All Forum Posts by: Matt Devincenzo

It seems like there's value to be had there...you would have $140K in equity if it was list ready, closing costs and commissions should account for let's say $20K, $20K in rehab leaves $100K. Even accounting for a JV where the partner gets $20K for fronting rehab funds and managing the repairs your seller can still walk with $70-80K realistically.

So the question is, who would do this deal and how are they protected so the seller can't stop the sale process by their own poor decisions? I know there's a couple brokerage based remodeling programs out there for sellers, and one 'tech' platform offering something similar. The question then is do they do these types of repairs, if not then you need to find someone local that can do it. I'd suggest a local flipper who might be willing to entertain the concept given some protections. 

The challenge is two fold, you basically need a higher rate, lower DP bridge loan to get you to 12 months stabilized, and then also want/need it to be no PG. It may be worth considering a creative option like seller finance, CFD or master lease with option. All of those would give you control of the property and time to stabilize, before needing to get your final funding in place.

One option you could consider instead, rent the property as a master lease yourself. You could then sub-lease either LTR or as a MTR if that is working for your own property. If the numbers work then that could be a win-win, where he is able to get the rent he wants without the management issues, and you can get compensated for leasing the unit vs trying to collect a management fee. 

I've been involved on the consultant side as the Civil engineer for the client/property owner. My exposure to this was in putting together exhibits and analysis to demonstrate the uncompensated impacts...that's where the appraisal issues really focused was my experience. The govt said the property they're taking was worth $1M, but the increased value of their improvement to the property was $500K, so they only offered $500K. Our client said that he has to redesign his parking and loses XXX stalls, which means his parking would be too low for the zoning code allowed medical office use if he wanted to implement that. 

Those are the points that the attorney and your appraiser will work to introduce to the discussion of property value. That's where I've seen the negotiation takes time. One thing to keep in mind is, typically the compensation decision isn't finished when they start construction. When you disagree with the offer, they will post the amount with the court and start the process of condemnation. At that point they can legally begin work while the court process unfolds, so there's little motivation to conclude the court process on their side since they already started construction. Meanwhile you have this impacted property, but haven't been paid for it yet because of the low offer. So just be prepared for that aspect because getting impatient is where you may settle when holding out could have generated a better offer.

I'm not a tax pro, so obviously other details could change a professional evaluation here. But it sounds like your partner 'sold' real property and has a tax consequence, and you bought that property. So your old 50% basis plus this new 50% basis is your entire basis in the property by itself going forward. 

You've got the wrong question...

Did you buy out your partner's ownership in the LLC, or his interest in the real property? It sounds like LLC membership, meaning he sold you an asset. You did a cash out, so you don't owe any tax but those proceeds were used to buy his ownership. Since he did sell something, then he likely owes taxes and you now get a basis equal to what you paid for his portion of the property.

What's the ownership arrangement here? Are you an owner, and downstairs is an owner that has tenants in the unit? So these are condos? 

He can do whatever he wants on his side of the ceiling, including repair the leak possibly. Whether the leak, the repair or the remediation are his responsibility, your responsibility or the HOAs responsibility really depends on the CC&Rs. 

If nothing else, get someone else to set up the account. Get the GC to include it as part of his costs, and then he'll bill you for the utility as part of his invoices. 

Your loan holder has a problem too...if you default they have costs to foreclose, obtain physical possession and resell. So while you have this looming deadline that is your problem, not finding a solution to that creates a problem for them too. Go over Don's list above and get the hard facts, then use that in a discussion with them. I'd be polite and gentle, but be clear that this is their problem too. Evaluate how long it would take for you to pay down the loan to a refinance able LTV, and get an extension for at least that length if at all possible.

If you can survive the issue, RE is very forgiving long term. I rode values down and back up in 2008 on my first flip. I was all in $180K, at the bottom it was worth maybe $50K and I sold seven years later for somewhere around $195K. So figure out a solution that you can survive and you'll most likely come out ok. 

I struggled with this when I first looked at buying in Socal as well. But there are two components to consider as part of your analysis:

1) How much could homes increase in price between now and your potential buy date? 

2) How much equity paydown in addition to the DP could you get in that time? 

So using your numbers, just for a rough idea of the impact let's say $700K purchase 5% down at 7% interest. Two years of 2% appreciation = ~$28K and two years of principal payments ~$560/mo = $13,500 

So buying in two years could cost you ~$42K vs buying today. Is your PMI more than that? This also doesn't account for the ability to refi as a rate and term refi and drop PMI early, or submit for it to be dropped when you hit 20% equity of a conventional loan. I will say, I'd stay with conventional if you can...I know people often think FHA when it's a lower DP, but the prepaid MIP makes the math less favorable.

Of course appreciation isn't a guarantee, but even if values stay flat at least you're in the home you want that much sooner. I ended up purchasing two 10% DP properties, a duplex and our SFR. On both I should have done 5%, not because I needed the cash later or anything but because on both I was able to refi to more favorable rates within 3-4 years and the value benefit of those refi's would have been larger given a lower DP.