All Forum Posts by: James Mc Ree

HELOC stands for "Home Equity Line of Credit". The "Home Equity" is a presumption. Your HELOC lender will specify how much must remain in the property. You can't borrow equity you don't have.

Example:

$175,000 purchase with 75% LTV mortgage ($131,250). You have 25% equity ($43,750)

Suppose you find a lender willing to give you a HELOC up to 90% LTV:

LOC = $175,000 * 0.1 = $17,500 BUT that will mean you owe more per month once you use the credit and you will only own 10% equity. Make sure you can afford it.

Your posting appears to say you have near 0 equity which would make a HELOC unavailable until you have built up some equity.

I don't see how you would be limited in the future beyond a need for cash and equity in your next deal which we all have.

Jim.

Is your partner effectively selling his/her equity to you?  That is an ownership change that may trigger your mortgages' due on sale clause.  A refinance may be required even if your partner agrees to remain a cosigner on the loan.  You need to have a conversation with your bank(s).

Jim.

I recommend paying the bills immediately to preserve utility service to your property.  You will only incur additional costs by not paying it.

You may be able to charge your tenant's security deposit for the amount owed.  That will make you whole, at least for now.  You should send your tenant a letter containing the bills and a reference to the lease terms to document the charges.

A conversation with your tenant is certainly in order.  It is great the tenant is properly paying the rent.  It looks like your tenant agreed to convert utilities maybe a couple of times and didn't.  I would demand the tenant convert the utilities today or explain why that can't be done.  The explanation may highlight that you have upcoming rent problems which may give you a chance to avoid a rent lapse.

If a money shortfall is the general problem, you could ask your tenant how he/she intends to pay the next rent and utility bill?  Suggestions of borrowing from friends and family might be in order with eviction as the alternative.  I would mention the possibility of eviction but not threaten it as imminent if the tenant seems willing to comply.

Jim.

The price you paid is recorded at the county and that's it.  You can correct mistakes, but can't change it to make it look like you paid more, if that is what you are asking.

Prospects can see this information, but not your investment into the property.  For example, you might have something like this:

$50,000 - Purchase price for property

$30,000 - Rehab cost

$100,000 - Your current asking price to sell.

There's nothing wrong with that if you can show the property is now worth $100k.  How do you do that?  Use comps.  The amount you originally paid is irrelevant if you can show the current value is comparable to what is selling today.

Emphasize the value you added to the property with the improvements you made.  You don't want to negotiate "up" from a buyer's lowball offer.  Instead, talk about how the property is much better than what you bought and the current comparables.  Something like this:

This home has a completely remodeled kitchen and bathroom, new hardwood floors throughout, all updated mechanicals, new roof, etc - which none of these comparable properties have.  This is a HUGE value and going to sell fast - I wouldn't think too long about this one, prospect.  I priced it expecting multiple offers to sell fast.

[OK - I am out of pitch mode...]

Jim.

Have you asked your municipality for their assessment?  That seems to be the most direct route.  It could be a pre-existing non-conforming use in which the duplex existed before your zoning ordinance in which you have no issue.

You really want to know definitively from the municipality how they understand the property's use with respect to zoning. You don't want to buy, apply for a building permit and hear from the zoning officer they haven't known about it for 20 years and it has to be converted back to SFR.

We had a situation in my PA township a year or two ago in which an in-law suite was added without approval.  The in-laws passed away and the owner rented it out.  Years passed.  The owner got some work done, applied for a building permit and the inspector found the unexpected rental unit inside the house.  There was a court case that ultimately was resolved with the rental unit being removed.  That's just 1 case from another state, but I think it shows the number of years of unapproved use doesn't matter if the use started in violation of established zoning.

A zoning change will be difficult if it is just for 1 property.  That will be called spot zoning.  You would want to try to pursue changing the zoning for your area if that is the route you choose.

A variance in PA requires showing a hardship as the first of 5 conditions.  I think it would be hard to show a hardship in this case in my municipality.  A financial impact is not considered a hardship.  It also must be a hardship not of the variance applicant's creation.  It would be hard for a buyer to claim no knowledge of the property being a duplex.

Jim.

@Will Pritchett - Does your 457 plan have a loan feature?  You might be able to leverage that to either show you could get the funds quickly if needed or actually use it to get the funds.  A retirement plan loan might not count as a loan with your lender since it is already your money.  Similarly, you could show you would withdraw from your plan with penalty and interest in a short period of time.  Timing and what you can do all depends on the plan rules.  I took a loan from my 401k and had the money about a week after applying.

The underwriters can be a bit like drones just following guidelines as if they are not permitted to think.  It might help to engage your loan officer or broker for "thinking" assistance to help the underwriters since the loan officer may be in a better position to escalate the issue and should be highly motivated as he/she doesn't get paid if you don't get your loan.  The underwriters just need to satisfy a checkbox.

It would be a shame to get this far and have to start over with another lender.  I recommend pushing this as far as you can with this lender, especially if you can show you followed this path based on the lender's up-front guidance.

Jim.

You or the seller could contact the municipality to conduct a U&O inspection.  Your offer could be contingent on the outcome of that inspection.  That would give clarity to the situation at least as it concerns code violations, unapproved/permitted improvements and what will need to be done.

I purchased a property in Pennsylvania with code violations and received a temporary U&O that allowed repairs, but not residential occupation.  You are probably looking at some version of that kind of approval if you purchase a property with violations that block a full U&O approval.

It doesn't look like a great deal from what is posted here.

Jim.

@Justin Cabral - Try a search of Bigger Pockets for "Patch of Land".  There are several discussions.  The link below goes to one of them.

https://www.biggerpockets.com/forums/520/topics/11...

Jim.

I invest virtually no time managing any of my occupied properties unless the tenant calls me with an issue.  Otherwise, there is small bit of time for cashing checks, paying taxes, etc, but that's it.  That is true for all of my properties, not just Section 8.

Section 8 only adds 2 inspections per year: 1 of the property and the other of the tenant, after the initial paperwork.

Jim.

@Sergio Ali

Definitely do at least three things:

1. Require the seller to end the leases in writing prior to settlement.

2. Offer the current tenants the opportunity to complete your rental application to continue to live there.  Screen them like you would any other tenant.  Accept them if they meet your criteria.  Obviously, get signed leases!

3. Make your offer to the seller conditional on #1 with the property empty or #2 with it rented in a documented form acceptable to you.  Don't leave yourself exposed to an eviction as soon as you buy the property or price that into your offer.  That should create a "distressed seller" situation.

Jim.