All Forum Posts by: Rob K.

I always push back on these boilerplate indemnification clauses. Its ok that the property manager gets named as an additional insured on my property liability policy, but I will not indemnify them for their ordinary negligence which I cannot control not covered by insurance. Property owners are not insurance companies. Nightmare scenario is if they screw up, make a claim on there own E & O policy, and their E & O carrier's claims department comes after you for reimbursement based on the indemnity clause. That's why I get a waiver of subrogation too.

CAR contracts may be standard in the industry...for Real Estate Brokers. CAR contracts are drafted with the primary purpose of protecting the broker, not anyone else. I agree with your attorneys. If the property manager wants your business and will work with you, get your concerns addressed in an addendum to the CAR agreement. If they won't, then it may be a sign of things to come.

20 years ago, 0% balance transfer credit card promotions really were 0% for 12-18 months before the higher rates kicked in at the end of the promotion.

These days, virtually all promotional "0%" promotions have a front end fee of 3-5% of the amount transferred, so they are not really 0%.

Always read and understand the fine print of promotional offers.

Seems to me you might be better off structuring this as a purchase immediately with immediate transfer of title with a 300K down payment. Have the seller carry back 1.45 million with an interest only note all due and payable in three years instead of lease option payments. Seller still gets his price. If the note was at 4% your interest only payments would be $4,833.33 a month and you would be responsible for property tax, and other incidents of ownership but receive depreciation of existing structures and interest expense as tax deductions. As owner of the property you would have a lot more options than just hoping you could exercise an option three years down the line. Assuming your plan worked, all you would need to do is refinance him out in three years. You might have bigger payments then, but you would anyway if you structured it as a lease option.

Depending on how motivated the seller is, you might be able to negotiate even better terms such as lower interest rate or deferring some of the interest owed the seller until you refinance, option(s) to extend loan payoff, etc. Obviously you need to do a lot of due diligence on the property either way.

90 day or more late is really a snapshot of the subprime element. I think the rate for 30 day delinquencies slightly fell and remains very low historically.

The problem with these types of articles is they just state numbers without comparing them to what the prior numbers are. The trend has been increasing amounts of credit card debt, but not as big of a jump as disposable income on a macro level. 

 No, but they had their heyday after the California Wellenkamp decision.

Probably a bit of both. There are often times when property values move with interest rates. After the great financial recession in 2007-08, rates dropped to near zero, but property values still fell.

One of the interesting things that occurred in the legal landscape was that in 1978, California's Supreme Court ruled that due on sale clauses in mortgage documents were void "restraints on alienation" and unenforceable unless a lender could show their security was at risk. It was a wild time for subject to transactions while interest rates were increasing, property values were increasing, and lenders were stuck and could not call loans due when a property was sold or transferred. Wellenkamp v. Bank of America https://caselaw.findlaw.com/court/ca-supreme-court/1848301.h...

Only lasted for four years though. In 1982 the US Supreme Court went the other way in Fidelity Federal v. La Questa https://supreme.justia.com/cases/federal/us/458/141/ . Lenders also went to Congress and got the Garn-St. Germain act passed which formally overruled Wellenkamp and made due on sale clauses universally enforceable with limited exceptions.

As a lender who sometimes looks at second position trust deeds, I guess I have a broader view of Sub 2. In a sense, every second trust deed can be viewed as a Sub 2 deal. Some of these folks who have rentals these days with equity looking for cash but don't want to lose their underlying conventional loan they got with a 30 year loan fixed at 3-4% present attractive opportunities for second trust deed investors.

The true sub-2 deal I got into was when I had to foreclose on a second loan during the great recession. The Lender in first position then got seized by the FDIC and I was off to a very interesting Sub-2 adventure. Suffice it to say that the importance of debt coverage ratios when doing second trust deeds was something I learned first hand when it came time for me to bring and keep the first position loan current.

Assuming you go the HELOC route, another option to reduce your costs assuming you have decent credit is to look at credit card balance transfer promotions.

Back in 2003-2004 I had HELOCs on my investment properties and interest rates were increasing. I was also getting credit card balance transfer offers at 0% promotional rates for a year to a year and a half and I started transferring my HELOC balances to the promotional credit cards. It saved my quite a bit on interest costs. Short term my credit score did take a hit, but once the promotional transfers were paid off, my score jumped higher than it was before.

These days, the "pure" zero percent transfers don't seem to be around anymore as they typically charge a 3-5% balance transfer fee as part of the promotion, but this is still better than current HELOC rates. Obviously if you go this route you need to be very attentive and make sure to zero out the credit cards as the promotion ends. It is something you don't want to try if you are not sure you have the liquidity to make this happen.

I use quicken and enter all categorized data the beginning of each month. For separate entities I use separate files for each entity. Each property within same entity I use a separate tag for. Come tax time it becomes fairly easy to run separate reports for each entity or each property for schedule E. After entry, save receipts and back up in a file for that year. Still use paper method for mileage logs.

Tried QuickBooks several years ago but it was more complicated and I did not need the bells and whistles. Stuck with Quicken. I think by waiting to last minute to put things together you miss items and year end tax planning becomes problematic. Helps a lot to be thinking about tax categories as you enter data.