All Forum Posts by: Cara Lonsdale

 I think things are being confused.  Let me see if I can try to provide some clarity.....

When you say that the property is held in your name, do you mean to say that your name is on title, or that your name is on the loan that secures the title?  There is a big difference.

If the LLC owns the property, and the property is "held" in the LLC, you are indicating that the property is titled in the LLC's name.

Now, if you are saying that the property is held in your own name, the title will have your name on the deed, not the LLCs, and having an LLC is pointless as it doesn't attach to the property in any way.

Now, if you are telling me that your name is on the loan that secures the property, but the title is deeded in the LLC's name, this is a possibility, however, a risky one as it leaves you open to have the Lender call your note due if they were to ever stumble across the knowledge that you transferred title to an entity. This is in your loan docs when you sign them. The Lender has the right to call the note due in full if you violate it. In essence, it's like transferring the property to someone else (or something else) without their permission, which is required unless you have an assumable loan without qualification.

So, going with the assumption that you have the property in an LLC and either do not have a loan on the property, or the loan attached is also in the name of the LLC, then you can set up a structure where you first create a Trust. Then you create a Holding LLC, which holds the money (all your rents go here, and expenses can also be paid out of this account), then you create a separate LLC for each property. The Trust is a member of all the LLCs, and your money is separated from your assets. If you don't know anything about doing this, I would suggest going to an Attorney who specializes in this kind of thing so that you make sure to get it done correctly.

OR if you are the one personally securing the loan that is attached to the property, you would most likely be better off getting an umbrella policy through your homeowner's insurance for the liability associated with having multiple properties. It will give you the business protection that you are looking for without compromising your position with the Lender by transferring the property into an LLC.

There are many things that go into a market correction.  Interest rate is one of them, but supply and demand makes up a big part of it.  Since AZ has been mentioned several times, I will just provide that our stable market balance is about 25K active properties.  As of this morning, we are at 5,325, including coming soon status properties, in the Greater Phx market.  We average about 6 days on the market before a property goes to pending, and that is mostly because the Agent is sifting through all the offers to present to the Seller, who usually takes the first weekend to decide.

Our rental market is just as hot. There is not alot of inventory, and prices continue to rise. This is in large part because of the STR shift that started growing greatly during the COVID eviction moratorium where owners pivoted to avoid the issue of having to collect from a deadbeat Tenant who just decided to stop paying rent and claim COVID responsible. Existing long term rentals turned to month to month rentals and STRs. This drove rental rates up as long term inventory became scarce.

The new home construction generally makes up about 25% of our supply annually.  However, last year, they only produced about 14%, which may be contributing to the pressure of inventory in the resale market.  Obviously, the cost of materials and even the availability of materials contributed to this.

AZ still nets about 40K+ Californians per year, along with the snowbirds who desire to get out of snow ad high taxes of the Mid west states, and choose from Florida, Texas or AZ in most cases.  

I had half expected our Trustee sale inventory to increase considerably based on the COVID eviction moratorium, and struggling Landlords who couldn't survive without paying Tenants, and people who lost their jobs or income during COVID.  However, that has also not come to fruition.  The trustee sale inventory is pretty low as well at 901 for Maricopa County as of this morning with these 901 loans attached to properties (some 1st, some 2nd liens) being auctioned over the next 90 days.

I would never presume to know if, or when a market correction is going to happen.  I don't carry a crystal ball.  However, I believe in looking at the signs, and keeping your finger on the pulse of the surrounding market trends.  For the AZ market, I don't see all of the things I mentioned above, changing before Summer's end, in order to move the needle on the Greater Phx housing market.  Sure interest rates will narrow the Buyer pool, but honestly, there are a greater number of Buyers making cash purchases, so interest rates are immaterial at that point.

Additionally, it was early in my RE career that I was told that Smart investors Buy and Sell in ANY market trend.  If the market corrects downward, you pivot to a hold strategy, and potentially buy more to hedge your portfolio.  If the market trends up, you sell the ones that make sense for your next goal.  The great thing about Real Estate, which sets it apart from the stock market, is that you always hold something tangible.  You always have an asset with income producing potential that can carry you through any market, if you have planned and executed with intent.

I guess to provide you with any kind of advice meant for your situation, I would want to know a few things about you and your investment strategy.....

First, where will you go? You mentioned that it is a cash flowing rental, but also stated that you bought with VA. So, are you still living there as well, or did you move out and convert it to a rental? I would hate to hear that you sold your only home and moved into an apartment or something.

Second, what is your end goal?  Both for the property, and for your investment strategy?  This is something you should have in place, and it guides you through the process.  

For the property......You should have a target for each and every property that triggers a time for you to evaluate a sale (notice I didn't say just sell, but rather EVALUATE a sale). This trigger point could be several things like appreciation, increased expenses including HOAs (those HOA fees can creep up before you know it, and make the property less desirable for a new Buyer to take on). Having those target points for each of your properties will allow you to sit down and evaluate whether the property still makes sense as an investment, or whether your funds from the investment would be better served elsewhere.

That answers the property question, but then ask yourself what YOUR long term goal is....?? Are you looking to roll and flip until you have 1 house that is paid for that you can live in? Is the goal to live on the income produced by the investment? Are you looking to grow to a larger property or get into commercial perhaps? Determining this will help you decide. For example, if your end goal is to have properties that support you in retirement (or before), then selling may not be the best move. You have a low principal balance and a killer interest rate that will most likely not be duplicated anytime soon. (Today's rates have VA loans in the 4% range!) So, selling, no matter what the highs or lows, mean nothing if you intend to keep the property as an income stream during retirement. Instead, take the cash flow and bank that into the next property to purchase to build your portfolio, while maintaining a pace you can support financially in the event there is a turn in the market (yes, the rental market corrects too). Don't over extend yourself and put yourself in a position to be over leveraged while you are building. Your house hack strategy is a good one. Since you used your VA, maybe an FHA or conventional with low down payment would be the next move. However, IF your goal was just to make some money in Real Estate to better your position in life, or supplement your job income, then selling might make the most sense to give you a good savings cushion.

Alternatively, before considering a sale, make sure you have evaluated several deals as a replacement to confirm that there is, in fact, a replacement property (or properties) that will make sense for you.  Keep in mind the interest rate is shifting, and the market continues (at least for now) to appreciate.  So, figure your deals from a conservative standpoint and leave plenty of room for escalating expenses as a result of these things.

Lastly, BPers are great at telling people what to do based on what they themselves would do.  But only you can answer the question of what to do based on what your long term goals are.  So, sit down with a piece of paper and figure that out first (if you haven't already), and THEN see how a sale fits in, or keeping it fits in.  Then BE HAPPY WITH YOUR DECISION!  You can only make the best decision for yourself in that moment, and with the info in front of you.  It is true that you could sell now, and 2 years from now the property could've doubled.  However, you can't live like that.  Make the best decision for you, and be confident with the decision, and move forward.

Best of luck to you, and let us know what you decide.

Now this seems like a good deal to consider. Thank you for sharing. It's a little tight now it appears at only $140 above PITI, but you have a plan to scale that is reasonable and proven, and doesn't require you to wait long to scale upward. So, I think if more investors can find deals like this one, CG would be something to consider.

 All things are relative and you have to work the numbers. 
The only way the deal you provided makes sense is because he paid cash through his 1031 or placed a larger down payment. Otherwise, the mortgage payment on a $405k purchase with only 10% down (2nd home) is $1740 (@4% interest which is almost gone at this point due to rate hikes). That $1740 is only principal and interest, so now you have to add taxes and insurance and MI since he has more than a 80/20LTV. So now you’ve got a payment around $2,000. Now you haven’t paid any utilities during vacancy, landscaping, or any other expenses like repairs, warranty, tenant turnover and so forth. 
so $2,100-$2200 in rental rate sounds awesome… until you actually start plugging numbers. Then you find out that you have made a $400k investment for $50-$150 per month in cash flow.

Just something to think about. 

 No.  As stated before, CG is not on my list of areas I would invest in personally.  I tend to go with the path of progress, and not outlaying areas that are seemingly disconnected from larger cities.  After reading your comments, I did a quick search for MF in CG and found a triplex that is available right now for $398K (on 12th street), which seems like an attractive acquisition price.  However, after browsing the listing, I also learned that the rents are $625 per month, per unit.  With rental rates that low, you couldn't even cover the mortgage payment on that, let alone the expense, or any room for cash flow.  Sure, there may be room to escalate rents, but you would almost need to double the rents in order for this to be a favorable deal all around.  So, I stick by original assessment.  Again, to be clear, I am not saying this is a bad investment for people to explore, and I am sure there are deals out there to be had.  But I focus on the formula that has proven true more times than not for my personal investing, and investor clients, who ask me for my opinion.  

As an example, around the same time as this conversation, I was posting about San Tan Valley as an alternative to CG due to the path of progress versus outlaying areas like CG.  Back then (a few years ago), you could get a good sized 3/2 built within the last 10-15 years, for around $175K.  NOW, you would be hard pressed to find that same property for under $375K.  The area is booming, and starting to spill over into areas like Florence and Coolidge (where there is also a hybrid semi-truck plant in the works, btw).

So, make sure that you aren't distracted by the shiny cheap acquisition price.  Through due diligence, make sure that you are evaluating rental rates (accurate rates, NOT profoma), and filling in the missing fields for other expenses that owners and listing agents often leave out in order to inflate their cap rates.  Just because the City of Phx rental rate is approaching $2K doesn't mean you will get that in CG.  Just as Phx rates don't touch anything in Scottsdale....and so forth.  Make sure the numbers work all around.  And make sure to come back and share with us how it work out.  I would LOVE to hear a success story in an outlaying area that I can share with others who inquire about the opportunities there.  So, keep in touch!  And PM me if you have any questions, or want to spitball some ideas or go over evaluations.

Comb through your purchase agreement.  This is the road map of your transaction.  It doesn't matter what the sales rep is telling you.  Your rights and abilities are clearly outlined in your contract.  Remember, the sales rep doesn't represent you, so it is not required, nor in their best interest to help you if it would mean more $$$ for the builder.  So, remember that when you communicate with them.

If allowed, I would request an addendum for the close of escrow (COE) to be on, or after XXXXXXX date.  Have this addendum presented to the broker who signs the contracts.  With it, provide an explanation as to why you need the 2 weeks.  Be sure to remind the builder that their delays (performance) have caused your delay (performance) as their delay provided a scheduling conflict for you.  

On a separate note, if you are worried about not being available to sign docs while you are away, you can resolve this conflict a couple of different ways.  You can either have a mobile notary come to you to accommodate a signing, and then the notary will mail back docs to the title company.  OR, you can assign a power of attorney to sign on your behalf.  Either way, this would allow you to perform under the contract to close on time.

Who knows, maybe the builder will delay a final time and your scheduling conflict will not be an issue any longer.

Best of luck to you!

I am a bit confused by your post. It seems you may have a few things going on here. From what you say about quit deeding into an LLC, it leads me to believe that you would choose a commercial loan for the refi as commercial lending would allow the LLC to be the Borrower on title (as long as the LLC and/or property can qualify for the loan). Otherwise, I am confused why anyone would want to refinance a VA loan that traditionally has the same, or better rates than average conventional loans, and NO mortgage insurance requirement into a commercial loan that will require a bigger equity position, and higher interest rate.

Anyway, moving on.....

You can reuse your VA more than once. In fact, based on your service, your entitlement is a lifetime benefit that can be used over and over. In fact, in many cases, you don't have to payoff one before you use it again for another property, as long as you meet the owner occupied requirements. Once you have satisfied these, you could convert it to a rental property with the VA's blessing, and then purchase another home for yourself. This is allowed because each time you use your VA, it only uses about 1/4 of your entitlement, based on VA calculations of the portion that they guarantee.

When a property with a VA loan is sold, and the loan paid off, the entitlement can be restored. If not done automatically, this can be completed by submitting paperwork to the VA to have the original amount restored, which would most likely require proof that the other loan was paid off. Having sold or refinanced the VA loan to release the VA loan from the property, your payoff letter that you receive from the bank after the sale or refi should suffice for this requirement.

Lastly, why are you set on converting your properties to LLCs before they are paid off?  This is more of a curiosity question rather than a question of your decision.  I am an investor that uses a combo of both, so I am curious as to your strategy.

Investors often think that by moving property into LLCs, they are protecting themselves and their personal assets. However, you can also accomplish this through an umbrella insurance policy for liability. By going the umbrella insurance route and not the LLC route, you could have the best of both worlds by having your assets protected AND benefiting from lower interest rates and loan terms that the VA and other conventional financing provides. So, is there some reason why you are choosing to take on the extra expense of commercial financing just to put your properties in LLCs?

Nice to "meet" you, @Trent Blackwill

I am a Realtor in the Phx/Scottsdale market, and am familiar with the STR opportunities here. The key is to look for properties with good surrounding activities that will draw guests. Focus on properties with No HOA to avoid regulation issues and/or fines.

You may also want to secure a proper evaluator program that will estimate potential income.  Programs like mashvisor, or airdna, just to name a couple, are good places to start.

Square footage is usually listed based on tax records or appraiser measurements.  Most contracts call for Buyer to do their due diligence to verify facts that they deem important.  This would include square footage.  

I am no attorney, so speaking with one would be a good idea, but it is my guess that any claims you would have against the Seller would require you to prove that the Seller willingly deceived you.  Is that the case?  Or is it possible that the Seller just used the sq ft that was in tax records, or on the last appraisal, or info they obtained from the last owner, to convey to you?  In this case, I would imagine that it might be difficult to prove that the Seller meant harm, or falsely reported info.