All Forum Posts by: Jennifer Wilson

Hello!

My husband and I are looking into a purchase of a commercial property where we can assume the current loan. We were provided the current owner’s promissory note. I am reading this differently than what the seller is stating and am wondering if a lender can clarify if the interest rate will change as of April 5, 2024.

The actual verbiage of the note is as follows:

Interest will begin to accrue on March 29, 2022. The initial variable interest rate on this note will be 3.5% per annum. This interest rate may change on June 5, 2022 and daily thereafter. Each date on which the interest rate may change is called the change date . Prior to each change date, lender will calculate the new interest-rate based on prime rate as published in the Wall Street Journal in affect on the change date. The interest rate will never be greater than 3.65%

Beginning on April 5, 2024, this Note will be subject to a variable rate of interest that will be based on Prime Rate as published in the WSJ in effect on the change date. This interest rate may change on April 5, 2024…

It continues on about change dates but seems like standard verbiage. Thank you for your help!

Jen

Hi @Felipe Soto,

If you can find a deal that makes sense, then my opinion is to buy it now!  A lot of sellers are asking way above what the value of the property is because people were paying it.  However, the market is changing, and if a seller recognizes that and you can find a seller that's willing to sell for actual market value, then I'd jump on it!  Interest rates are only going to get higher through the rest of this year, and possibly into next year, so your buying power is going to decrease. Therefore, if you're planning on holding on to the complex for a few years, I think it's going to be better to act now rather than waiting.

With that being said, I don't know what your market is like... if it's saturated with multi-family properties, you may see a decrease in value with the decrease in demand with the higher interest rates.  However, it still goes back to how long you plan on holding on to it.  If it's going to be a long term investment, I'd say to buy now!  

When you sell the property, the closing attorney/title company will ask you for your loan information so they can get a payoff amount.  When you sell the property, the title company will send money to the bank to pay off your loan, and you receive any remaining funds after all mortgages, liens, closing costs, and fees are paid.

If you choose to do the brrr method and refinance, then it would be as if you are the buyer of your own property, and the same process would occur.  Your new loan would pay off your original loan and you'd walk away with the difference (the equity), but you'd still have to pay the new mortgage.

I would probably go with a prorated daily rental charge.  I would advise the tenant that I'd be willing to work with them and give them additional time to move out, but that I'd have to charge the full rental amount at the beginning of the month, just like you would for normal rent. Then, when you can confirm that the house is completely vacant and cleaned, you can prorate the rent to that day and give the tenant a refund.  If you don't take the rent money up front, it could be very difficult to obtain it after the fact.  Plus, if they say 13 days and only pay for 13 days up front, but take 20, how likely do you think it'll be that you actually get paid for the additional 7 days? 

Depending on what your lease says, it may automatically go into a month-to-month rental agreement, so you shouldn't have to do any additional paperwork unless you wanted something in writing about the prorated rent.

I agree with @Nathan Gesner  He isn't on the lease, so therefore he isn't a legal tenant, and the moratorium shouldn't apply to him.  I am not familiar with the Chicago laws, but since he isn't on the lease, he's a squatter and has no legal right to be there.  I would advise you call an attorney, and then possibly even the police.  They should be able to force him out, and hopefully without doing any eviction proceedings. 

If you go that route, have someone there to remove his belongings for him along with a locksmith to change the locks at the same time.  Under NO circumstances should you allow the "tenant" back into the property at any time to get his own stuff, as that could be considered allowing him access.  If you wanted to give him a heads up that this will be happening on a certain day, you may avoid a confrontation.  However, you also allow him time to destroy the property.  Either way, call an attorney first and get their advice on your legal rights as an owner.  Good luck!

Hi @Juan Pereira,

I haven't house hacked myself, but a long time ago I was listening to a BP podcast where the hosts were saying that one of their biggest recommendations when house hacking was to NOT let your neighbor/tenant know that you're the owner of the property.  It stuck with me because it made so much sense.  Essentially, they said that if your tenant knows you're the owner and you make a decision they don't like (like not allowing pets, commenting on noise/visitors, not fixing something to their standards, etc.) then you are to blame and you personally are the bad landlord.  However, if you act as the property manager for the owner, then those decisions can't be blamed on you personally, because you're just the messenger!  In addition, it may alleviate the tenant from calling/coming by at all hours of the day if they think you're the PM and working certain hours vs. the landlord that can be bothered at any time of the day.

If you decide to hire a property manager, that will remove you completely from the equation and could end up being easier for everyone, as well as reduce liability on your end.  However, if you decide to self manage, then I'd absolutely recommend that you say you're just the PM.  This will allow you more time to make decisions while you "discuss it with the owner" along with taking any blame off of you! 

For your second question, I'm sure you could house hack two different properties in two different locations, but I'm not up to speed on the lending requirements.  However, if you are gone from either location, or both locations quite a bit, I'd recommend hiring a PM in the location you won't be at as much, or possibly both.  In my experience, it's been well worth the money!

Good luck!

Hi @Angel Ruiz,

It may be worth your while to talk to a lender about refinancing your FHA into a conventional loan in order to save money on the private mortgage insurance (PMI). With an FHA loan, you have to pay the PMI for the life of the loan, which is essentially just throwing money away. If you are at 80% LTV on the property, then you won't have mortgage insurance premiums (MIP, which is essentially the same thing as PMI) on a conventional loan. Depending on the value of the property, this could save you hundreds of dollars a month!

Now, because the interest rates are significantly different between the two loan programs, that's where it would be beneficial to talk to a lender to see exactly how much you'd save each month, and if it's worth while to refinance.  

I agree with @Melissa Jolley and @Avery Carl, and obviously the numbers Melissa shows don't lie!  Prices are not decreasing in the Destin market or anywhere in the surrounding areas.  If anything, they're at record highs!  We are at or above prices before the crash of '08, so while there may be a correction coming in the future, it isn't here yet!  (The only reason why I mention a correction is just because historically, we are due for one.)

@John Ringgold  We added a bedbug addendum to our leases.  We had tenants living in our units for a couple years before bedbugs were discovered.  Upon getting a pest inspection, it was determined that it was a newer case, so the tenants had brought them in somehow.  Our lease originally stated that the landlord was responsible for pest control. After the huge bill to remediate the bedbugs, we added an addendum to our leases stating that if bedbugs weren't there within the first 30 days of tenancy, then the tenant is responsible for remediation.

We also have units with shared utilities (water and trash).  Instead of having the tenants pay a different amount each month depending on the amounts of the bills, we took an average over the year in order to create a set amount for utilities and added that to the rent.  So if the average for the two utilities was $50/mo and rent would normally be $800, we made rent be $850.  This ensured that the tenant would pay their portion of utilities, and if they didn't, it was considered non-payment of rent, so we could evict if necessary.  You cannot evict for non-payment of utilities.  You just have to be careful that you aren't making money on utility payments, so our set amount was a few dollars under the average amount per month.  Any major overages are on us, so there is risk.