All Forum Posts by: Ke Nan Wang

You are welcome. 

Here is the answer: a standard amortization the input variables are: Principal, interest rate, and amortization period. Just a little advance nugget, if you want to have a balloon, say at 10 years, but you want the payment to be a 30 year mortgage payment, then term would be 10 years and amortization period can still be 30 years.  

Once these variables are determined, an amortization calculator will automatically populate the amortization table for you. You don't need to determine how much of the monthly payment goes to principal. You can do this in excel or google search "Amortization Calculator"

Most thing you have to watch out for is to have enough down payment from the buyer. As a seller, you have your fair share of customary closing cost at closing. Sounds like there is no realtor involved so you are saving commission. The down payment you need is the one that's gonna cover all closing cost and still leave you with a nice trunk of money because if the buyer default on the note, it will take a long time to foreclose on them so whatever money is left for you after paying closing cost needs to worth the headache and some more. 

I'm not your attorney but whoever is representing you in this transaction should do what I just did for you.

I'm new to Padsplit as well and I don't own one yet and looking into develop my own. 

I have attended plenty Padsplit events and talked to my Account Executive (AE) and some veterans from Padsplit (the real expert, not newer sales person), and some Padsplit investors who own them and love them. 

To answer your questions quickly first:

1. Padsplit is simply a technology platform. View it as Airbnb. So the 14.75% (15%) is just their cut. If you hire a PM, usually from what I'm hearing, Padsplit PM charges about 8% and some just charge a $800 per month flat fee because it's relatively easy I guess. Keep in mind it's still new so the industry is trying to figure it out. 

2. Yes it's recommended you put keylocks on each bedroom.

3. Padsplit gather tons of data so you can ask your AE to provide the Orlando market data to you so you can make a relevant decision. 

Now we got your questions out of the way, here are my thoughts so far:

1. Hearing from many testimonials by talking to real Padsplit owners in person, it seems to be a true cashflow machine coming from a single family residence. One of the concerns would be, how long would this last until regulations catch on? Padsplit's answer is that no politician will attach the affordable housing industry because this is the only private solution to solve the housing crisis now. Obviously they are running against the zoning policies, always feel like doing something in the gray. Is it a stable long term strategy? I'm skeptical but I'm willing to test the water to something small first. My thought would be, if the city is okay with letting owners doing padsplit, why not just letting them rezone the property to multifamilies and build a multifamily apartment, which is a more legitimate solution. 

2. Most padsplit properties give me the opposite impression of what an airbnb properties give you. They look rough on the exterior and most of them are located in the class C neighborhood. Needs to be in a rental area because no homeowner neighborhood would like to have tons of renters going in and out of a property. So for sure it's a cashflow play, but don't expect much on the appreciation side. It's probably something that rides on top of the inflation but not very likely to double or triple your initial investment opportunities for sure. I think it's a great strategy to replace the BRRRR strategy for entry level investors who need number of cash flowing property to replace their 9 to 5s.

3. Eviction experience is still similar to your SFR experience. Still have to pay attorney and fight it through court. Padsplit people try to sell you that it's only a small portion of your income (1 out of the 6-8 members) vs if you do long term, you are losing 1 of 1 income.

4. Refinancing game is tricky. They recommend owners to refinance it as a normal house (4 bed 2 bath). After inspection/appraisal is done, then you do the Padsplit conversion. 

5. Just be aware of there are many Padsplit salesperson or Padsplit affiliate businesses that would love to grow rich out of Padsplit owners. So owners should talk more to owners to get real feedback. 

6. I'm piloting a new construction program that's building a generational style home 6 bedroom 4 bathroom, 2500 sq ft house in a class B/C area. Our goal is to design/build a house that can legitimately be a big SFR or a Padsplit property. Number makes sense on paper but let's see how we perform at the beginning of next year.

1. Depend on the state either get a real estate attorney or a title company involved to handle the property taxes and doc stamp fees. Then talk to your accountant about income taxes. 

2. Many people can do this. You can create one yourself using any amortization tool and just attach it to the seller financing contract. Whoever you hire to draft the contract should be able to do it. If that person has never done it before, hire somebody else. If that person is you because you would like to save as much money as possible, then you will have to learn how to do it. Your best starting point is either a title company you trust or a real estate attorney. The real estate attorney should be able to handle it all but it will cost a little more. 

3. Yes you can sell the note down the road. Once the note is created, people may approach you to offer to purchase your note penny on the dollar. If you have a great note with stable borrower and a great interest rate, it will be very attractive in the future when interest rate come down. The borrower can also refinance the house and pay you off. If that's not something you want to do, you should negotiate a prepayment penalty in the seller financing contract. 

When you negotiate the terms with the buyer, it benefits you to focus on their monthly payment more and less on the interest rate number. Sell them on the payment, not the terms. 

If everything I'm saying sounds foreign to you, you are better off hire a real estate agent who's experienced in seller financing or a real estate attorney to do the deal for you. 
  

What kind of money are we talking about here? Is it in the millions or are we talking about ~100k? If it's big money property then a feasibility study would sure help. If it's low price point I would save the money. 

Also are we talking about big name national developer or a small private developer? If it's a big one, nothing you could do can influence them. You are moving at their speed, just negotiate a huge non refundable EMD upfront because they can afford it and don't shy away from walking away from 250k no sweat after 5-7 years.

If it's a small private developer, then you may have some influence but just remember, who talks first loses. If you want to make them move, you could just list the property on the market. They will see it when you list it. You can either list it at a ridiculous price just for the developer to buy or you can list it to sell. If you aren't in a hurry to sell, I would list it at a ridiculous number. Your lot worth 10x more to the developer than anybody else on the street. 

More people are doing residential real estate nowadays due to online education, social media promotion and community like BP and deals are harder and harder to come by. 

Need to be creative and think other ways to make this business work. 

There are tons of people need housing, as the cost of doing business is going up, what are ways to still provide affordable housing to people? This is the angle I'm attacking. 

Hi Amber, seems like you have accomplished a few successful investment projects. Awesome job!

Just a quick note for your question, HELOC is taking a percentage of the property LTR around 70% for best rate and up to 80% probably for a higher rate, then subtract your outstanding balance on the mortgage. Often people think they are taking a percentage of the equity and it's not.

So even it may feel like you have gained lots of equity but there isn't much to take out from a HELOC in the scenario you described. Your property needs to be worth $1M for you to take 200k out at 70% LTR in a HELOC.

Keep in mind, there are deca millionaires go bankrupt overnight because no matter how much asset they have, they cannot cover their debt payments with their cash on hand. Even somehow they get through, it's lots of stress and I don't think you want to be end up in their shoes. You win big with appreciation but cashflow is absolutely the king. I would take a little breather, wait a couple of months to half a year, or even a year for you to build up more cash, stabilize and reassess your position. Don't get caught in this fever of you have to go big and go fast. Although there is nothing wrong with expand to 50 units in a few years but just understand there is a huge stress and risk associated with that and I feel like that's not something you've signed up for or intended to go into. RE is not a get rich quick scheme. 

Appreciate the helpful insight. That makes sense. 

The thing about Florida is that the security deposit is placed in a separate account and no one can touch. At the end of a lease after tenants move out, the landlord needs to send a notification to the Tenant with the intention to deduct from security. If the tenant disagree and object to the deduction, the only way to resolve it is to settle this in court. 

Of course, I'd assume the Tenant actually wants the money back so they will initiate the suit. But if they don't initiate, then no one can touch the money so if the Landlord wants to claim the security deposit to offset repair cost, the Landlord needs to file suit to make the claim...

In the past the law used to be where the Tenant has to take the Landlord to small claim, so that makes it almost always not worth it for a few hundred bucks. But now the law has changed that if there is no agreement outside of the court, then the next move is to settle inside the courtroom. A small change in the Tenant's favor. And the law made it explicit that the Landlord has to put the language in the Intent to Deduct from Security Notification so the Tenants will always know their rights. 

This is not an answer to this post but it's somewhat related to security deposit dispute. 

@Nathan Gesner I'm interested to hear your insight on this. In Florida where we operate, as soon as the Tenant disagree with the Landlord's claim, the dispute needs to settle in court. And 99% of the time, it's at the Landlord's loss because it cost time and money to fight in court, if the landlord losses the case, it's more money. If the landlord wins, good luck on collecting on attorney's fee, court cost, assuming if the security deposit is not all gone. 

Doing this at my scale, I found it's always cheaper and easier to settle. Most of the time, most Tenant will. But once awhile, I came across a Tenant who thinks they are smarter than attorneys and they are willing to go to court for something less than $1000. In this case, do you call their bluff and be willing to go to court? Or just settle with them, make them happy and move on? Our lease is pretty iron clad and always have everything spelled out, but sometimes those Tenants think they know the law better and they would say the "law" will trump our lease...

I always deduct according to the lease. And if Tenant disagrees, I'll show them the lease and evidences. That will take care of 99% of them. However, when I meet that 1%, every time I settle and just let them go. It's not worth it to me. What are your thoughts on this? 

sub-to deals are much tougher to negotiate because you as the buyer need to understand the pain points of the seller and to pressure the pain points at the right time with the right pressure. Pace Morby is a master at it but he made it looks easy because he has the knowledge, experience and the team to execute. He knows what to say, and when he offers something, he can deliver. The cherry on top is that he's very genuine, authentic and he can make people like him right off the bat. 

If you aren't knowledgeable and experience enough, be ready to run into and overcome hurdles when negotiating a sub-to deals that will benefit you and agreeable to the seller. Not saying you can't do it, but just understand it is not easy. 

Most of the examples he gave are people who are in a mortgage trouble with no equity or upside down in a property. You can follow his road map presented on his Youtube channel if that's the deal you are currently encountering. Also you need to have a very reputable/experienced title company who have done many sub-to deals in your pocket so when you have a deal with the seller, you can close on it immediately. If you haven't developed a relationship with said title company yet, then probably the conventional loan is the way to go. 

I've only done rezoning and watched a number of people gone through the process here in St. Johns County, FL. OF course every county is different but I think the overall strategy should be similar.  

You should be able to ask the staff at planning and zoning department and they should be able to tell you the general procedure and the cost. 

Here in our county, you submit an application, the county will handle the notification of neighbors within 300 FT radius and advertising (applicant pays all costs). They will hold public hearings, the applicant can attend to make the case, all the neighbors can attend and object, the county commissioners will vote on it in the end. Rezoning cost about $3000 and it's not a guaranteed process. So unless there is a huge upside, most people don't do it. You never know what your neighbors will say. I've seen a number of cases where the neighbors just disgruntle and not like to give the applicant nicer things for very selfish reasons. And they don't care if you are doing something for the greater good. You can run a neighborhood campaign and see if you have the support. It takes time and effort if you don't want to just roll the dice.

Things to consider: look at future land use code and the property use in the neighborhood, applicant has much higher chance to get the rezoning approved if it's conforming to the future land use code and to the use of the neighborhood. I.e. rezoning a commercial property into a residential property where in a residential neighborhood. 

Applicant will have almost no chance if the applicant is against the future land use code non conforming to the overall use of the neighborhood.

True story: I had a client purchased a 4plex in a city. The 4plex was a distressed property and left vacant for over a year. The city has a policy that multifamily properties in single family residential area, if left vacant for over 6 months will automatically revert to single family (lost its grandfather protection). My client bought this property with high confidence that he's making the neighborhood better, fixing it up and making it a nice 4plex (current setup with 4 utility meters). And the number doesn't work if it's just SFR. He needs a variance to revert the status back to multifamily. He thought he had lots of support based on his conversation with the planning and zoning staff. When came to the hearing date, he showed up and ready to knock it out of the park and to his surprise, almost the entire neighborhood was against his plan. And they would rather see a distressed, property stayed abandoned, than my client improves the property and make it four units for 4 families. So the variance (similar to rezoning process) was rejected. He couldn't make the number work and sold the house at a slight loss. Over two years, I've seen that house being purchased and sold by multiple people and still sitting there as a piece of cr*p today.

Hope this helps.