All Forum Posts by: Rob K.

I'm not understanding the use of the term Novation as used by the poster and why it is different from just an assignment of an existing contract. In legal terms a Novation is generally a new agreement with different terms or different parties that is a substitute for an earlier agreement that is then extinguished with the consent of all parties.

If someone could explain the structure of a novation as used in the OP's original post, it might make this discussion clearer. FYI, I do not watch you tube videos or guru stuff, so maybe I am missing some context here.

Given the permitting and repair issues, you could offer to make a reasonable down payment, enough to at least pay off their HELOC and ask them to seller finance the rest of your purchase price. If the plan is to get everything repaired and permitted, you could tell them it does not qualify for conventional financing and advise them your plan is to fix it up, get it permitted, and then refinance them out. You need to put together a budget for needed repairs and permitting and obviously you will need to be the judge of your own ability and willingness to take on that task as well as set a reasonable time frame.

With the trust, there should be a trustee or trustees in place. Probably the grandson. That is who you would be dealing with, has authority to act, and who would be signing the deed. Let the title insurance company sort out the trust issues. You just need to get title insurance as part of the purchase.

I agee, don't sell your rental or primary if possible.

So I started investing in real estate rentals about 32 years ago. I now have 21 rental units with my last mortgage paid off about 2 years ago. It was not so much a plan I started then, but more of an evolution.  It started when my wife and I decided to hold on to the condos we each lived in before buying our primary shortly after we got married. Picking up some properties cheap during the 2008-11 financial crisis helped.  For most of my life I was busy with a professional career while slowly growing my real estate portfolio. Some of my guiding principals that got me to this point:

1) Buy and hold for the long term in good areas. I have rarely sold anything and never done a 1031 exchange. Not having frequent transaction costs in and out helps in the long run.

2) Any refinance I have done has reduced my rate and shortened, not extended my loan term. Aside from using credit lines on my rentals for other investments (when they were cheap and more readily available) I have never taken cash out on a refinance. 

3) I have never planned to rely solely on rental income to pay life's expenses, but over the long term, as mortgages have paid off, positive rental income has improved dramatically to the point where rentals do more than cover my family's expenses.

4) The idea of dead equity used to bother me, but I came to learn to accept and embrace it. Its there to utilize if I need it, but I don't think I will ever need to. I don't have any credit lines on my properties currently.

5) Real estate is a people business. Treat it as a business and treat your tenants and vendors fairly. Address any situation to avoid a build up of resentment if possible. Your good reputation pays back dividends and makes the real estate journey easier.

Not everyone has the mentality and fortitude to be an effective landlord. I am able to do it but it became evident early on that my wife was not cut out for it. 

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.