All Forum Posts by: Cara Lonsdale

I don't believe that AAR sells their forms to the public.  You must have a real estate license to obtain them.  They can be used electronically through zipforms for form completion.

Any lease you would be able to write would be subject to your ability to close on the property.  Additionally, this would most likely require you to show the property to prospective tenants in order to secure a lease, which requires the Seller and LA's permission.

With all of that in mind, the Lender should not be requiring this of you.  They should be able to take the average rental rate for the area and apply it to their calculations to submit to underwriting.  Usually this is calculated at 75% of the average rental rate.

Sometimes lenders don't think their request through very well, and ask for things that are not realistic to obtain.  I would push back on this and provide them with local rental comps, and time on market statistics so that they understand what to expect from the rental, and how long it will take to get it rented.  It may impact your reserve requirement, but it will eliminate the risk of taking on a Tenant that someone else places without your proper screening.

Texas is a state that doesn't have a limit on the Security Deposit, or prepaid rents collected.  So, you may be in luck there.  However, the various Cities can impose limits.  So, you will still want to check your specific municipality to verify the limits, if applicable.

Read your purchase agreement with the Builder.  See what they have the ability to do in terms of changing pricing.  Most likely, they do have a clause that covers them for an increase in materials and/or labor (like lumber earlier in the year).  However, they shouldn't be able to just arbitrarily increase your purchase price without your agreement (unless you are at the point prior to having the public report.  They may have the ability to rescind offerings before that is published).  

I would start with your purchase agreement and all the forms you signed at the beginning.  GO over them with a fine tooth comb.  Ask your agent where the sales rep told them that it couldn't be changed.  By the way, this will seem absolutely ridiculous, but did you know that most builder contracts have a clause that states that their sales rep and/or any hosts do not speak on their behalf..?!  So, anything the sales rep tells you is not something that the Builder needs to stand behind unless it is in writing.  So, make sure EVERYTHING the sales rep tells you, or agrees to, is in writing signed by you and the builder's designated broker (not the sales rep).

It depends on what your state will allow.  In AZ, where I am, a Landlord cannot require or hold more than 1.5 times the rental rate in security deposits and/or prepaid rents.  It is illegal for Landlords to hold more than that.

So, before considering, you may want to check your applicable laws.

James, I think you have continuously missed the point.  At this point, people can read.  They can determine what to pull out of each of our comments.  

I believe that you are experienced.  I acknowledge that you are local, and provide that insight.  I don't believe that you are infallible.  None of us are.  Your comments, whether intended or not, came off arrogantly.  I am not sure how you came up with your descriptions of my comments to you as they were defensive and not offensive, however if my comments to you felt bullyish, than I apologize.  

Your very first comment out of the gate toward me put me on the defensive as you finger wagged at me like a child and accused me of illegal activity.  My comment back, and everyone since, has been to defend myself, as I would never suggest illegal activity to anyone.  

There are alot of misconceptions out there about COVID and the protections that it provides to Tenants.  You are correct, that every state will also have their own set of restrictions and policies.  However, the one thing I have maintained that you will not acknowledge after many attempts to ask you to do, is that there ARE exceptions.  You even gave some for yourself of when you took a Tenant to court.  So, by your own example, you acknowledge that there are exceptions written into the policy.  You just won't acknowledge here in this forum because apparently being the "winner" is more important.

Additionally, you are speaking to your experience in the past.  The OP is talking about a situation that is happening right now.  Since things have changed, policies have changed, and the past is immaterial.  I have included links above to all of the docs, info about the new policy, AND news that the Gov's powers have been overruled.  So, clearly the experience of the past year is not evidence of it continuing now.  A new plan of phase out has started.  More and more exceptions have been added.  

I think you have a good start.  However, I would encourage you to get a little more conservative with your numbers and add some buffers.  After all, this is your evaluation.  If you are too optimistic on this front, it may lead to lost cash flow upon purchase.

Here are a few things that jump out at me right away.....

How did you get to $8 per month for insurance? That is just under $100 per year. That seems incredibly low, even for a contents only policy. I didn't see an HOA fee, so my guess is that you need walls out AND walls in coverage. I would expect that to be $650+. Double that if you have to get a vacancy policy if you intend to renovate beforehand. Also, make sure you escalate this over the years as expenses go up).

Have you secured a lender at 3% interest rate for your rental?  Not that it can't be found in our current market, but for estimation sake, you may want to consider elevating that to a more reasonable rate.  Better to be pleasantly surprised by additional cash flow than disappointed by a higher expense.  I see that you are doing a 15 year loan, so that helps.  You may consider doing 25% down instead of 20% down.  There seems to be a significant rate differential these days between the two ratios.  Also, your loan amount may come into play.  Anything sub $50K could take on a higher rate, and many lenders won't touch anything under $50K.  I would estimate 4-5% interest rate to be safe.  If you find something below that, GREAT!  More money in your pocket.

Do you have a home warranty on the property?  If so, I would add that into your expenses, and up the maintenance fee to cover the trade call fee.  If not, I would up this expense significantly.  All it will take is an appliance to go out and your budget for the whole year (or several) is blown.  Now consider an HVAC going out.  That could be a $7K expense.  People have mixed feelings about home warranties, but just like your homeowner's insurance, it can be a good insurance policy that helps level off high expenses of costly repairs/replacements.

Do you have cost of acquisition and sale figured into your analysis?  What about holding costs while you renovate and/or wait for a Tenant to be placed?  

 According to the link below, the Governor's powers ended on July 1st.  James, enough is enough.  I get it.  Your a big man.  You are the authority in all things Minnesota.  We bow to your every word, and you can never be wrong.  Although question....IF there were no exceptions, why were you in court before a judge?  You must have thought there was a REASON that allowed for your eviction action that was an exception to the moratorium.  Additionally, now that that part is over and new policies are in place, why are you still speaking to the old policies? 

MN’s COVID state of emergency officially ends Thursday – Twin Cities

This is a great program. I have facilitated clients using it here in my market (Phx/Scottsdale), and also learned first hand through my daughter's first home purchase how it works. My guess is that it is the same process in each state because it is a FHA program, but I can at least speak to my market program and experience.

Pros:  You get to finance the rehab.  You can put as little as 3.5% down.  The contractor is not paid until job is complete, so you can minimize risk of them taking your deposit and not showing up to work.  Credit requirements are l

Cons: Depending on the rehab amount, and the type of 203 program you select (K or B), you are limited to either 1 or up to 3 contractors. You cannot do ANY of the work yourself. Getting a contractor to wait to get paid until FHA inspects the completed work and releases the rehab funds is more difficult than you may think. The cost associated with the whole process (fees for inspection, fees for setting up holdback account, fees for doing the loan, etc). Appraisal must support the purchase price and Rehab amount with an ARV value. You MUS select an FHA 203K or B approved Lender. You cannot use any lender.

Our daughter had a rehab amount just under $20K range, so we were able to select 3 contractors. We used a roofing contractor, a window contractor and then a GC for the rest (new kitchen cabs and appliances, new carpet in bedrooms, paint interior, and 1 new bath vanity.) It was alot of hoops to jump through (negotiating with contractors, selecting materials, facilitating contracts between FHA and the contractors, etc) and we relied heavily on our lender to answer questions. So, we learned that it helps to get a lender who both knows the program well, AND is willing to be available to you for questions.

What market are you in?  Without knowing much about your market, I can tell you that you have a couple of options.

The first would be to first find out who the house belongs to now that the neighbor has passed away.  Is the child now making decisions?  Is there an executor?  Is it still in the owner's name and the child is letting it go to foreclosure because they don't want to take on the debt?  You need to do some research there.

Once you find a decision maker, you can see if they would be interested in short selling it to you.  This would require the current lender holding the mortgage to negotiate a lower price than what is owed.  Sometimes the appraisal will dictate what the Lender will take.  

Another option would be to wait until the property is sent to foreclosure. If you have the cash to buy it, you can bid to purchase. If you don't have the cash to buy it, and it reverts back to the Lender. It may go up for sale as a REO (Real Estate Owned). At that point, you can make an offer on it using a Realtor, or contacting the Realtor who has listed it.