All Forum Posts by: Jim Garrett

Thanks Don and Mackenzie.  I did engage a RE attorney in NC who is advising me on my legal rights.  Our appraiser did finally surface (3 weeks late!) and turn in the appraisal and I am now scheduled to close on the property on 1/25/22.  The appraisal process has become a big bottleneck in RE transactions like this.  This is the 3rd time, I've had issues with an appraiser taking forever (in this case 7 weeks!) and nearly killing a deal as a result.  I'm so frustrated that I'm actually considering becoming an appraiser myself.  Jim

I'm under contract to purchase a vacation rental in western NC near two ski resorts. I'm financing it through a private lender (Visio). I paid for my appraisal on 12/7/21, even paying an extra $625 to get it done by 12/31/21 to meet a 1/5/22 expiration of my due diligence period. The lender ordered the appraisal through an appraisal management co (AMC) who contracted an appraiser to do the work. The appraiser didn't schedule their inspection until 1/3/22 so we negotiated an extension with the seller. The appraiser committed to have the report to us by 1/7/22 then didn't do the inspection until 1/6/22 due to bad weather in the area and didn't tell anyone. We (the AMC) last spoke with her on Monday 1/10 at which time she committed to have us the report by Tuesday 1/11/22. We (the AMC and I) then could not reach her all day yesterday and again all day today. She is neither answering the phone nor responding to repeated emails from the AMC and now her voice mailbox is full, telling me she is out of commission somehow. I certainly hope she is OK! I've now negotiated a 2nd (and final) extension to my purchase contract with the seller and now have until 1/19/22, but time is very rapidly running out and the odds of getting a full new appraisal done in one week are slim. I have paid a $5000 non-refundable due diligence fee (typical in NC), about $2500 in inspections, and $1150 in the fee for the appraisal. What can I do now to save this deal? What rights would I have to recoup costs if it falls apart due to the appraiser's non-performance?

Jim

Thanks all for your replies.  I've engaged a RE lawyer with eviction experience to start the process.  I've already given her the 5 day notice so the ball is already rolling.  Thanks!  

I'm lucky.  I've been an investor for 4 years in AZ, have 12 units and just now am having my first bad tenant experience.  This tenant was consistently late with rent, but had made good faith efforts and stayed in communication so I granted a month-to-month extension of the lease in September.  She has since fallen more than 2 months behind so I gave her notice on 12/1 that I would be terminating the lease effective 12/31.  She made a payment toward November rent on 12/31, but has since gone silent, not responding to calls, emails or texts and now today her phone has a recorded message saying it's out of service.  I went to the apartment on 1/8 and could tell she was there, but she wouldn't answer the door.  I posted on her door the required 5 day notice to pay rent, make arrangements or vacate and documented it with a photo, which I texted and emailed to her.  What are my options now?  Since her lease is expired, can I just change the locks after 5 days and move her stuff out or do I still have to go through the eviction process in court?  Any advice is greatly appreciated! 

Jim

@Austin Nieves

I spoke to banker and hes interested. I have couple questions first. Jim

@Austin Nieves

I'm an investor in Tucson and I am closing on a 4 plex plus 5 plex refinance this week With national bank of Arizona. We combined the 2 properties to get a commercial loan on both simultaneously. The terms are 65% ltv 25 year amortisation at 4.25 percent With a 10 year stop. I can introduce you to my banker there if you would like.

Jim

This thing really scares me.  If the progressives get control of the Senate and WH in November, then I would fully expect them to ram this thing through.  

To avoid the No eviction for non-payment conditions in the Act, could you structure leases as month-to-month that can only renew upon receipt of the rent for the upcoming month.  That would at least limit the exposure to one or two months.  You wouldn't be evicting because the lease expired, giving them limited legal rights (I hope!).  

Thor and all,

Without getting into the weeds of the model formulas and results, I believe that the basic conclusion is sound: There will be serious downward price pressure in the RE market in the not very distant future.  I believe this for multiple reasons, specifically: 

• (1) The job market is terrible and won't recover to pre-covid levels any time soon.  I believe this because the shutdown has now gone long enough that many service/retail/manufacturing jobs are permanently gone because the business has closed and won't be reopening. (Sweet Tomatoes, JC Penney, local restaurants/bars, local retail shops)  See #3 for more.  How do you buy a home without a job? 
• (2) People's savings are getting crushed.  
  https://www.washingtonpost.com/business/2020/05/14/federal-reserve-census-data-coronavirus-survey/
  Cash reserves are depleting fast among the unemployed and small business owners.  Mortgage deferments in many cases are just pushing the pain back and will likely cause more problems when the lump sum "catch up" payments come due.  How do you buy a home with no job and no savings for a down payment?
• (3) Consumer confidence is in the dumpster.  See this article from US News.  
  https://www.usnews.com/news/business/articles/2020-05-26/consumer-confidence-up-slightly-but-remains-near-6-year-low   Like it or not, our economy is heavily dependent on consumer confidence and the psychological impact of 30 million people losing their jobs and over 100,000 people dying cannot possibly be erased by a few stimulus checks and mortgage deferment.   This issue reinforces problem (1).  If consumers aren't shopping then the job market is not going to rebound.  Who will be buying homes when so many are scared they can't even pay the electric bill for this month? 
  
• (4) The savings rate is soaring as fear-based cash hoarding takes hold.  Problems 1-3 above are all being evidenced by the soaring savings rate of US households.  People have lost jobs, can't find new ones, have been burning through cash like mad keeping the lights on and water running, and have been scared into becoming hermits so are now hanging onto cash with both hands. https://www.cnn.com/2020/05/12/investing/jobs-coronavirus-consumer-spending-debt/index.html

I feel strongly enough about the trend and future that I have already put one 5-plex near the University under contract to sell and will be listing 2 more vacation rental condos in the next few days. My plan is to get ready to pounce when buying opportunities open up next winter-spring.   Best to all of you! Jim

I purchased a terrific BRRR opportunity multifamily within walking distance of the University of Arizona in Tucson, AZ 11 months ago for $385,000 with $70,000 down. Seller carried the $315,000 interest only note at 6.875% with a 3 year stop. We renovated multiple units ($24,000 renovation costs), negotiated good lease extensions with rent increases for some existing tenants and drove down costs by self-managing and reducing the landlord paid water bill. The end result was an $800/month increase to gross rents and approximately $300/month reduction in operating costs, yielding just over $11,000/year in increased NOI to $35,784. It's currently generating just under $1000/month of cash flow after debt service. In January, comps in area sold at 6.5% CAP so we listed it at that CAP rate. I just received an offer at 7% CAP, which equates to $50,000 less than our asking. Normally I would negotiate hard for more, but a lot is different today than when we hit the market pre-Covid. I have 4 big issues in play that are giving me some heartburn. (1) The University, which is THE dirver of tenant demand and rent price increase in the area has announced large layoffs and may not resume on-campus classes until 2021. (2) As a small commercial MF it is not eligible for conventional residential financing and I'm being told that the portfolio commercial lending market is dried up from the market crash so my pool of potential buyers is much smaller right now. (3) The potential dip in values due to the economic fallout of covid-19 this year (if it happens) would likely not give enough time to recover to today's offer price before the balloon payment comes due. (4) The structure was built about 90 years ago. Much has been updated and is in great shape, but old properties just make me nervous.

What would you do?  Take the profit, cash out and wait to buy the dip?  Hold it for now?  

Would love your thoughts.  Jim

Good stuff Colby and all.  Count me in for the next Meetup.