All Forum Posts by: James Alderman

I don't believe it could fetch $299k on the MLS. I think the $243k is appropriate off-market without the realtor commissions. I wasn't opposed to listing if I couldn't find an off-market buyer.

I wanted to avoid spooking my tenants (triplex) with an on-market listing. The city is also going through gentrification, and one long-term tenant there is on a fixed income. I had purchased the property 3 years ago with this tenant paying $500 monthly (way below market rent), and I made a handshake agreement with the seller to try to keep the tenant housed there. I made the seller lower their price with that handshake guarantee. I was able to raise the rent to $775 (still below but closer) through VA assistance for her. I wanted to keep the property off-market and work with a buyer directly who would own the property and continue to provide housing for her.

It just felt like the right thing to do. 

@Caleb Brown the agent is young, but owns 20+ properties and flips 15 a year, managing his family's portfolio. I've known the family since childhood, so that plays into my frustration as well. 

I don't want to get him in trouble. It's probably some leverage during due diligence if he wants to negotiate down from $243k, since he was marketing it at $299k. 

@David Ramirez thank you. Should any shenanigans occur through the purchase process, I'll reach out to my attorney. I wanted to make sure it wouldn't be wholesaled, which we discussed over the phone. It seems like he was starting the process of a wholesale before we had any agreement in place.

Really, I think I just had to share the situation and get the frustration off my chest. 

@Caleb Brown Thanks! The purchase agreement didn't have any assignees if that's what you're asking. It was being marketed before there was any purchase agreement or consent given. 

We're in contract now (before I learned of all this), and it just threw me for a loop. I don't plan to complain, but it seemed like a red flag. Certainly it's their business if they sell after.

What do you mean "the buyer that goes U/C"? I'm not familiar with the term.

I showed my off-market triplex to two investors. One of the investors is also an agent. Let's call him Agent 1. Agent 1 and I signed a purchase agreement at $243k yesterday, with Agent 1 as a buyer.

The other investor then reaches out and informs me that he had seen my property and details on Facebook, being marketed by a different agent for $299k. Let's call him Agent 2. I contact Agent 2 who informs me that Agent 1 had reached out to Agent 2 to see if he'd have any buyers. It took us a while to get on the same page and understand that Agent 1 was actually the buyer for my property. AFTER we had a purchase agreement, Agent 1 then reached out to Agent 2 to inform them the property was no longer available.

Now, I understand wholesaling, where a purchase contract is sold. In this situation, Agent 1 had marketed my property to Agent 2, who placed the details on Facebook, before we had a purchase agreement. 

I spoke today with Agent 1 (the buyer now) and he was very apologetic that this got back to me. He said he had sent the details to Agent 2 to see if he'd personally be interested in the property at the markup. 

If this were any John Doe investor, it would be one thing. But this investor is also an agent, and I feel he may have violated ethical standards by marketing my property to the other agent prior to having any sort of contract. Am I overreacting to this? 

Hello BP community, I have a 5 bed 3 bath cabin in the northwoods of Wisconsin. When I purchased it, the sellers only listed it as a 3 bedroom because the septic system is 1000 gal (rated for 3 bedroom home) and it lacked egress windows (already fixed). I'm considering adding another tank and more drain field so that it is properly rated for a 5-bedroom home, and I can advertise it as such.

My question is this: how much value would this add to the home when it comes to selling? Break even or possibly gain more value? The home itself is Class A with high-end finishes. Buyers in this market are mostly families from Chicago looking for vacation homes. 

I know, there's a lot of nuance with these things. Even so, I value your opinions and want to see what you think.

@Steven Garza

Hello Steven, and welcome! The offer price will depend on a number of things, including comparable sales, condition, financials, and risk tolerance.

You can find comparable sales by looking for similar homes in the area that have sold in the last three months. Professional appraisers will use adjustments to account for differences in square footage, bedrooms, age, lot size, etc. 

Condition will take into account any deferred maintenance and upgrades that you'll need to make upon purchase. You should have an estimate of the costs, preferably with the help of an experienced contractor.

By financials, I'm referring to whatever metric(s) is important to you and your business. It'll be different if you are buy and hold vs flipping. For a LTR, I'd be researching the market rent by looking for active rentals, using rentometer.com, asking my realtor, etc. I'd also be looking at expenses which will include the mortgage, insurance, taxes, repairs, capex, vacancy, utilities, lawn/snow, management, etc. Depending on the neighborhood and purchase price, I'll be looking to cashflow anywhere from $150 to $400 per unit. I'll also look for 10%+ ROI after stabilized.

Risk tolerance accounts for things depending on your age, amount of other capital, timeframe, market conditions, and the like. This can be padding numbers conservatively or buying at, say, 75% of what you believe a property is worth. As the market is turning right now, buying below market value is ideal in case values dip over the next year before recovering.

These are only a few things to be at the top of your mind when looking at properties. You'll gain a lot of experience just by looking at properties and practicing "running the numbers." You'll start to get a second-sense after you've analyzed 50-100 properties. Also, there's a lot of great info in the BP books, which I've devoured over the past two years. Let me know if you'd like any recommendations based on your investment goals!

@Sarah Gwiazdowski First thing, if you move forward with this, make sure that YOU are paying the mortgage, taxes, and insurance directly. Don't make the mistake of paying the seller monthly, assuming that they will make these payments.

Okay, you're basically describing a land contract "subject-to" the existing mortgage. The bank could trigger the "due on sale clause" if they catch the land contract. A due-on-sale clause is a mortgage contract provision that requires the borrower to repay the lender in full upon the sale or conveyance of a partial or full interest in the property that secures the mortgage. They could come to the borrower and demand the full amount due immediately or risk foreclosure. Will this happen? Probably not as long as the lender keeps getting paid. Could it happen? Yes.

I understand why a lawyer would not want to give his stamp of approval, but this "subject-to" technique is used frequently. You could find a new attorney and move forward without telling the bank and keep your fingers crossed. There are actually insurance products specifically for this situation, where the insurance will provide the loan if the lender calls it due. 

You could contact the lender and frankly explain the situation. They may take no issue with it and give you the okay. Then you could move forward feeling a bit safer. That being said, I could see banks being less friendly moving forward as interest rates have spiked so quickly.

@Nathan Frost Have you spoken with any banks or brokers? Some lenders have minimum appraisals or loan amounts. There are products that can finance the acquisition and rehab, but you'll probably have to refi after completion.

Are you familiar with the BRRR model? If you can put up your own money initially for the acquisition and rehab, you could cash-out refi and get your money back. Say after your rehab it appraises for $74k and you cash-out refi at 75% LTV, that's $55k back in your pocket (or ~$20k if you leveraged the acquisition and rehab).

That being said, in my opinion anything that requires a refi within 18 months carries more risk right now. The lending environment is shifting and difficult to predict, even if rates level out during that period.

@Rod Mendoza Yes the interest follows that increasing scale you outlined. Yes there is a default clause in the contract, and we worked with an attorney who also owns a title agency. So the attorney drew up the documents for the note and handled the title transfer as well. It is a rental property fully occupied. 

The rent from the three units totaled $1650 when I purchased, which cash flowed negatively after saving back for capex. I've been able to increase that to $2500 over the past year and a half with renovations and adjusting to the market rent. 

I financed $10k in renovations with cash, and I financed a $20k new sewer lateral and interior plumbing with a home renovation loan.

The home renovation loan totals about $600 a month, so the cashflow is still tight until that is paid off in three years.