All Forum Posts by: Matt Devincenzo

I'd start there, at worst this means you can file for eviction if she disagrees with this and Dad doesn't keep paying. But I would also offer her the ability to accept moving out before Aug 1st with no penalty, if she agrees then your noticing requirement is a moot point since she chose to accept your early termination offer. The other question is does Dad have legal ability to make decisions right now? If so then he can accept the early termination offer...

A friend has a sister that is schizophrenic and has had issues like this off and on over the years. The challenge often is she's not bad enough to get a permanent conservatorship, and legally is 'of sound mind' most of the time. So when she's off for a bit the best they can do is mitigate damage and try to help get her back into a right mind set again so she can function. So keep that in mind to work with Dad, but know he may not legally be able to solve all your issues. 

If you give notice and never hear from her, but Aug 1 all her stuff is gone then document the condition and note the unit as abandoned and move ahead. It is probably never an issue, but if she challenges it later you have proof that you served notice and before the notice was up her stuff was moved out which you took to mean she abandoned the unit. 

The question is up to which code? 

Building codes change regularly, and local jurisdictions adopt of modify specific building codes at various times. Since the local jurisdiction is responsible for permitting items, they are also responsible for setting the code in effect at the time of permit. So without having a permit date, your inspector can't establish under which code they are confirming construction was completed...

So have a regular home inspection and they will identify your typical issues, just don't expect it to identify code conformance or lack thereof. 

You said 'get the equity out', but you keep talking not about getting equity out but lowering the borrowing costs on the new improvements. The cost of the build itself isn't equity, it's borrowed funds which it sounds like you want to lower the cost of paying that back not get more money out of the increased value of the home. Is that right? 

The benefit of a fixed second is/can be two things 1) you can get a fixed rate vs. the HELOC floating rate...though often HELOCs will include an ability to fix rate the balance as of a specific date if you request it 2) the rate on a fixed product is often just a little lower, so you can save a bit of your borrowing costs.

Another thought on the refi, 'ignore' the 3%, that's a tail wagging the dog analysis. It's cheap money so you want to irrationally keep it. You need to do a weighted average on both the rate and the term. If you owe $200K at 3% for 10 more years, and your HELOC payback is $200K at 9% for 20 years, then you (simple math here) have an effective $400K at 6% for 15 years. This ignores the time value of money on the different amortization schedules, but I think you can see the concept. 

Once you know that info, now the analysis is, can you refi at a new 15 year for 6% or better? If so then dig more into the benefits of a refi vs. keeping the low rate 1st and getting the guaranteed return of paying the higher rate second off aggressively. If not then focus on options to get the best rate/terms on the second that you possibly can. 

You should shift your perspective a bit...you need a place to live and you are/will be paying to live somewhere. Start with that premise and then go into your decision making. 

Too often I see people come here and say "I want to be an investor and this is my start" and that is only partially true. You can get started with real estate a OO MFR, and I have done that in the past too. But for way too long I waited trying to get a 'better deal' similar to the houses I had purchased for rentals over the years. But here's the thing, a property that will meet FHA, in the area you want, that fits your family typically won't be at an 'investment' level of discount. The problem is on all those straight investment homes, I purchased when the price fit my investment criteria regardless of where it was, or how big, or if it worked for my family because none of that mattered. But for the property I ended up living in, that did matter and if I had just purchased what worked and was a decent value I would have bought for easily $50k if not $100K less than what I ended up purchasing a few years later.

I still own that duplex and it has been a great investment in part because the other benefit it had that my investment rentals didn't. That benefit is the low DP for an OO home, my rentals were all cash, heavy rehab and refi 6-12 months later at 70-75% LTV etc. That's great it built me equity and income etc, but you know how easy 5% DP duplex where you OO for a couple years is to grow some equity? It's a cake walk...buy in a good area, screen for great tenants and then stay two years to have the possibility of 121 exclusion when you move.

I'm not saying to buy a bad deal just because you live there, but also you're not really buying a straight investment either. If you evaluate it that way then yeah, maybe it isn't a great investment but you still have to live somewhere...At least that's my 0.02

What makes them deductible is not an LLC, but you using the home for investment. Since you state this is for your personal residence, then there isn't a way to make them deductible specifically. You already get the benefit one of two ways.

First if you live in the home as a primary for two years and sell you get the tax free gain exclusion Sec 121. Essentially you aren't paying taxes on the gain anyway, so deducting it is irrelevant. Think about it this way, would you rather spend $100K on buying, $50K on rehab and sell for $200K ($50K profit) and deduct your expenses but owe tax on the $50K so net maybe $30K? Or same numbers but instead you just keep the whole $50K?

Second, if you did this and convert it to a rental, then your rehab is captured in the value increase of the property. When you move out and start depreciating the cost of the asset you start depreciating the improvements at the time of conversion. So your repair costs are included in the home value that you depreciate and they lower your taxes on the rental income. 

Either way you are getting a tax benefit from your work.

Why are you disclosing the asbestos at all? I think you are creating your own problem. There is no obligation to disclose its presence, and there is no reasonably foreseeable way in which a tenant would ever be exposed except through their own lease violating actions. They should never be cutting, drilling, sanding or removing the floor without authorization which you simply don't give. 

Asbestos is not like LBP which is 'toxic'. The reason for disclosure of LBP, besides being a federal law, is it exists in highly wearable and commonly accessible areas, and degrades. It is on window sills and handrails, doors and paneling all of which are regularly touched and the lead can enter your system. Also it cracks and flakes providing opportunities to be ingested etc. and is readily absorbed and toxic to your system. 

Conversely asbestos is not 'toxic' but can increase risk of cancer when inhaled. Touching or otherwise interacting with asbestos doesn't create the same exposure to your body's internal system that lead does. So there is 100% no way I would be disclosing such a non health risk issue to the tenants. 

As someone who has done LTR and furnished monthly stay LTRs (now referred to as MTR), there is a clear difference just in that minor adjustment to 'market sector' and work required. Just like STR, yes there is a higher return but you're working for that return, so as long as that's what you want that's great. The co-living (which is a modern spin on boarding house) is going to have the roommate challenges, the extra cleaning, the higher turn over and unknown of utility bills etc. Which comes with more income, but you have to work for that income if that is what is worth it to you.

My thoughts on these kind of listings:

Often they are presented at a premium because of the setup, but the reality is the property isn't worth any more. So seller's need to be realistic that their home is worth $X00K, and the co-living I'd 'buy' for the value of the furnishings essentially. They achieved their value on the monthly cash flow while they owned it...

In many areas these arrangements run afoul of zoning. So depending on the property, you are really purchasing a 'risk bomb' that just needs a code enforcement action to go off. I've seen it here in SoCal where I live and work in entitlements, and in FL where I grew up and first started investing. 

That's what I see when I look at these. I've considered operating a boarding house myself, especially given that I know the local reg's for getting it legally approved in the area. The reality is I invest primarily passively, and these are more active just like a STR. That's the same reason I've never gotten into STR, if I did it would be where we want to vacation and I'd hire someone local to manage so if I broke even every year for my vacation getaway I'd be happy.

Yeah I'd guess little to no chance on the loan purchase idea. But I still don't understand why you can't just list and sell? If your loan is $400K, and the sale value of 7 lots is $420K, then list them for sale and at closing the sale pays off your home and you get $20K cash to you (simple math). That's effectively what you're trying to do here with the loan sale idea. 

Another thought is just do a rate and term refi now, but make sure they revise the legal to only your lot. That will release the underlying note on the 8 lots, and record a new one on only one lot. You now have 7 lots available to sale.

Have you evaluated if you just reduced the SOW to make it a 3/2 and then sell? If your value has come down but you can reduce the rehab to just enough to add the extra bath that may be the absolute best 'margin' on resale options. 

Who owns the loan, a local bank or a big lender? If it's local you have a shot, if its a big lender just about no chance. 

Why is the bank on your back? Are the lots worth enough to just pay off your loan? If so just list for sale and at COE they'll provide a release accomplishing the same thing you're considering only easier.