All Forum Posts by: Jon Burns

I would never just take a personal check.  I would not risk the relationship of a close friend or family member, and would not take on the risk from a stranger.

Treat your lender like they are a bank - because they are to you!  Make sure they are protected at all times, and will not lose any money.  I assume you would like for them to loan you money again, yes?  So make sure they get paid, even if you don't.

Close at a title company.  If this a new purchase, then I would assume you are closing at one anyway.  Have them send the money to title.  If it is a cash out refinance, close at a title company.  Get them a lender's title policy, along with hazard insurance naming them as the mortgagee or loss payee. Get an attorney, have them draft the loan docs to the terms that you have agreed to.  Send the loan docs to the lender for review, along with the title commitment, and a copy of the settlement statement for review prior to closing.  Maybe they won't care, but guess what, you just became a whole lot more credible to them.  Post closing, make sure you have the title company send them all of the docs in an email format as well as the originals.  Don't forget to CC your self.  When the time comes to pay them off, be prepared to provide them with a release of lien.

Have you thought about how you are going to keep track of the payments made and interest owed?  Is there an amortization, or interest only.  If it is amortized, that can be a pain to self service the loan on your lender behalf.  

I applaud you for asking the question in the beginning. I feel like I have been a bit of a rant, and I am not meaning to overwhelm you.  But there are some serious items that need to be addressed.  Let's look at it from the other side.  Would you lend me money for my real estate business by just writing me a personal check? (please say yes!)  Would you like to know that your money was protected?  Would you like to know how I was planning on paying you, and when and how I would pay it all back?

You treat your private lender right, and they will treat you right.  (and probably tell their friends about you)

Good Luck

I have seen a handful of forums/discussions asking this very same question in regards to the state of the real estate market in Houston.  To people who live here, oil is a common topic discussion, and the overall effect it has on the local economy.  And while Houston has diversified over the years, let's face it, everybody knows somebody that has been effected by this latest downturn.  

As to the real estate market, it has been the tale of two markets.  The higher end market has been softening for some time.  Compounding the problem for the higher end market in growing areas (like Katy) is the high tax rate.  That's a big monthly payment to carry if you have been laid off or transferred.

However, homes under $200k are still hot. FHA financing has expanded in this market, allowing more people to become homeowners. Inventory is still tight in this market space and competition for these homes continues to keep prices firm. Is it a bubble, I don't think so. Rent increases have kept up with the rise in values (and taxes), but still make sense to rent. Should you be cautious, of course. The high end can not be falling and the lower end rising at the same time for very long. Prices will stabilize, inventories will build, there will be "signs" to watch for. But being cautious does not mean doing nothing, it means be aware of the submarket you are in. What are the days on market in that area, and adjust your holding costs accordingly. Remember, the money is made when you purchase, so don't buy high thinking you can sell higher. Somebody has to be left holding the bag, don't let it be you.

Kris - You are a bankers dream for financing rent houses. In my opinion, I would stretch out your available cash by utilizing hard money or private lenders for the purchase and rehab, then turn to the bank for term debt. In my area, most hard money lenders are at LTV's of 70%, while the term debt on the refinance is at 75% of LTV. Banks have no problem doing a refinance on a stabilized property, especially to someone with good W-2 income. If you were to do a straight purchase with a bank, then you are looking at having to put at least 20% down. If you pay cash, banks often have a seasoning requirement, and want to restrict the amount of cash you can get out of a property. Seems crazy, but a bank would rather refinance debt, at a higher LTV, than put that money in your pocket.

If done correctly, you can build your rental portfolio while maintaining good cash reserves by properly using leverage to your advantage.

Good luck

As a private lender, I have worked with several investors where they have purchased the property at low enough values that they had little to no money in the deal. I can not speak for what other lenders may do, but, I have funded deals 100% loan to cost, not to exceed the max 70% loan to value. They were then able to put term debt on the property, usually at 75% of value, allowing them to complete the BRRR strategy.

You mentioned not wanting to invest a lot of money, and that's fine, but having additional capital may still be required.  Having an additional 10%-15% of your rehab budget for cost over runs is always a safe bet, and then there is the monthly carrying costs.  Most lenders like to see 6 month reserves.  Additionally, you will most likely be responsible for getting the rehab off the ground, paying any funds up front to your contractor (for things like materials) out of pocket.  You will not get that money back until you submit for a draw for work completed.  So if you are only looking to invest a certain dollar amount, it will limit the size of the project you can afford.

Good luck.

Not sure about Wisconsin law, but I would charge them a releasing fee for your trouble and rebate the rest.  

I do a walk through of the property with the tenants on move on.  I show them where all of the shut offs are in the event of an emergency.  They are instructed to shut the water off, clean up as best they can, then contact me.  If you give your tenant clear expectations, I find they follow them.  We cover everything that comes up in the normal operations of property management, how to pay, how to submit a repair request, what items (including light bulbs and clogged toilets) they will be responsible for, etc.  

It's also up to you to hold up your end of the transaction, which means attending to any repairs and issues that are your responsibility in an efficient time frame.  Water emergencies usually being at the top of the list, followed by HVAC and water heaters (nobody likes cold showers).  While we understand nobody likes to be inconvenienced by repairs, it is a fact of life.  Clear expectations and good communication - during regular business hours of course -  keep tenants feeling as if they matter and usually take the repairs in stride.

Having said all that, at some point you will have a problem at the worst possible time.  Someone mentioned repairs always when they are leaving for vacation.  Mine came during half time of the Super Bowl, but that is the exception not the rule.

There seems to be a common theme here, and I would have to echo that sentiment.  Thanks to a few early lessons, I will not allow tenants to move in if they are short from the beginning.  You can not charge enough in late fees to cover the pain in the @$$ that these tenants will most likely be. 

Did you contact the previous landlord and ask them what their previous payment history was during your screening?  Asking if they were any monies owed, or if they had paid late, and how many times?

First of all, you can forget about August's rent.  You need to focus on getting possession.

Unfortunately, your tenant has not been honest with you, and doubt she will be moving forward.  Do you know if she is still in the property?  Do you have someone that can verify the property is even occupied?  If it's vacant, then I think you just move on and do what you need to in regards to leasing it back up.

If the tenant still occupies the property, here is how I would handle it.

 Send the tenant an email, text, and vm letting them know they need to contact you by the end of the day Thursday.  If they do not contact you, an eviction will be filed Friday morning.  If you do not receive any contact, promptly file the eviction on Friday.  If they do contact you, I would try to negotiate a move out by a certain date (most likely Sunday night).  If they are moved  out, without doing any damage to the property on the way out the door, leaving nothing behind,  with the property in a showable condition, then I would tell them that you would not file the eviction.  And if they do not comply, with any of the terms, then the eviction will be filed Monday morning.

In this case, what you want is the property back a quickly as possible, with as little damage as possible.  But you can not control what the tenant chooses to do, you can only control your actions.  You can give them a chance to move out, but if they don't, then you need to move forward with securing the property.

Let's be honest here, how many of your other tenants have $130,000 in cash and excellent credit.  I doubt you are at risk of not getting paid.  This tenant can live there for a few years with out having a job, an you would still be fine.

Dane - Welcome to BP.  There are lot of resources in Houston and great networking events to meet other investors, contractors, and wholesalers from all over the city.  My advice is always the same to those just starting out.  Focus on getting the first deal done, then worry about moving on to number two.

As with most businesses and investments, you need to have a game plan.  Distressed properties move pretty quickly, so you will need to be in a position to close quickly.  That's great that you are experienced in construction, just keep in mind that you will make way more money using that skill set in the evaluation and management of the rehab, than swinging the hammer yourself.

Best of luck.