All Forum Posts by: John Clark

Not being familiar with the bill, can you sue and just get a monetary judgment -- treating the past due rent as a straight debt -- and then try to collect on the judgment through ordinary debt collection procedures?

"What are the source of funds for either. That's who's paying it.

When you have positive CF, that PCF is supplementing the cash you are already putting in. which means you have to put in less. When the amount of supplemental CF is enough to cover the entire mortgage payment, then the REI can keep that amount of cash and not spend it...and the source of that CF (the tenant/rent) is paying the mortgage."

----------------------------------------------------

It's your debt, therefore, you are paying for it. Your internal allocation of income streams (rent in this case) is irrelevant. Don't believe me? Then ask yourself why you take into account vacancy rates when determining cash flow. That money has to come from somewhere when there's no tenant, doesn't it? So no, your tenant is not paying for it, you are. You are simply using the income stream provided by the tenant by his rental

You, Joe, completely ignore the relative cost of alternative investments -- opportunity costs. If your alternatives for investing money you have (after building up sufficient reserves) bring you in less return than the interest on YOUR mortgage for your rental unit, then you are better off paying down the mortgage and "earning" the mortgage's rate of interest on your pay-down amount. In what form do those earnings take? Increased cash flow on the unit.

Where you go wrong is the pernicious idea that because you have an income stream from another person that you are deploying for the debt, therefore you are not paying for the debt. Profits come and go, but debt is forever, and it is always the responsibility of the owner.

"The interest "reduction" isn't a savings to you since you were never the one paying it."

------------------------------------

One's internal allocations of income streams/sources/whatever are irrelevant. You are always paying for it, not the tenant. The only relevant inquiry is what the rate of return is on your alternative investments.

"We didn’t follow up because they kept saying the sellers didn’t have a lease."
-----------------------
Who is "we" and who is is "they"? If your lawyer asked you what you wanted to do when the seller didn't produce the lease, then that is him telling you there is a red flag.

"With respect to their lawyer, he did give me time to approve lease, but they did not provide the full lease during that time frame and it just fell to the wayside. My instinct tells me they were working me to push the deal through."
-------------------------------------
"it just fell to the wayside"? -- This is where you lose me. Did you discuss with your lawyer the consequences of them not providing the lease in time for review? Were YOU working to push the deal through? How could you expect the seller to NOT work to push the deal through?

If your lawyer asked what you wanted to do when the other side did not produce the lease in a timely manner and you hemmed and hawed, then this is 1,000 percent on you. Also, drop the crap about trusting your broker. Your broker is paid by commission, IF AND ONLY IF the deal is consummated. Your broker, not just the other side, is going to work to push the deal through too. You knew your broker only got paid if the deal closed.

Now you know what brokers think of their fiduciary duties to their clients, and why lawyers hold them in such contempt.

"My wife must have similar mindset to Joe as she also says there is no reason to say this is the plan for the next 15 years as unexpected things may happen. "

---------------------------------------

It has been a sprightly discussion, hasn't it?

Just remember that there is a difference between having 15-year plans and 15-year goals. Always have goals. Be willing to change plans on how to achieve those goals as circumstances change. Be willing to adjust goals as life dictates.

"The more equity you have, the more exposed you are for lawsuits."
----------------------------------
I've heard that many times. Each time I've dug into it, I've come to the conclusion that operations weren't up to snuff, or the owner was skimping on insurance, or wasn't insisting on renter's insurance, and usually some combination of the three. Keeping high-rate mortgages in place rather than using increased cash flow to improve operations or tenant quality hurts.

"I keep records of what expenses are with what property along with each income for my taxes. I don't have a lot of places, so it isn't that hard."

----------------------------------------

Anybody who doesn't do what you are doing -- just on on general principals -- is an idiot. Keeping track of expenses and income per asset, however, has nothing to do with the pernicious concept that "equity is dead money" which is what some people are trying to sell here.

"but combined could be used to snowball the remaining balances of the properties, starting with that first one which would have the lowest owed. "

----------------------------------

Forget snowballing debt payments based on balance owed unless cash flow is an issue and you need to free up/bolster cash flow. Snowball debt payments based on interest rates unless cash flow needs to be increased.

Other terms of loans (balloons, etc) will of course, affect one's analysis.

"Even though my tenants are paying the mortgage, it's still ultimately my money."

--------------------------------------

You're on the right track, Shane, but ditch the idea that your tenant is paying the mortgage. YOU are ALWAYS paying the mortgage. Why? Because your internal allocations of income streams (this tenant's money to this mortgage, that tenant's money to that mortgage, etc.) is absolutely irrelevant. How so? Because who pays if there is no tenant income stream to allocate? The debt hasn't gone away. Nothing has changed except the lack of an income stream or source.

The question of asset building and wealth is always solely a function of comparative return on investment, as filtered by one's risk tolerance. Leverage works for the initial down payment analysis, but after that, particularly given one's ability to do wrap-around mortgages to utilize equity, one always comes to the issue of what gives you the highest return on investment.

But the idea that tenants pay your mortgage is false. The owner always pays. He simply has allocated income streams.