 5 or 10 months, they will either happily accept the new rent increase (because they already knew they were below market), or they will start making plans to vacate. 

One thing I've learned is never terminate a good tenant just because you think they won't or can't tolerate a big rent increase. Often the tenant knows they don't have any better or cheaper options, and in the long run it's easier and cheaper for them to stay put than to move. 

And vacancy and turnover costs will always be one of your biggest and most painful expenses as a landlord, and are often (not always) best avoided whenever possible. One exception would be if you are planning for a refinance down the road and need to renovate the units for appraisal purposes. 

Survey's are usually not terribly difficult to read. Especially if the improvements are from 1980 and nothing has been added or changed since. You might even be able to pay a local surveyor a few hundred bucks to meet you at the property and explain the survey to you (probably money well spent). 

And there's your choice: Take your attorney's advice and kill the deal, or mitigate the risk as best you can with an existing survey, determine if the level of risk is acceptable to you, and move forward with the deal. 

The Fannie Mae underwriting guidelines are actually 70% LTV for multifamily investment properties in a cash out refi:

The following is from https://singlefamily.fanniemae...dated October 2022:

What often happens is a loan originator will tell you "Sure, we can go up to 80% LTV on investment properties". But they are referring to the max LTV for a single family home purchase. Once they realize it's a duplex and a refinance, and they run it through their underwriting program, it's probably going to come back at 70%.

You may find a local portfolio lender, or a DSCR or other non-QM product that will go to 80%, but the rates and terms are not likely to be as attractive as conventional Fannie/Freddie backed options.