All Forum Posts by: Jess Hewitt

@Bob Malecki your idea is a winner.  Thanks everyone.

I also recommend separate checking and linked savings account with debit card.  Start the account with the minimum to avoid monthly fees.  I give this account number to the property manager to use for his rental and security deposits.  I use the debit card to make purchases for the property.  Security deposits can be moved to the savings account.  I sweep the excess rental funds into another account so I never have a high balance in the account in case of some type of fraud.  

I have a home warranty on every property except for one that has limited "systems"*.  I include the costs of the home warranties in my economics.  These warranties have saved me many times when expensive systems break down - which always seem to come at the worst times.  It is true that they do not cover every breakdown and you have to pay for certain items but I have mastered these contracts so my managers know when to call the warranty company and when to dispatch their own service personnel.  I have multiple contracts so I even get a 5% discount for multiple properties.

My warning to you is - if the AC/Heat failed tomorrow do you have enough cash reserves to replace the entire system with upgrades for code?  If not let the warranty do it.  You will have to pay for ducting, disposal and a few other things.  My latest one failed in May and cost me $1200 while saving me $8000. 

What else has the warranty paid for a new garage door, a new wine refrigerator (most will pay for 3 refrigerators in a house), a new induction cooktop ($1500), two microwaves and several dishwashers.  To date, warranties have replaced five AC systems with upgraded units.  FYI - this is why I also buy used appliances as I have no fear of them failing.  How much does that save me?  Thousands of dollars.

* Limited Systems - basically if the property does not have forced air AC/Heat then I will usually not choose a home warranty but I may buy specific extended warranties on any newer appliances.

I have a note that I would like to sell.  Help me arrive at a value.  Here are the details

Original Note:  $48,500, 8% interest, 30 years, secured by first lien on $70k property, typical note terms.

Date: 12/9/2009

Current Value:  $41,505

Payments:  $505.88/month includes $120/month escrow for insurance and property taxes, No payment missed, 3 payments late but not by more than 30 days.

Escrow:  -$800 now but payment will be increased for negative balance and increased taxes/insurance.

My guess is its worth $55,340 valued at 6%

Great job @Santos Gloria.  Thanks for giving us the recap.  Did you use an attorney to prepare the lease?

Adding the garage apartment will subject your property to revaluation for property taxes.  As your homestead, the taxable value is limited to 10% annual increases but they will value 100% of the new addition.  I would plan on tax increase of $190/month.  http://hcad.org/hcad-resources/hcad-residential-pr...

If the property is still in probate then Executor can make all the decisions.  Your title company will probably ask for an updated letter testamentary to assure the Executor is still approved by the court.  Unrelated to your situation, I did have a situation occur recently where one heir was given the family homestead in his Dad's probate settlement and then he tried to sell the house after the Step Mom died.  Turns out he did not have clear title as his Step Mom had two children by a previous marriage who could also claim heirship.  This was discovered early but I had already spent legal fees.  I did get the agent to reimburse as her client had misrepresented his ownership.

Sounds good.  Trucking companies have great insurance so get them to add you as an additional insured.  Lease the space buy the square foot and give them the option to add but not subtract space.  If he won't take all then list the balance of the property on LoopNet or Craigslist as that's where trucking companies look for these spaces.  Ground must be stabilized which sometimes can be more than just gravel.  Get the gravel company to give you their opinions as these truck can weigh a lot.  Make sure the neighbors are ok with trucks as your plans could be spoiled by a complaint.  Use an attorney for the lease or sign up with a prepaid legal service like LegalShield for a lease review.

Basic investment is Commercial Properties require larger down payments than 10%. Miracles can happen but I would count on at least 30% down and 50% being more likely at a bank in Houston. Your low cap rate is low so you should be able to find deals on LoopNet or REDNews. Subscribe to both and you email will be filled with offers. Vacancies can be very long in commercial properties. But tenancies can be even longer so that's why we like commercial. National tenants need an up-to-date property and they are notorious for terminating or buying themselves out of leases which can subject you to long vacancies while local tenants tend to stay longer in a substandard property. So consider upgrades and updates if the property needs them. Leases without build out will run 3-5 years so if you can buy a property with longer leases that is a positive. Best tenants can lease NNN as they understand expense inflation but others you may want to put on a shorter gross lease. Get a very good attorney as you will need one. The harsh reality is that your ten percent is not going to get you very far in commercial property so you may want to consider an office condo - that's how I started - or just run a search on LoopNet for properties you can afford and go after them.

You can sell it as it will be your property after a proper closing.  When you sell it then the original mortgage will be fully paid and the seller and you are off the hook.  I agree with Christopher that the seller is not acting rationally to sell without taking any equity.  But if it's true then you could just wholesale it and make a quick profit without much work.  Many of us buy, fix and hold these properties under assignment from wholesalers.  Good luck and keep us informed.

Sounds like a workable deal as you explained it.  I would not worry about refinancing it - just keep the cash rolling in and find another deal.  When you need cash then you can refi with cash out.  Best to season your ownership and make sure your tenant is stable before a refi.