All Forum Posts by: Matt Devincenzo

I'm not an expert, but I'd say no you aren't due your potential profit. Just like auto insurance, it isn't to buy you a brand new car, it is to fix yours or give you the value of the car as of the date of loss. Your value loss is limited to the value of the lien, or what you paid for the property. So if they determine the lien is $1M, then they could choose to reimburse you the purchase price and you have been made whole. 

Insurance is to prevent loss, not provide profit.  

Why not 5% down conventional, seems like that works with the available cash and closes this at $100K. 

There are only two legal classes of rental STR are those less than 30 days, and LTR are those longer than 30 days. MTR is really just a new term to describe a furnished LTR, and more recently those are often for less than a year stay but they've been around forever. So the LTR provisions will apply, whether this being furnished changes any of the RSO guidance or not I can't say.

Here is a past post describing the way to handle this. 

https://www.biggerpockets.com/forums/51/topics/393996-how-to-best-handle-boarder-income

"Source of income" as a protected class (i.e. Sec 8 voucher recipients) is a pretty well known State specific protection. It's a commonly applied local overlay in the 'usual suspects' of States that have restrictive tenant protections, so its unfortunate that you thought you didn't have to accept it...technically you may not have been required to 'accept the voucher', but you have to allow them the opportunity to apply and then allow the housing office to decline the property. 

Out of curiosity I just searched the places that include income protections, there are 17 states, 21 counties, and 85 cities that ban source-of-income discrimination as of September 2022 

There's likely not a single lender that exists that will allow a 100% CLTV at purchase. So the only way this works is you have to come in with the DP and then have the seller send the funds back after closing and record the 2nd. In doing this you've likely committed fraud since your entire intention was always to close with the 2nd at 100% LTV...

I've watched the video where Pace describes this and in essence he says that treating them as two separate transactions is fine and there's no need to tell the lender. Technically he seems to be right, but knowing what your goal is in advance and that the lender wouldn't allow it means that by concealing your actual plan you've been deceptive. There are legal implications to being willfully deceptive to obtain a financial benefit for yourself. 

Personal opinion, there is no way to 'morby method' that doesn't create some sort of fraudulent transaction UNLESS you fully disclose the process to the lender in advance. If you do and they agree go for it, but I don't see any lender that accepts 100% CLTV.

It seems like another option here would be some type of 'life estate' type arrangement....instead of death it would be kids being a certain age.

If for example you could buy sub2, and pay the husband $550K now. Carrying costs of $50K per year, wife holds her equity as a note DOS, and we sell in 3 years...I assume no appreciation.

Purchase $550K (to husband), $550K note to wife, $270K sub2

Year 1 $50K (PITI plus holding costs)
Year 2 $50K (PITI plus holding costs)

Year 3 $2M sale (10% sales cost, $250K sub2 payoff, $550K wife payoff) net ~$1M ($650K return of capital $350K profit)

That should be about a 20% IRR, any appreciation or higher sale price results in a higher IRR. Maybe the wife's equity should be lower to account for the long 'free' stay...

 I think the issue is (in part) the 'sequence' of events for 'fraud' to typically occur. If you are provided a front end quote with an estimate of labor hours, even if the estimated hours are inflated then you have the opportunity to accept or reject the cost. That is not fraud.

If by contrast you have a proposal where the mechanic says, I'm not sure how long this will take so can you authorize me to just bill the hours spent? and then he bills 10 hours after spending one hour on it, then that is more likely fraud. Or if they say 'we replaced your XXX' and bill you for it but didn't actually replace anything then that is fraud. 

Why is the first scenario ok, and the second not? Because when you have the initial estimate and go over the cost you can decide if the value derived is acceptable based on what is charged. Not knowing you can go down the street and get the same service for 1/10th the price is irrelevant. You were ok with the charge when you agreed to it. 

In your case, you were NOT ok with the cost and declined the service...that exact sequence is what proves that no fraud was committed. You were provided a clear opportunity to accept or reject the quote and chose to reject. 

Unfortunately he's correct...any funds you keep are profit first, then basis. It's too bad no one shared this with you during the transaction since several people involved with the deal surely knew this requirement.

On the topic of tenants fixing appliances, it's an old stand by idea that IMO is probably not worthwhile. 

If you want the tenant responsible for the appliances then have them supply them BUT this only works if your market supports it. I know there are some areas that this is standard, and maybe yours is one of these. In my market there is (I can almost guarantee) not a single rental that doesn't provide appliances...maybe washer/dryer...but in urban rentals no one is lugging a fridge/stove around. Even the washer/dryer is typically provided. If by some chance you did include that the tenant is responsible to repair, then you should expect that if they break during their stay then the tenant can just buy new ones and take their appliances with when they leave leaving you with a broken appliance that still needs attention upon their departure.