All Forum Posts by: Juan Diaz

Hi All,

Just thought I’d share a bit of my experience in the investing world, touching today on everyone’s favorite subject, the legal system! Since everyone loves to study the nitty gritty of the law (sarcasm intended), I thought I’d share a few of my experiences dealing with a few legal apparatuses that protected me and/or my investor when trouble arose.

First of all, what I’m describing are legal protections that protect my relationship with the investor. A well-designed legal instrument will protect the interest of both parties. I work with investors—they provide the money, I provide the sweat, and we split the profit or loss 50/50. In my particular situation, usually either myself or my investor is going to want some sort of legal protection.

The best way that we have found to protect ourselves legally is to use a document called a “Deed of Trust”. In California, this is the main document used to secure interest in a property. In other states there are similar documents that serve the same purpose.

What is the deed of trust? The deed of trust is a very simple document. It spells out the legal description of the property, and then the beneficiary, trustor, and trustee. The trustor would be the person whose name is on title, the trustee/beneficiary is you or the investor, whoever it is that is protecting the interest in the property.It also has legal language spelling out what the rights are with the deed of trust, but these will stay constant from document to document.

The last thing that a deed of trust does is to refer to a note, which details the specific terms of your agreement. This note is the meat and potatoes of the legal protection between yourself and your investor. This note will allow you to detail anything and everything pertaining to the property. How are you dividing the profits? What are the responsibilities of each party? How does either party exit the agreement? A well drawn-up note is absolutely essentially to legally protecting your interest in a property.

With these two pieces of information, the deed of trust and the note, we’re able to operate confidently, knowing that our investor’s interests and our own interests are both strongly protected with a binding agreement that spells out the rights of both parties. It’s been useful in the rare cases where I’ve had a fundamental disagreement on the disposition of the property with the investor. Because our note provided clear terms for disengaging ourselves from the situation, we were able to calmly come to a mutual beneficial situation, even if we were not able to continue the investing relationship on that particular property.

So how does one go about drawing up a note and deed of trust, or the equivalent documents for another state? That’s a great question, and one that you can start off with by asking a lawyer. You can get a lawyer to draw up a document that you can use for all of your transactions, modifying only the trustor/trustee/beneficiary, legal description, and investor information. It’s a few thousand dollars, but if you’re investing in dozens of properties a year, it’s well worth the time and money to clarify and protect your legal rights and the rights of your investors.

I just thought I would share my experience in getting some fantastic price reductions when I'm in contract on properties. What I'll sometimes do is get a property in contract at a certain price, and then get an official or unofficial inspection on the property, and come back to the owner looking for a nice price reduction. And I've had some success stories! I got a buyer to forego dropping their offer $100K. I got a seller to give me a $50K credit. And I credit this to being able to write persuasive letters that clearly outline my case. I thought I'd share a few of the successful letters with you all. And please, let me know if you all have similar experiences!

Example 1:

Hello,
First off, we are excited to have this opportunity to do business with you on the property located at XXXXX in XXXXX. We appreciate the love and care that has been shone to this property, and understand that as the next purchasers of this house we will be solemnly entrusted with the task of maintaining and repairing this house.

We are up to the task of maintaining and beautifying this house,are are excited for the opportunity. For the most part, it's in good shape, but it does need a little work. With that in mind, we believe that the following work is absolutely necessary:

• Demolish and rebuild garage: $41,952
• Plumbing repair & update: $9,896
• Electrical repair & update: $12,343
• Foundation and structural repairs: $30,135
Total: $94,326

This is a significant amount for us to pay, and we are hesitating with continue on with the property as priced. We don't want to pass the entire cost of these much-needed repairs onto you, but we believe that it would be more than fair if you were willing to give us a credit in the amount of half of the total value of repairs. We are thusly requesting a credit of $47,163 on the purchase of your property so that we are able to continue with this transaction and maintain and repair this property to the standard that it requires.

thank you so much for your time and consideration.

Sincerely,

Juan Diaz

Example 2:

Hello,

I just wanted to say that I loved your house. I’m a licensed contractor, and have years of experience working with houses, so I’m used to seeing all kinds of houses, horrible houses, ugly houses, houses with an obscene layout, houses with the most gorgeous Victorian fishscaling, you name it. And I have to say that I was impressed with what lies beneath on your house. It has a stately frame, and wonderful bones that could easily create something special.

I was walking through the house with my kids, telling them all about the wonderful things we could do with this house. They were staring at me, looking as if I was telling them that I was going to do magic. I described how wonderful this house could be, and their eyes lit up. A sparkling kitchen, warm and friendly, filled with family. A spacious family room, to wrestle around in, and play games. And most importantly, their own bedrooms!

You see, I’ve got three wonderful children who have lived in [this town] all their lives. A, the youngest, who’s quite the handful, a pre-schooler and excited about most everything! B, my creative middle child who loves to do art and think of new and wacky ways of doing things. C, my multi-athlete boy who loves to do sports, any sports, all the time. Even though we’re moving out of our current house in xxxx, they’re all getting excited for this house. You know how excited kids can get about something? Well now they’re asking me “Dad dad! When can we move to that house!” They’re excited to have a new place they can show off to their friends at [local school]—A wants to bring the house for Show and Tell!

My wife of xxx years, D, loves the house as well. She understands what we can do with it, and is whole-heartedly behind our plans to purchase this house, bring out the wonderful original details, and yet transform the inside to match our personalities. She knows how hard I’ve worked to be able to afford this house, and how I’ve always worked hard to provide for our family.

I know that my family loves this house, and that we’d treat it with the respect that it deserves. As I mentioned before, I’m a licensed contractor, so I’m very familiar with houses and am completely comfortable purchasing this house as-is. We’re selling our own house, it’s in contract, but we’re financially stable enough to afford purchasing this house even without our old house selling. If we’re accepted as the buyers, my offer will have no contingencies, I will need to do no inspection, and I can let you stay in the house until May. You can rest assured knowing that I have the technical background to give your house the improvements it deserves.

I love [location X]. I’ve loved living here, and my family love it as well. It would thrill me beyond belief for you to accept my offer, and to give me the opportunity to stay in [location X] in a wonderful house.

I look forward to your response.

Juan Diaz

haha, that's fantastic. 

We've got a no-party and max #s limit, so we haven't had much difficulties with parties, thankfully! Usually the people who cause problems are just a small group, 2-4

@Carolyn Fuller I think you're right, being able to be there personally brings in a different sort of clientele. It also allows you to reassure them if they're feeling a little jumpy.

Both good points. In the East Bay, BART is the A-quality public transportation. There are plenty of bus stops, but none of them will get you any value. 

On the other hand, in the Peninsula places like CalTrain are your BART-level substitute.

And it's not to say that bus routes don't inflate property values--in places that have free downtown shuttles, I've seen a little bump in nearby home values. Free, OK-quality transportation can be almost as attractive as A-level transportation that costs.

 If your purpose is getting your investment out of the deal early, renting by itself might be a little hard. BUT I think that if you were to get a standard mortgage appraising it at the new value and turn it into a rental and cash out that way, it's probably another good strategy that I hadn't thought of.

I think everyone who did that in the Bay in 2011 and held until now made out like bandits

I'm located in the Bay Area, and we recently purchased a property very near BART, which is the rapid-transit in the area. This property is less than two blocks away from the BART station, which is not only going to add something like 100-150K to the bottom line of the property, but in addition, because we were so close to public transportation, we got to completely skip plan review (1-4 months) to add an extra unit at the back of the house!

Being near public transportation sure pays off. It's an amazing investment, especially in areas that haven't gentrified yet.

Hi all,

I've done a lot of research into the US housing market, and I've come to the realization that the US has a lot of laws/policies at the moment that really help to keep the housing market inflated. I'm wondering if any of you have experience with other countries doing similar things?

It's a little scary, because I've identified at least ten different ways that the USA is artificially propping up the price of housing markets. I look to an acquaintance who lives in Germany, and it's crazy how much easy money we have flowing into our market because of these laws that have been passed over the years.

Is anyone else a little freaked out about what might happen if that legal safety net begins to disappear, or hits the edge of its bubble?

current mood:

If you're doing short-term rental, don't do it in an area that has the SLIGHTEST safety concern. Any street people hanging around the area at any time can lead to tons of cancellations with no money back from places like Airbnb. Thoroughly vet the area at all times, day and night, if you're purchasing for short-term rentals.

I posted about some of my nightmares with Airbnb, you can read there if you want to know how Airbnb can go wrong. If you're doing an Airbnb in vacation spots with a wealthier clientele, you'll probably have a better experience

Some fabulous replies! I will say that we do still have two properties that are currently on Airbnb, and those two properties in particular we haven't had much of an issue with.

Compare that to the nightmare rental we had in Pill Hill (which was the source of probably 2/3 of the horror stories, yet identically furnished), and I think the consensus through this thread is that it's all about location. My takeaway is that you can't really rent Airbnb's in locations that are marginally unsafe, and long-term rentals are preferable there.

But, if you're in a 100% safe, upper/middle class area, short term rentals can be preferable and more lucrative. 

--- I thought this posted days ago. I guess not