All Forum Posts by: Jeremiah B.

Steve really hit the nail on the head.  But, whoever is doing your closing will handle most of those - i think you need to focus on three key thing:

1. Coming to terms.  How much will you sell for.  When.  etc.  This is by far the most important step...

2. Create a contract with the buyer.  A quick google search turned up this contract, which looks pretty standard for WA, OR, and NC  http://dsoldit.com/prdscontract2011.pdf

3. Finding a title company or closing attorney to do the closing.  One big example is Fidelity National Title.  With only a few exceptions, they should be able to walk you through the rest of your list and todos.

Best of luck

I live in Oregon and invest in Charlotte - and tried to coordinate a trip out there the same time as this meetup, but no such luck.  

Any concerns about me sharing this info with my RE agent (who is also my rehaber and PM)?  She works with a lot of investors in Charlotte but isn't a part of BP.  

All the time.  In fact, it often does not have to pertain to something that I've personally purchase.

Case-in-point:  Real Estate in Milwaukee.  There are some smart and savvy investors on BP that are buying rentals in Milwaukee that rent for 3% of the purchase price.  That's etched in my mind, every time I put an offer on a place in Charlotte that is renting for 1.2%...

I firmly believe that one of the best resources that an investor can have is a plan.  My plan clearly states why $30,000 houses in Milwaukee don't make sense for me - so whenever I start to second-guess whether I'm buying houses correctly, I re-read my plan and consciously ignore those Milwaukee deals.

[[Ignoring the ethics of LO discussion, and back to the main question]]

It's hard to say what you should do here because there are a lot of things that you know, that we don't (and are probably none of our business).  So, I'll make a couple assumptions about the house. 

I'll say you paid 240K, financed 95%+, and got two mortgages - one at 6.5% and a second at 12%.  Insofar that this is true, i think the first goal should be to get rid of the 12% rate, regardless of how you do it, or what happens to the house.

Assumption 1: You're Rock'n it.  

I'll assume that you make a solid six-figures at your stable job.  I'll assume that you are in this for retirement, that is still 15 years out - but that you are also investing in other ways.  I'll assume that this is not your only rental, but that you will keep your number of properties lower - less than 5.  I'll assume that you have cash - enough to pay around 40K AND still have a safety net (6-months of expenses).

If this is the case, I would try and find a way to hold the property.  This is probably paying off the second and getting rid of the CMI.  Even without your second mortgage and CMI, you will probably still have a negative cashflow for several years, of around $3000/year.  But, once you factor in principle paydown and taxes, you are likely to be increasing your total net worth each year by a few K (maybe $2000 - after the $3000 negative cashflow).  Given that you have zero equity in the house right now, that net worth increase only costs you a minor negative cashflow.  This is a form of forced investing, and one that requires you to be financially secure enough to stomach negative cashflow and future volatility.  On paper, this is probably the option that results in you having the most money long-term. and in the best shape in retirement.

Assumption 2: Outlook is unclear.

However, if your income is not solid, you are not easily making your monthly requirements, you have consumer debt, etc., or if you are simply losing sleep over the house - I think you need to get rid of the house.  In these situations, you probably can't continue to absorb the negative cash-flow.  Obviously you're right that you will need to bring a lot of money to the closing table if you sell it....

Alternatives

• *I would only consider a short sale if your credit score is already below about 600, and you will not need credit for the next 5+ years.
• *An alternative to option 1 is to simply refi.  Speak with a lender about this - within 5 minutes, they can tell you, about how much you would need to bring to the closing table to do this, and how much your monthly payment would be.  Given that you're 10 years into a 30 year mortgage, this would not be my first plan.  This would cost you a lot of money - including several K in closing costs.
• *I would not go the 'fix it up until it's profitable' route.  
• *No one knows what will happen to prices.  But, if the house is in the part of town that you expect to have prices drop over the next 20 years, I would consider parting ways with the house.
• *I've never done a LO deal, but I encourage you to speak with a lawyer before going this route.

All told, this is a bad situation with no great alternatives.  Still, I think if you can absorb the negative cashflow and some big expenses, it may be worth holding.  

Let us know what you decide and how it goes.

Hey Scott,

It's important to understand why you're running into this wall.  Banks sell these loans to Fannie or Freddie.  Both Fannie and Freddie will buy 1-4 mortgages per person.  After that, only Freddie will buy mortgages 5-10, and only with very specific requirements.  As such, most banks do not bother with mortgages 5-10. 

Still, it can be done. But first, you will need to quality for a 5th. This generally means that you have good credit (720), good debt-to-income, 25% down, and enough cash to cover 6 months of your PITI from all of your properties. These are Fannie requirements and I believe they are set-in-stone. They are obviously high standards, and a lot of people don't qualify.

If you do qualify, you should be able to find a lender without much trouble.  Flagstar is a big player that will do mortgages 5-10.  Alternatively, you can work with a mortgage agent who partners with several banks.  Because this person probably works with half-a-dozen banks, they are likely to be able to find one that will do mortgages 5-10.  Just ask your real estate agent or title company for 2-3 names, and you're well on your way.

All of the above is talking about conventional/conforming financing.  If this isn't a fit for you, the next step is to look at creative financing such as seller financing, portfolio loans, selling your firstborn, or Sub-2 deals.  These are far more complicated options, and options that I have never used, but people do use them with good success.  

I kind of hate the cashflow-per-door metric. $100 a month on a 50 unit complex that is in good shape, required no capital and will appreciate is a freaking steal! $100 a month on a single family residence (SFR) where I put 25K down on a 100K house would make me pound my head against the table.

There is also a big difference between cashflow per month, and actual cashflow.  If I ignore vacancy, repairs, leasing fees, etc., it's easy to generate huge cashflow and buy expensive toys and get a BMW.  But when I add up the reserves that I should have to cover these expenses, that cashflow drops from a 2012 BMW to a 1970's VW Bus.

I'll preface this by saying that I'm among the more conservative investors on BP.

I would recommend NOT taking money out as a withdrawal.  In fact, I think that taking a withdrawal or a loan may very well be a mistake; here are some reasons:

• Diversification.
• Penalties (10% fee is huge!)
• I worry that you don't have a clear vision yet.  If you had a well-researched business plan and was 10K short, I'd remove this bullet.  But for now, it doesn't feel like you have a plan just yet.
• Taxes.  That 18K will be taxed at your highest tax bracket.
• Security.  Real Estate is risky, and most people on here have lost thousands in one sitting/lesson.  If you have a RE business and it flops, that 18K might be helpful to save you from losing your house, bankruptcy, etc.
• Future loans.  Once you get 4 loans, the 5th will require you to have enough money to cover a lot of expenses.  You can consider your 401K as money in this calculation.  You can not consider cash-flow or equity in this calculation.
• I believe stocks remain a good portion of a strong investment plan, and are indeed relevant today.

I also wouldn't consider a loan.  You will be double taxed on that money (once as income when you take it out, and then you pay it back with after-tax dollars) and will probably need to replay all of it immediate if you leave your job.

Everyone needs to take their own path, and I'll respect whatever decision you make.  But I would focus on learning and experience in real estate first.  Or, work in something that doesn't require large amounts of cash (e.g. wholesaling, bird-dogging, sub-2, intern for a flipper, etc.). 

Best of luck.

Sexy indeed!  That's a great deal!!!

I think you bring up a good point.  You can get rick quicker with off-the-wall, high-risk, creative deals - but those are also high-risk.  Personally, I'll take those boring sexy deals all-day long.

Example?

Smaller place in a good area in Charlotte.  ~1600 sqr ft on nearly 1/4 acre.  3/2.5., built in 2010.  Paid 97,000 but is move-in ready.  Rents for 1100 and rented within a week of closing.  Solid single.

Interesting read.  Not sure I've enjoyed a thread this much in a while...

Here's what I know:

• The tenant has a freaking awesome deal! If they are renting it 2K below market, their break-even point for 10 months is 20K. In their shoes, I wouldn't consider your 10K offer.  $20K feels like the right number.
• Barring an actual non-payment or explicit evidence of illegal activity, You should not fight with the tenant.  I mean no disrespect, but it would not end well for you.  You don't have the knowledge or perspective (or stomach) to get into a legal dogfight with a tenant who has a pretty cake situation, and the lease on her side.  I hear what you're saying about rejecting the boyfriend's checks or overrunning her with showings, but those are acts that will lead to a fight.  A fight that you are unlikely to win, and will hate fighting.
• You messed up.  We all do it, but you made an assumption based on bad (and dare-I-say, unethical) advice, and find yourself in a bad situation.  Takeaways for us all: have your own expert in big transactions.
•  10 months is not that long, nor is this mistake that expensive.  Sure, it sucks, but it could be a lot lot worse.
• I'm offended by how you refer to the tenants.  Assuming you can buy them out (even if based on bad advice) implies that you can make lowly other people do your bidding because of a big pocket book.  Referring to his ethnicity as being connected to illegal activity is offensive.   And failing to consider their point of view throughout the thread is offensive.
• You are generous to your son. In that way, it's obvious (but lost in this thread) that your intentions are good. Props to you for that.

And here's what I think:

• You should meet with the tenant and have a heart-to-heart.  Ask what it will take for them to leave early, and then listen.  
• Prior to the meeting, you need to build report and show good intent.  Buy them dinner.  Invite the guy.  etc.  If you can't do this, you may want to skip the meeting.
• If you and the tenant can not find a mutually beneficial arrangement, you should ride it out.  Shake their hands, wish them well, mean it, and then shut up for 10 months (really like 8 months, but you get the idea).

Just my two cents.

For a 50K house, I wouldn't.  Garbage disposals seem to break more than any other part of the house (save floors/paint) and are always more expensive than I expect.

If a tenant or prospective tenant asked for one, I'd consider it.  Or if they are common or you were in a higher price point, maybe.  But for a 50K house, I wouldn't put one in proactively.