All Forum Posts by: Jon Burns

@Greg H.  My plan was to do that.  Send a notice on non-renewal and have the tenant move out, the sooner the better.

As I reviewed our lease, and the language for this is pretty subjective.  It feels very shaky if you were to be challenged in  court.  Spend more time and money on a case that is not worth the hassle.  I was curious to see what people would do or say, and who's been in this situation in the past.  It's sounds easy to say just evict, it's harder to do in reality (in my opinion) in a case like this, and how much more damage do I want to deal with.  

@Jay Hinrichs I can only imagine, on hand you want them out, on the other, if they packed it right, I would be impressed with their skills.  The hoarders I have encountered have been super filthy at the same time.  Which is where this one is heading. So they gotta go.

Thanks 

I've bought a couple hoarder homes in the past, they were the types of homes that rewarded you with experience.  It's one thing when I am buying a house in that condition, because I am thinking of the the pot of gold at the end.  After witnessing the explosion of stuff rapidly accumulating in my house, I am not too thrilled.  Let's face it, a tenant security deposit is not going to cover that damage.   After discussing the situation and our strategy with my wife I thought might be interesting to see how other people might handle the situation.

So......how do you handle the tenant.

1) How do you talk to the tenant about getting things cleaned up.

2) What proactive strategies have worked for someone to get the property cleaned up prior to the end of their lease?

3) And if they do get the property cleaned up, would you renew the lease?

Tenant Info:

Tenant has only paid late one time in eight months, and contacted me prior to being late.  Tenant does notify us of any possible repairs in a timely fashion.  On the other hand,  tenant also changed the locks with out my permission, which I immediately changed back.  Tenant also locked one of the bedrooms, because it is stuffed (which we photographed on a previous visit) This increase in clutter started about 3 months ago, and it has increased substantially in the past 2 months.  There is also increased damage to the floors and walls.  And finally, there is a certain level filth that makes you wonder if anybody is aware of how to work a broom.

@Kent Harris

It really comes down to what your investing goals are.  If your goal is to pay the least amount in closing costs, and pay the lowest interest rates, then by all means continue down the path you are already on.  However, if your goal is to continue to expand your real estate portfolio, then you will need to reexamine your approach.  Here are a few things to think about:

1) FHA loans are the cheapest out there. Once you no longer qualify for their financing, the cost of funds go up. The interest rates are higher, the amortizations are shorter, and they often come with balloons. And while you may already know this, from your posts it appears you have not accepted this.

2) Costs of funds is low compared to lost opportunity cost.  I recently had a potential borrower approach me about a flip where he thought he was going to make a very nice five figure profit. ( He was a referral from a contractor I frequently use, so I was able to follow the deal.) He told me he had bank lines of credit, and had very low rates, but unfortunately they were all out at that time.  He then proceeded to try to talk me down on my rates and terms.  I kindly said sorry, and wished him well.  About a week later, he came back and tried to sweeten the deal by paying just a little bit more, again I said no.  And thanks to my contractor friend, I found out that he had to let the deal go.  Why?  His refusal to pay hard money rates kept him from earning a huge profit.  Seems ridiculous when you put it on paper, but egos are funny things. 

And while I know you don't flip.....

3) Double closes are "cheaper" than having large sums of money locked in a deal.  You actually answered your own question in your original post.  The why is because your lender won't give you the same loan if you pay cash versus refi of an existing loan.  You can search out many banks to explore there terms, but I can tell you here locally, that many community banks will all be the same.  They will give you varying LTV's, but it will always be easier to do a refi than a cash out.  The most often reason that will be given is bank examiners or regulators.  But does it really matter - he who has the money makes the rules.  You can either choose to play by them or not.

4) Private investors (even non accredited) are easier to work with, and are worth hard money rates.  There is a cost associated with everything.  You can pay less and jump through more hoops with banks or pay more and have more flexibility to get the project done with a private lender.  I would be wary of deciding who is worth what interest rate based on whether or not they are accredited.

In summary, it really depends what your goals are.  I have seen bank qualified investors utilize bank financing, private lenders, and hard money lenders in a variety of ways.  As a matter of fact, it was only after lending to these individuals that I began utilizing private and hard money lenders for certain types of my own deals.  On the flip side, I have seen many people refuse to pay the higher cost of funds, and it limits the deals that they can do.  Choice is yours.  Good luck.

@Rae Hoffman

1. In the world of "private lenders" it is what ever you can negotiate.  Some lenders will have set terms, and others will not.  Some lenders will look at your credit and experience, others will not.  If you know what you are looking for then you can start there, and shop around and see what the market tells you.

2. This applies more to a partnership or a fund.  If it were me, I would avoid putting together a "lending" fund for sole purpose of funding my own deals, this has the potential to go sideways on so many levels.  The potential for fraud is everywhere.  Would you put your money in a fund I created for the sole purpose of loaning me money?  If you would then we need to have lunch! :)

  A better approach would be to find several lenders and let them tell you how much they have to lend, and keep the lender separate from your investment activity.  It is possible to have more than 2 lenders participate on a loan, both in first lien position.  It's  a split deed of trust, where each lender has a percentage based on the amount of funds in the deal.  

3.  If the lenders have a clue, they should not be losing money, even when a deal goes sideways, they should be in a position to work out of it.  But in the event there is a loss, it is essentially a short sale scenario.  The lender would have to approve the sale, and accept less than what is owed.  From there, it turns into legal matter where the lender can sue for a deficiency judgement.

4 & 5  If  you were setting up a partnership that bought houses for the purpose of flipping and the partners received a return based on profits, that would be something totally different, and much more acceptable.  The ownership of the property would belong to the partnership along with any profits or losses.  In this case, losses would be spread out on a pro rata basis of ownership percentages. 

Hey Raj - welcome to TX.  Just wait till you get your property tax bill.  I also have great contact for insurance.  PM for the recommendation if haven't already found one that works for you.

Do you mean Loan Protection Insurance?  If so, I have never heard of a private lender asking for it, but hey, he who has the money makes the rules.  If it is a lenders title policy or property insurance with the lender listed as the mortgagee, then these are standard.

As far as being worried about their ability to close ask them to present at least 3 recent settlement statements with the borrowers information redacted.    That's the ultimate proof they fund deals.  

Other questions I would want to know - other than fees.

1) How long have they been a private lender?

2) Are you funding these deals with your own cash or are you brokering the funds?  If so, are you licensed?

3) If brokering - is it one lender per deal or pooled funds?

4) Where are payments to be sent?

5) Do they provide you with 1098's at year end?

6) What is their policy on construction draws? 

7) What is the average time it takes them to close?  What is the fastest they have been able to close a deal?

8) Have you ever foreclosed on someone?

9) Have you ever called a loan due before its maturity date?  If so, why?

I could keep going on questions to ask, but I would hope you can take over from this list.  I have seen too many times where investors are so eager to get money from a private lender (and of course from whomever throws out the lowest rate), that they forget to actually know who the lender is.  You are married to your lender for the period of agreed upon time.  That can either be good or bad.

On the flip side, I have seen several "private lenders" just throw money at a deal with out knowing who the borrower is.  The warm and fuzzy feeling can go away very quickly at the first sign of a problem.

At the end of the day, you are probably less likely to be scammed by a private lender (local person), but instead deal with somebody who is chasing yield and is unprofessional, nervous, slow, and knows just enough to be dangerous.

@Fred Stevenson

I have always been self employed and have not held a W-2 position since I was just out of college. So, when I got into real estate FHA loans were just not available to me. All of the properties that I have debt on are 20 yr amortizations, with 5 yr balloons. The interest rates vary from 4.5 to 6%. Most commercial banks will have a floor, prime plus "X", so as the prime rate rises, then you can expect to pay more on the reset. There are pros and cons to this type of financing. Most individuals who have 30 yr fixed rates usually see the cons first, and never get beyond it. Some of the pros are that a good relationship with a bank can allow you to expand much greater than you realize. Some banks have credit limits as high as 25 million per individual, far more than FHA. They are going to be asset and cash flow based, with LTV's usually at 75%. Most of these banks are comfortable refinancing these deals at that LTV, so if you utilize hard/private money on the purchase, it is possible to have little to no money in the deal with a commercial lender (huge). Yes you may be paying a higher interest rate, but you will be paying far less interest overall on the property. If your goal is to own it outright, that is also a big benefit.

Additional options I did not see listed are the rise of hedge fund financing.  Companies like a B2R, Colony American Finance, Blackstone, and sure many others you can find on a quick search.  They have slightly different terms and rates, but it will allow you to continue to expand your rental portfolio.  IF my memory serves me correct, they are going to be 30yr fixed at around 7% on 10 yr balloons.  Little fun fact in case you have never checked it out - 30 yr amt @ 7% is slightly more than a 20yr amt @5% on a monthly basis.  Hedge funds want the interest income that the 30 yr amortization provides and not the principal reduction. They will have additional requirements for funding as well (minimum loan or property amounts, pre-payment penalties, single purpose entities, capital reserve accounts).

As to refinancing your current rentals into a blanket portfolio loan - I would only do that if you have enough equity in your current rentals that you can pull out enough to cover the refinancing costs plus put some cash back in your pocket.  Otherwise, you are needlessly greasing the wheels of commerce for the benefit of others.  It's going to be all new title policies, appraisals, origination fees, legal fees - you get the picture.

In my trading days we used a term paralysis by analysis for those traders that looked at so much data they couldn't actually put a trade on.  I caution against importing and massaging the data too much, you can easily spend more time collecting data than looking for a deal.  I am a firm believer in the kiss (keep it simple, stupid) method of analyzing your deals.  Don't make it more complicated than it needs to be.  

Additionally, all the data in the world that points to the perfect rental doesn't do anything for you in regards to how you operate the property.  I have seen the best flips on paper that go sideways once the construction phase begins.  Understanding value and the market is important, don't get me wrong, it is your starting point.  Avoid the paralysis, and manage the process of the deals, and you will do just fine.

Thanks Nathan - that's a great resource.

I am looking for a referral for a property manager in Akron Oh with an established vendor list and has experience with out of state investors. Any information and/or referral would be greatly appreciated. Feel free to add to the the thread or send me a private message.

Property is located in 44301 zip code.