All Forum Posts by: Meredith Mihm

@Peter Walther This might be a fear for some, but it shouldn't be in Wisconsin. So long as the Land Contract is recorded, even a mortgage has been found to be junior to it. See: Fair Finance Corporation v. Roomates, LTD, et al., 2015AP728 (March 17, 2016).

There have been instances where a mortgage or other lien was allowed to attach to the Vendor's interest to allow the creditor to simply garnish the Land Contract payments. That is also very common for the holders of any note or mortgage. Far more common for private mortgages such as this, but something to also keep in mind if you invest in mortgages and promissory notes.

There are always outlier fact patterns, but a judgment creditor is not going to be able to jump priority like that in most cases and states.

Contracts for Deed and Land Contracts generally are most favorable to the seller in most states. Wisconsin's laws are much more balanced though.

Heartfelt thanks for all of the replies-- this is just exactly the information I need. I did talk to a title company and two lawyers, and got lots of help. We will for sure use a lawyer to write the land contract because the standard form needs some tweaking. The contract will be recorded with the county immediately.

Is there anything I need permission to do (attorney said I might need permission to renovate??)

Thanks!

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Originally posted by @Ron Szmik:

Make a few phone calls to Title Companies in your area to and ask a ton of questions. Most likely, you will come across one or two that will work with you on the Land Contract. Sounds like a good deal just keep the ball moving forward. Good Luck!

Thanks, Ron. I didn't think to call title companies. I will call them and lawyers tomorrow (real estate agent was really no help).

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Originally posted by @Brad L.:

If you are a buy & hold investor, the Land Contract doesn't mean much for you unless you were trying to then sell the property or obtaining additional financing with this property as collateral. The details are what matters, just as they would in any other deal. Are there prepayment penalties, is prepayment allowed, when are you granted possession, is the Vendor paying for title insurance on the front-end or are you responsible for it? One unique aspect of a Land Contract is, are you responsible to pay Vendor directly for property taxes & insurance, or are you responsible to pay property taxes & insurance directly? Vendor is able to call the balance immediately due (page 3 of the WI Land Contract form 11-2003) if you fail to pay as this page outlines.

To be honest, as long as you're holding up your end of the deal it's more of a risk to be a Vendor than a Purchaser in a Land Contract because they're assuming the risk that you run the property into the ground then have to take it back via foreclosure. In my opinion 20% down, 3.9% interest. 30-year AM with a 10-year balloon is a good setup for you for a 6-unit property, as commercial financing in my area is 20% down, 4% interest, 20-year AM with a 5-year balloon.

Were there any specific concerns you had about a Land Contract? I have been the Purchaser in a Land Contract for almost 6 years now and I worked on a fair amount of them with clients in a previous life so I know enough to be dangerous.

The other question is, will he agree to a deed of trust (is this the standard term?), or is there a big tax advantage for him if he does a land contract?

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Originally posted by @Brad L.:

Thanks for the reply. That's somewhat heartening. I'm nervous because I don't know anything about land contracts. What is the exit strategy? We are buy and hold investors, and we are planning to put a lot of cash into adding a 7th unit . But how do you pay it off at the 10 year mark if you can't refinance? And what if you want out?

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We just shook hands on a 6-plex deal-- owner financing-- 185K, 37K down at 3.9%, 30 year amortization, 10 year balloon. But he kept saying "land contract," and I didn't ask what he meant (face palm!!). When we got back in the car, I realized that this is like contract for deed, which I have never researched properly. I just assumed that it was the same thing as a Trust Deed.

I'm googling feverishly, but I'll take all the help I can get. There is no official written offer yet-- are there big disadvantages to land contracts? I don't totally understand the idea of "equitable title," and what are the disadvantages of not holding the deed, etc. The property is in Wisconsin.

Thanks!!

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Originally posted by @Carl Millsap:

@Meredith Mihm numbers look good.

I'd increase vacancy to 10-15% to ensure numbers pencil out. With this current situation the chances for economic vacancy (someone living in the place but not paying) has increased. Better to plan for worst case scenario.

Have you looked at the leases? How long has each tenant been in the property? How many, if any are behind on rent?

If possible, I'd bill the utilities back to each tenant or increase the rent to $600 per month since all utilities appear to be included.

Thanks for the reply, Carl. I need to look at the leases. There are at least 3 who have been there more than 5 years, and one who has been there 15 years (I guess this means it's a bargain to rent, right?!), and he says that they're all current, but I guess I need a certified rent roll.

I will raise vacancy.

Re utilities: I was hoping to implement RUBS at first, but it's prohibited for electric, which is the largest bill, so we'll likely just keep raising the rent.

Also planning to add coin-op laundry, but not counting it as cash flow since some say that you just break even on it.

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6 plex (all efficiency/one bedrooms)

Asking: 190K

Financing: Owner, 20%down, 30 year amortization with 15 year balloon (interest is still being negotiated)

Gross rents: $2870/mo. (Slightly under market)

Down payment: 34-38K (20%)

mortgage:700-800

Taxes: $200

Insurance: still working on it, estimate $150

Capex: $200 (7%)

Repairs $200 (7%)

Vacancy $86 (3%)

Electric: $250

Gas: $100

Water: $200

Trash: $80

Lawn/Snow: $100

Property Management: $200

_______cash flow $304-404/mo.

($604 if we self-manage in the beginning)

We plan to raise rents and/or add a utility fee ($300/mo extra cash flow), and add a 2 bedroom attic apartment with separated utilities ($700/mo. cash flow, will cost 30-40K).

It's in a small town where there are a couple of big factories, and there seems to be no shortage of (single) renters for small apartments... Definitely a cash flow play, but with forced appreciation.

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Originally posted by @Aaron W.:

Originally posted by @Meredith Mihm:

Originally posted by @Aaron W.:

@Meredith Mihm Congrats on your potential purchase!

There are services out there that can help with submetering water without having to actually split it out. I have not used them but am considering it for some of our properties.

When you renew leases or place new tenants, is there a reason you can't have them put the electric in their name?

For trash, do the tenants have separate trash bins or is it one large bin paid for by the landlord?

@Al H., Thanks for the reply! I just heard an ad for a water submetering company on the newest bigger pockets podcast this morning-- I will look into it. The electric can't be put in the tenants name because it's not split. The trash is a dumpster, and I'm not sure about the cost yet (we just threw $100/month in as an estimate. If we don't end up submetering the electric, I think a utility fee will make more sense than submetering the other things, because we'll be able to recover more of the cost that way. But ideally, we can submeter everything.

Sounds like a great plan! Have you also considered increasing rents to include some of the utilities? You'll want to check other rent comps to see the feasibility. You may be able to recoup some of the utilities this way.

For sure-- I'm assuming that a lower rent will (visually) attract more potential tenants-- so if we advertised, for example, $500/mo rent plus $50 utility fee, more people would include it as a possibility than if we advertised it at $550. Obviously it doesn't actually matter, but people who had given themselves a $500 max might ignore our ($550) ads if they're not factoring in utilities... I suppose we could advertise BOTH ways, and see which works better.

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Originally posted by @Benjamin Aaker:

That cash flow is really low for a 6 unit property. Unless you are budgeting a lot in for cap ex, this looks risky. Are you sure that it is illegal to RUBS electric in your area? You can't charge tenants more than you pay for electric in most places, but if you bill them equal or less, it is allowed. It would be difficult to separately meter in this old of a place. I'd definitely look into it if you purchase, but don't expect it in your underwriting of the property.

Thanks for the reply! I budgeted 7% each for repairs and capex. And after calling the utility companies, it looks like I overestimated by $100 or so, so cash flow is $372 as is/$572 if we self-manage until we raise rents/add utility fee/add attic apartment. It has lots of potential (raised rent, units would be easy to improve, added utility fee, added attic apartment, added coin-op laundry, possibly added storage in basement), and it is a really great old building (brick-- rock solid-- used to be a convent!), but I'm definitely nervous... Re. RUBS: Here's what I found on multifamily utility company: "Billing for electricity using the ratio utility billing system (RUBS) is prohibited since dwellings built after 1980 are required to have separate electrical meters installed."

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Originally posted by @Michael Swan:

Hi this is Swanny. I was a guest on BP 238.

Be careful!! I don’t have enough info to advise. However, I am always available to help people on BP. Go to my profile and send me a message. Maybe watch Podcast 238 and then reach out to me, so you know where I have come so far to get to over 230 units.

Swanny

@Michael Swan, I will listen to your podcast, and then reach out to you, thanks!

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All Forum Posts by: Meredith Mihm

Meredith Mihm has started 19 posts and replied 78 times.

Post: I just agreed to a land contract?!

Post: I just agreed to a land contract?!

Post: I just agreed to a land contract?!

Post: I just agreed to a land contract?!

Post: I just agreed to a land contract?!

Post: Scrutinize my 6-plex deal analysis?

Post: Scrutinize my 6-plex deal analysis?

Post: RUBS, utility fee, split?? for a 6-plex

Post: RUBS, utility fee, split?? for a 6-plex

Post: RUBS, utility fee, split?? for a 6-plex