All Forum Posts by: Michael Otranto

I'm looking for an attorney who will close subject-to transactions in Greenville NC (Pitt County).  I'm looking for a recommendation asap.

I’ve been doing real estate in the Triangle since 2005. I’ve done everything from major rehabs, rentals, property management, general brokerage, leases, owner financing, multifamily & single family investment properties. I also do consulting.

I help owners of real estate with creative real estate solutions that solve common, but complex, real estate problems. I work with other real estate professionals in the area who have decades of experience in creative real estate. I can find a solution to your real estate problem if there is a solution to be had!  

I think you need more information before making a decision to pass on the deal. Do you have the income/expense reports? Gross rents @100% occupancy is a big "if". What is the current occupancy? What % of accounts are delinquent? What is you minimum acceptable ROI and or Cap rate?

$228,000 GOI Annual - 40% (quick estimate of Vacancy, Repairs, Taxes, Insurance) = $136,800 (rough estimate of NOI)

$136,800/$1,600,000 = 8.5% Cap

8.5 Cap on low income housing doesn't sound that appealing to me personally, but, I would get the income/expenses and see how negotiable the seller is. :)

Find the pain!  I like to ask my sellers that very question.  

Me: "I can pay you all cash but I would have to buy at a deep discount, that isn't anything you would want to do is it?"

The truly motivated seller will respond by asking what you will offer and say things like: I NEED to get rid of it, sell quick, just move on, I don't care about the money, etc.

It takes some discipline to drill down and get to the painful reason on why they need and want to sell.  I like to focus the conversation on why that reason is so painful and follow up with "I'm ready to do this today".

I just wrote a post on my bigger pockets blog on this very subject :)

I'm currently in the Raleigh NC area where there is a tremendous amount of growth in apartment complexes.  There is a lot of job growth in the tech sector.  The easiest area to learn is the one you live in.

I'm not up to date on current loan standards as I don't go to the bank for financing.  If you're willing to live in one of the units then I guess it's in a decent area.  Good luck, and let me know if you have any questions.

Paying cash upfront would make anyone difficult to evict if they caused other problems such as illegal activity on the property.  I don't know of any property management companies that will allow a resident to pay an entire lease upfront.

Screening tenants is critical.  Even if you are in a lower income area where no one has good credit you need to see if they any landlord-tenant collections on their credit report.  This is an automatic denial for any large apartment community.  Credit card debt is usually excused.

Hope this helps.

If you research the "Garmin St. Germain Act" it goes over how that legislation allowed banks to charge variable interest rates and allow property owner to put their properties in trusts for estate planning purposes. I have yet to hear of a bank exercising the DOS. Usually a seller is highly motivated when doing sub-to deals. They are burned out landlords who are about ready to let properties go into foreclosure. You can propose it and he can say no if he wants to.

If you structure this as a lease the owner of the property will still be on the hook for repairs.  What I do with my LO's is insert a clause where I'll accept responsibility for the first $250 in repairs, but according to North Carolina law the owner is still responsible for maintaining a habitable residence.  So, roof leaks or HVAC would still be on the owner.  This is a good exercise in deal structuring but don't spend too much time with it if the owner will not consider any of these options.  I think you said he offered to finance at 8% with a 5 year call?  If that's the case he doesn't sound very motivated.  It sounds like he's playing hard ball.  This is common in low income housing.  These guys sell on "draconian" terms and wind up taking the property back in a couple of years, essentially setting up a series of buyers to fail.  A lot of times one landlord will sell the same property on terms multiple times over a few decades and makes a lot of money doing it.  Always be willing to walk away from any deal.

As far as taxes and insurance it depends on whether or not his mortgage payment covers the T & I in the monthly payment.  Get that info from the seller.

"Master Lease", the way I have heard it explained by David Tilney is that you lease the property from him from him and take a % of the money you collect.  No money no payment.  He pays all repairs.  This would have to be a highly motivated seller.

I think overall that multi family properties that are around the lower end require some experience to manage profitably.  Single family homes in middle income have a larger margin of error.  Speaking of which, do you have a screening system in place?  Pulling credit, applications etc?  Do you have a maintenance guy lined up?  What about a trust account for the security deposits?

I attached a link to a great resource that goes over the basics in a very simple format.  I would research legal zoom and maybe bizfillings.com to see if you can get them to draft a land trust for you for your particular state. 

Reach out to your local network to see if any local investors are using them in your area.

I have a "sub-to" package that I use that was prepared for me by a guy I partnered with a "sub-to" deal last year.  You might as well start doing research on the subject now so you are ready to pull the trigger when a sub-to deal comes your way.

http://www.legalwiz.com/landtrusts/

I hope this helps

I like the sub-to idea. I had a few four-plexus back in the late 2000's and they had great cashflow on paper but deteriorated rapidly when the unemployment rate rose. Many unexpected expenses can wipe out $300+ a month in cashflow. I like to use land trust to get around the DOS clause.

I would recommend doing thorough negotiations with the seller.  I think a $150 per month positive cashflow per unit per month is a reasonable rate of return to justify your time, effort and risk.

Will your monthly payment to the seller include PITI or just PI?