All Forum Posts by: Jon Schwartz

@Jay Hinrichs, @Kyle J., thanks so much for commenting, but I feel like both of you are referring to boilerplate while I'm asking about a separate document that appears to actually assign the leases and rents.

To recap for clarity:

The mortgage is tied to a commercial loan between the owner and a local bank.

The original mortgage, dated 12/17/2015, includes the "ASSIGNMENTS OF RENTS AND LEASES" boilerplate clause. That's not what I'm asking about.

A year later, on 12/16/2016, at the original maturity date of the loan, the maturity date was extended another year and a new document, entitled "ASSIGNMENT OF LEASES AND RENTS," was signed by both parties. This is a new document, not just the boilerplate from the original mortgage document.

Does this new document mean anything? It appears to actually assign the leases and rents. Is it just more boilerplate?

Thanks!

Jon

@Wayne Brooks It’s not an agency residential mortgage, but a commercial mortgage from a local bank. Does that make a difference?

Hi all,

I'm considering a fourplex in a secondary market, and while researching the property on the county website, I found an assignment of leases and rents to the bank. I'll go into more detail below, but I'm trying to figure out if this means the owner is earning no profits while his mortgage is being paid off. And if so, is he a distressed seller? Should I make a low ball offer?

Okay, here are the details of what I found with filing dates:

5/12/2014 - WARRANTY DEED: It appears that the duplex was purchased for $147,700. I don't see any information about a mortgage.

12/17/2015 - COMMERCIAL REAL ESTATE MORTGAGE: This is a commercial (not residential!) loan for $50,000 with a maturity date in one year (12/14/2016).

12/16/16 - MODIFICATION AGREEMENT - MORTGAGE: This document extends the maturity date to 6/2/2017.

12/16/16 - ASSIGNMENT OF LEASES AND RENTS: This is the really interesting document! It assigns "the entire lessor's interest in and to all current and future leases and other agreements affecting the use, enjoyment, or occupancy of all or any part" of the fourplex to the bank. Does this mean the owner is sending a monthly check to the bank with all his proceeds from the fourplex?!!

6/6/2017: MODIFICATION OF AGREEMENT - MORTGAGE: This document extends the maturity date to 6/5/2020.

So, legal eagles of Bigger Pockets, what does this mean? Has the owner forfeited his profits because he still owes the bank money? Shall I use this information to make a low-ball offer? Please let me know what you think is going on and how I should proceed.

Thanks so much!!!

@Katie Lepore, thank you! I have a CA corporation and my wife has a CA LLC (neither related to real estate), so we're familiar with the headaches. We have a local attorney for those, as well as our estate planning.

From what you're saying, it sounds best to form a CA LLC.

For transacting a property, should a go local to me or local to the property for a lawyer? For example, I'm about to submit an LOI on a property in Lubbock, TX. I'll need a PSA if my offer is accepted. Should I find a Lubbock (or elsewhere in TX) attorney to work with on that instead of a CA attorney?

Thanks so much!

@Oleg Shalumov Thanks for the response! Question: why should the LLC be local to the property?

Hi all,

I’m planning to purchase a small multifamily (10-20 units) in another state (as much as I love CA, I won’t be buying here!).

I known I’ll need a lawyer to help me through the transaction. Should I find a real-estate attorney local to me in CA or local to the property (in TX or GA or FL)?

Thanks so much!

@Serge S., I like your thinking!

Where do you find the 20-to-30-year historical cap rate for a sub market? Thanks!

Hi all,

Does anybody have a reason why we use a higher reversion cap rate in our analyses besides for the sake of being conservative?

I've heard that one should add 10 basis points per year to the purchase cap rate to derive a reversion cap rate. Is this just a rule of thumb, or is there an explanation (in a micro- or macroeconomic sense) for this calculation?

If anybody has a reason beyond "better safe than sorry" or "I like to be conservative," please share!

Thanks so much!

@Oleg Shalumov, that is genius!

Hi all,

I'm planning to purchase a small apartment building (10-20 units) and execute renovations as units turnover.

When's the typical tenure of a tenant? I've read that a unit typically turns over every two years. Is that a good estimate?

In my underwriting, it is prudent to assume that all units will turnover and be available to renovate within two years? (If I know that a tenant has been in place for 2+ years, I can underwrite that unit not to turnover anytime soon.)

Thanks!

Jon