All Forum Posts by: Steve McGovern

1) Insist upon an LLC. in that document you can define the goals and % interest of the parties. The LLC should be the borrower.

a) some lenders don't like this-- especially if you insist on a non-recourse loan.  if you have decent assets or have done multiple deals-- even in Residential SFRs--  then you should already be aware of this tidbit-- if not, it's a fight for your first one. 

2) Not an easy question. I see you have an offer in the thread for PM- take (someone) up on that. Maybe it's someone here, maybe it's someone from a local REIA, but get someone's take on your numbers. There are many ways to skin this cat-- the trick as a borrower is to show the lender the value they need to see so they don't artificially depress your values. Remember: the bank has one goal-- to mitigate its risk.

3) your LLC doc mentioned in (1) should describe your % share, and what you're bringing to the table to justify this share. Sometimes it's capital, sometimes it's experience, sometimes it's hound-dogging. agree on the tenets of this question in (1) and everyione should sign and agree to your operating agreements. In many cases, the lender will want to see those docs too-- don't be surprised. in some jurisdictions you can push back and say no... but they can also say 'no' to your loan.

4)  Hire a lawyer. Let them worry about title, Enviro, and Zoning matters.   Hire an accountant, and especially when you're new to the asset class-- HIRE A BUILDING INSPECTOR who is used to working in this class of properties.  Too many investors go without the inspection-- short term money for long term liability. an inspection gives you an objective third-party benchmark about the condition of the property from which you can re-negotiate your purchase price.  Lots of sellers will tell you to buzz off-- those are exactly the ones you need to watch out for. At the very least, have a Construction Supervisor or GC on your team.   

Also this:  a trip to the Town or County office to inspect Zoning, Building Inspection, and Planning records should ABSOLUTELY be part of your DD prior to your offer. This is three different departments or boards in most jurisdictions.  If you see a new kitchen and no permits... well, now you know. Again, it gives you some leverage to negotiate from.   Furthermore, it's a much higher risk that something will be wrong with multi families-- there are stories every month of someone buying a (4-family) and then a month after the purchase learning it's only legal for (2 families.)  NOTHING will turn your math upside down like a reduction in total legal units.  Search "Illegal apartment" or "only X units allowed" in the forums here, and soak in the wisdom on those threads.  

5) Not really-- every property is different. Some need zoning relief, for example, and some don't.  Some have pools, some have basements, some have electrical issues.  There are lots of base-level checklists out there, but they won't cover everything.   

Good luck. 

Agree with all of the above-- there's no 'real' advantage to a free and clear rental property-- it's akin to borrowing $3K from a friend at 10%, when you have $10K in the bank doing nothing.  some leverage is good-- especially if you can write off anything as a business expense.   

 Having no mortgage is great, but having a Mortgage payment (INCLUDING calculated tax & insurance amounts) up to about 50% of your anticipated rental income gives you a very safe cushion and yet gads of cash to do your other deals with.   

Don't forget to calculate those tax & insurance figures--- in your situation the lender won't likely require escrows, and the last thing you want is to be blindsided by these outlays once a year or quarterly.    You may even be able to negotiate a better rate by ALLOWING the lender to Escrow T&I itself, because when they control these, it reduces their risk further... and it's only one payment to think about for you.  

YMMV-- Just food for thought there and I guaranty others will have strong opinions on the other side of the coin  there....  perhaps they'll even start with "That's a horrible idea!"  At the end of the day, it's about what you want to control vs. what you want to defer to others, and just how much it's worth (to you & the lender) to decide one way or the other.    

@David Bellmont David, Maybe I'm misunderstanding you...  but my return question is, what's your collateral?  What security will the Lender receive to guaranty you'll repay the $170K?   The usual answer to this is "Equity,"  e.g., it's a Mortgage, in which case you must be an owner to borrow. 

If this were not the case, then-- literally, "I" could take out money based on the equity of "your" home. (And then I'd walk away, leaving you with $170K less equity than you had prior.... and facing foreclosure proceedings.)  

 I know a case of a professional doing something-- not exactly this but similar to this-- under the guise of a fradulent Power of Attorney.  He lost his license, was disbarred, and was later even denied from being able to do"simple" Real Estate consultation.  The rule may be there to protect all of us from the lack of scruples of some-- but in this case, it's also sound business practice.    

So the options are: 

--If you become an owner, then Everyone will be owners... then you can agree in a side-note to pay the $170K loan, but your inlaws would also still be on the Mortgage and would also still technically be liable if you could not for some reason.   

--If they convey it to you, then they may be free & clear... but they will no longer own it. 

--You can own it outright but let them live there under the tenets of the Life Estate that I indicated to you in the other thread... but they don't technically own it any longer-- they're occupants.  (How that's going to affect everyone's taxes is another question for another professional... especially in the Brave New World that just passed Congress. )  

Otherwise, you've got $170K in a mattress or tied up in some investment that you can use, or you've got enough clout that some or all of that money can be lent to you as an unsecured loan...  but you can't borrow "against the house" without being an owner of the house.  

Hope that helps.  

Aah sorry. I misunderstood.   

The answer to your real question lies in the phrase,  "life estate."   Sis lives there for as long as she is alive (or until she requires help.) And you're bound to honor that.  Your Sister's interest is released upon recording of a Death Certificate (or Doctor's affidavit, in the latter case.) 

The covenant runs with the land, so if you NEEDED to sell next year, it would be an encumbrance on your next Owner (thus, significantly reducing your potential consideration.)  

Again, get a lawyer to draw it up.  

@Manuel Burgos You're asking the right questions-- but the answers only get worse:  Consider that not every ReMax in the country will have the same educational/mentoring opportunities Maybe they do on paper, but when it comes to personalities...look out.  

Instead, I would recommend attending a few REIA meetings for about 3-4 months. Build a rapport with some agents who you like, and who seem like they're interested in mentoring people. Ask them about their agency, the compensation structure, the perks, and the opportunities, but don't tell them upfront that they're being interviewed. Then ask them if you can join their Agency once you have a decent personal relationship. You'll know that you've done your diligence, picking the best possible team with the best possible opportunities. They'll be flattered to be working with someone who's already a colleague, and you'll get the best odds of making the right choice this way.

Good luck.  

@David Bellmont  I just replied to your other thread with similar questions.  Please review that answer on the Building piece. 

On the loan piece, you can't borrow against the property unless you're on the Deed. However you want to structure it, (with them, without them, etc.)  you need to be an Owner.  After that, it becomes a question for the lenders, your engineers, and your team's credit scores.    

David, you're in my area.  I highly recommend Perkins & Anctil in Westford for complex condo law including issues of potential Building/Zoning violations.  The big question is "how many units can this become?"  I know way too many people who have been bit by this snake.  Legal-non-conforming Occupancy  is one thing;  completely illegal is another altogether.  

In the absence of that,  call yourself a "paralegal"with no interest in the property, go to the town, and copy every scrap of paper in the Property's Building, Zoning, and Planning files. (three offices, usually).   Also check Engineering, Board of Health & Conservation.  I don't expect that these offices have anything, but it doesn't hurt to review them.  Then take stock of your allowable uses-- and potential liabilities--  according to the documents.    

PM me if you want more info; I can guide you through the Due Diligence at least.  

On point,  but slightly off point:  

If you are willing to invest the time to learn it, RSMeans is an absolutely invaluable resource for estimating construction labor & materials on a regional basis. Like anything worthwhile in the industry (IBC/IRC Building Codes, legal forms, Appraisal, Finance... or even REI itself for that matter) there is a definite learning curve associated with using it well.

Ok, first, everything here said previously was valid for consideration... (especially the part of keeping your valuations to yourself, in the future!) so you can just consider this to be piling on. I’m not in your area, but I have Close friends from your area... I’m going to go out on a limb, and the assumption that 700k isn’t worth too much in/around Fairfax. Maybe one small duplex or three-family, give-take. It’s akin but a step up from my assertion that same won’t be worth much in greater Boston. Consider the Eastern Shore. Dirt cheap land and housing means your dollars go farther— in this case MUCH, MUCH farther. You may need to familiarize yourself with Section 8 and figure out a way to develop a little empathy, too, BUT you could seriously make some major cash when the rest of the civilized world figures out what a gem that peninsula is, and gentrifies the place. If I had some capital and if I was closer, that’s where I’d land for the long (very long) term hold. Congrats on your previous work. Kudos to you!!

I had a similar result to what Joe Splitrock described-- the drain-guys know best.

Even if they do perform other work, they're still drain guys, so no worries there.  

 In my case,  FIRST they had to get through the house trap (Circa 1912 urban American Foursquare).    They came & cleaned it out one day, $75.00;  it clogged again two days later.    They came out again the second day (warrantied work within a week), and this time they went at it with the cutters.  Sometimes it's grease, sometimes, it's a 4" tree root.  They can get through it-- you just need to find the right guys with the right equipment and at the right price.  Only difference is that I had a 4" clean out before the line left my structure and hit my house trap, so we didn't have to go through the toilet to get to this thing.  If the 'start' of the sewer run can be exposed in your basement or crawl space, then it's a worthy expense to add the clean out and will make every subsequent project easier.   

Good luck.