All Forum Posts by: James Mc Ree

Here's another perspective: Insurance is for liability protection. Use your rental's homeowner's insurance plus a liability policy to get $1M in protection. That should cover you for liability unless you plan to manage the property very poorly.

A trust owning an LLC seems to be overkill for a single rental. It could be great planning if you intend to add more properties. Alternatively, you can own the rental directly, take the income directly and simplify your life, taxes and everything. Your children can inherit the property as well.

I think you will owe transfer tax on your QCD and fees for the trust and LLC as expenses to keep in mind. I would change the above language about doing your best to keep personal and LLC transactions separate to ABSOLUTELY do that with no exceptions or your LLC is a waste.

Pay off the credit card debt first. It costing you 15% - 20% or more on the carried balance if you don't have a promotion. This will get you $600/month back.

Check how your plan handles 401k loan payments. I believe most (all?) plans have you paying your principle and interest back to yourself. If that is the case, the $1,000 per month impacts your operational budget, but is really a transfer into your savings. You can use this money to pay off the credit card debt if you haven't already spent it.

Maybe you got a steal of a deal, but I am suspicious that you spent $100k for a rehab property and it is actually worth $200k. Did you mean it will be worth $200k after the renovation? If so, your $100k purchase + $100k renovation isn't actually making you a profit. Otherwise, if it is currently $200k and will be $300k(?) after renovation, consider selling it to harvest the profits and get out of debt.

The rental property looks like it is covering itself. You can get a lower rate now, but it may be worth waiting until around the end of the year to refi. You will get a better refi rate if you don't take money out, but the refi will cost you closing costs.

The OP's premise is these properties are managed by a property manager versus the owner. I would think your first stop would be with your property manager to see what data they can share.

One of the reasons for hiring a property manager is so you don't have to deal with all of this stuff. Think about how you will use that data besides just scratching an itch and decide if it is worthwhile.

For example, if you have a lease for $2,000 per month, how important is it to look back over the past couple years to see how much the tenant paid each month versus what your property manager already provides and knowing you got $24,000 in rent last year?

Data geeks like me get into this stuff, but often find it consumes time and has little or actually negative economic value if your manager is already doing it. I self-manage and have a pretty efficient network of Excels to show this data.

Good point. I assumed you signed a lease when you said you accepted the application and took the deposit. In this case, you just need to adhere to whatever you agreed to with your prospective tenant. My apology for assuming you signed a lease.

I tell my prospects their deposit is non-refundable if they don't adhere to the written terms of the contract I use for the deposit. That would allow you to keep the deposit if they don't adhere to the agreement.

You have a legally binding lease. You can walk away from it and the tenant can sue you to hold you accountable to the lease. They can also sue you for damages if they incur temporary housing costs, feel you discriminated against them, etc. Bad idea.

It is common for new tenants to ask for an change to the move in date ahead of the start of a lease. I've had it happen several times. The way to handle this is to tell your tenant they can move in anytime they want and the lease starts Oct 15, since you already agreed to that change. They can move in Oct 15, Nov 1 or whenever. That is up to them, but they start paying as of Oct 15.

You get up to 10 subsidized mortgages through FNMA and FMAC. I would use those for your cash out refi before going to DSCR if you haven't already used them. There is a lot more paperwork for these traditional mortgages and they will probably take 2-4 weeks longer, but you could save quite a bit in fees and rate.

Otherwise, DSCR or a commercial loan is the way to go.

You may be engaging in overkill if this is your first property and you are trying to put it into an LLC. Insurance is a better solution. It is simpler and lower cost. Folks use an LLC for anonymity and liability protection. You won't have anonymity since property records will show Jasmine sold the property to the LLC.

You will get liability protection with the LLC if you do it right, but you will pay more for it and might not tangibly benefit from it. For example, you will have insurance either way. Adding a liability policy can provide up to $1M in coverage. It's very unlikely that you will have a claim or judgement that large and you won't incur the LLC overhead.

@Jason Skinner

Your post didn't say how much seller financing you were looking for, so I asked and assumed it was 100%. The $2,500 payment you proposed is the interest only portion of a 5% loan amortized for 30 years of $600,000 principle. That may have only been amazing coincidence, but that's how I got to the 5%. It is why I asked if you really intended to offer seller financing with a 5% rate.

@Gregory Schwartz has great advice on the approach. Understand Seller's goals and interest first. They may be money in the pocket, getting out of maintenance headaches, no more chasing rent, etc. If money in the pocket is not really the interest, then 100% seller financing may be acceptable to Seller; but maybe not if Seller wants money in the pocket. In that case, maybe 80% or some other % less than 100% would work. 

You will most likely get better offers as you increase the size of your buyer pool. Offering to a couple investors gives you negligible data. Listing it in Zillow or the MLS will give you maximum exposure.

After getting broad exposure, then decide how those investors' offers compare.

Are you looking for a 100% seller financed deal? Your $2,500/month payment would be a 5% interest note if it were interest only if it were for the $600,000 deal. Owner would be stupid to take that, but you never know if Owner is desperate. Even desperate though, this owner would literally walk away empty handed - no cash and no property. I can't see that happening.

Consider what LTV % you are willing to consider if less than 100% and I recommend raising the rate you would pay since you can't get 5% anywhere. You will already be saving substantial closing costs with a private deal. You probably also want to share with Owner your 780+ credit report to show you safe you are as a borrower.

I had a SFR Section 8 annual inspection today. The inspector told me there is a new smoke detector requirement for Section 8 homes coming January 1:

https://www.congress.gov/bill/117th-congress/house-bill/7981...

https://www.us-hc.com/blogs/new-smoke-detector-requirement-f...

Has anyone heard of this? His mention of it was the first I heard of it. The article referenced above says no implementation date has been set, but the inspector said it was January 1, 2025. It's time to buy stock in smoke detector companies if that is true.

I use 10 year lithium radio connected detectors. Some have sealed batteries and some are replaceable. Most of my detectors, maybe all, do not have a visual indicator for the hearing impaired. I think I will be buying a bunch of detectors, but I don't yet know what "tamper resistant" means for a sealed detector.