All Forum Posts by: John Smith

Thanks to all so far. Wondering if anyone knows whether Ohio operates under a broom clean standard or not?  

To clarify, its unfair to suggest I was expecting to be handed a unit ready to rent. I was expecting it to meet some basic standard and am asking whether I can pursue seller in small claims. The unit was not seller occupied or vacant, it was occupied and I was to receive a tenant under lease and the tenant's security deposit until 4 days before close. 

I understand why the seller took the tenants' security as rent and I understand why she left the place filthy and did not repair any of the tenant damage. I don't understand why I shouldn't make a quick claim in small claims for what it took to get the unit up to broom clean standard and so on.  Thanks!

Is a seller obligated to turn over a unit that is clean and in good repair at close? Seller took a tenants' security deposit as last month's rent just before close and stuck me, the buyer, with a filthy, damaged unit. Do I have a solid small claims case for cleanup and repairs due to tenant damage? 

Just bought second multi-family, a 4-unit. One unit become vacant two weeks before close. Stopped by day before close, saw an old tire and a piece of junk by the front porch and a bunch of broken blinds and got worried, as seller had been lax regarding everything to date. Was assured by seller thru our agents that she had personally cleaned the unit. 

At close was given a key that did not work for the unit. Had to break in, which wasn't a big deal since there were already small panes of glass broke in the door I guess, though it was a frustrating way to start things off with the new purchase. Go in, and place was absolutely, completely filthy (an earwig in the freezer, every inch of the fridge covered in gunk, toilet had not been scrubbed, cat hair everywhere, many surfaces covered in a thick layer of dust and dirt). And damage one would normally withhold some or all of security deposit for (several substantial holes in the plaster from doorknobs or fists, some woodwork in the kitchen completely shredded by the tenants' three cats, among other things).  

Buyer's case: 

that seller has general duty to hand over a unit that is clean and in good repair if a tenant vacate before close

that seller led buyer to believe such a unit would be handed over, insofar as she presented to buyer a strict lease that required tenant to either clean or repair unit upon vacating or have their security deposit withheld

Seller's case:

that apartment was cleaned me personally and seller is not required to do deep cleaning before close

that buyer has no right to compensation for any repairs, as they viewed the apartment [my counter to this would be, that yes, I viewed the apartment, but when I viewed the apartment the tenant was bound by the strict lease and seller was hold the security deposit to cover tenant-related damage]

This is in Ohio. A small apartment in a high-income tract neighborhood is at issue.

I have video, pictures, and a log of hours spent on cleaning and individual repairs.

Potential damages might include cleaning at $35 (figure established in her own leases for vacuuming), repairs at $45, and 2-3 weeks lost rent. 

Have any buyers faced a similar situation? 

Have any agents been involved in such a transaction? This might be a little different since it involves a tenant lease and security deposit that was taken a rent, to detriment of the buyer. But anything you might know about duties of seller at close regarding cleaning and repairs will be appreciated. 

Does anyone know of any legal precedents that speak to the situation? Damages won't be worth hiring a lawyer for, so finding a precedent on thru Biggerpockets would be huge. 

Thank you for all your help! The podcast and especially these forums have been immensely valuable in starting into real estate investing.

Dan, thank you once again for your help. We purchased the property with 3.5% and were able to renovate the worse unit immediately after close without blinking an eye (paint, insulated door & windows, led lighting), because of the extra cash available.

Final projections focusing only on the differences between 3.5% down & 10% down of course favored 3.5% over 11 years and 10% down over 30 years (but not by as much as expected). Broader considerations were decisive.

Advantages of 3.5% down? Lower withdrawal from IRA, lower IRA withdrawal tax hit, & significant gains on the money left in the IRA, among other things.

Advantages of 10% down? No MIP years 12-30, lower monthly MIP, lower principal-interest payments, & gains on money saved years 12-30, among other things.

The broader considerations were liquidity & the possibility of a future refi or sale, which would nullify most of or all of the main advantage of 10% down (no MIP years 12-30). Emailed our mortgage agent and committed to 3.5% down. And will be hoping interest & MIP remain tax deductible.

Thank you Bram! Thank you Dan!!

Thanks Dan! Will do.

Below are some links discussing uncertain status of the deduction. None are very good, but do shed a little light on the situation. 

Our mortgage agent replied with a soft yes regarding the deduction, while referring us to a tax professional. 

I did learn that increasing our down payment from 3.5% to 10% would drop our monthly MIP, but only from $115 to $101, a difference which really didn't impact the projections.

https://www.washingtonpost.com/realestate/mortgage...

http://www.bankrate.com/finance/taxes/deducting-pr...

http://www.mortgageorb.com/will-mortgage-interest-...

https://www.gobankingrates.com/personal-finance/49...

https://www.govtrack.us/congress/bills/115/hr109

Have emailed our loan officer. In the meantime, cannot find a clear answer at IRS.gov. But did find a 2017 version of Form 1098 and there is a box for 'Mortgage insurance premiums' for what that's worth. Researching it online, the future of the deduction seems very much in question.  

Wow Dan! Thank you for taking the time to look at the numbers so carefully. And just absolutely terrific insights! Thank you for, among other things, introducing 'effective annual interest rate' to the discussion, putting a number on it, pointing out possibility of IRA losing value, and making clear the significance of whether MIP is deductible on Schedule E.

Will email our loan officer and update.  

Hi Bram,

Thank you for the reply! The interest rate listed, of 3.75%, is our locked interest rate on the mortgage, and is the only interest rate I used for the projections. I did assume 5% annual gains for any money saved by our decision. If we put 3.5% down, we will be able to earn gains on both money kept in our IRA and money not paid out in taxes for IRA withdrawal. If we put 10% down, we will be able to earn gains on money saved by not paying PMI in years 12-30.

    I am sorry if this does not answer your question. I did not make any attempt to pull number into today's money or use any current assumption for interest rate. We are waiting for appraisal to come back and locked into 3.75% for the mortgage and do not plan to keep any money in an interest bearing account long-term, so did not use any interest rate assumptions. I did use loan/investment calculators for the projections. Please help me understand if I am missing something. 

Thanks!

John 

Have been reading forums & listening to podcast for over a year. Focused on cash flow & so on multi-families in part because of Bigger Pockets. Bought our 1st property last spring ($94,000 3-unit, using conventional mort w 25% down, with $1,650 in rents).  This might be my first question here. 

Now buying second property ($170,000 4-unit, using owner-occupied FHA mortgage). Trying to decide between FHA options, whether 3.5% down with 30 years of PMI or 10% down with only 11 years of PMI. My 11-yr projections of course favor 3.5% down, as the PMI is a push over 1st 11 years & the 3.5% down allows us to keep $11,044 in our IRA & make gains over that period. Now, my 30-yr projection of course favor 10% down, as eliminating 19 years of PMI plus the possibility of making gains on those savings is huge. However, due to the gains made by leaving money in our IRA initially & avoiding taxes on IRA withdrawal, the 3.5% down option is far more competitive than expected, in terms of a basic projection. And when I consider liquidity, the possibility of a refi, the possibility of high inflation, the possibility PMI will remain tax deductible, & such, it seems the 3.5% option is slightly superior. I am especially attracted to the liquidity advantage.

Any advice regarding my assumptions, calculations, or reasonings will be appreciated. Thanks!  

Price: $169,900

Interest rate: 3.75%

PMI: $115 per month

Down 3.5%: $5,947

Down 10%: $16,990

Taxes to be paid on IRA withdrawal required to cover 10% down, assuming 25% tax rate: $2,761

PMI over 11 years: $15,180

PMI over 30 years: $41,400

Gains assumed to be 5% annually (e.g. money left in IRA, money saved by avoiding tax penalty, money saved by not paying PMI)

*Have not factored in inflation, taxes beyond the initial taxes paid on IRA withdrawal, or the penalty on IRA home-buying withdrawal over the $10,000 allowance.

*If PMI is tax deductible over life a mortgage, then 3.5% will perform better, but there is no way to know whether it will retain its status.

Projection (11-yr) = 3.5% down beating 10% down by $18,066

Projection (30-yr) = 10% down beating 3.5% down by $28,864