All Forum Posts by: Pearce G.

My daughter just asked me to look at a lease for grad school this fall.  It has language saying that the tenant will defend and indemnify the landlord and their agents against all claims and liabilities including "...actual negligence or breach of any express or implied warranty."  There is a qualifier "to the full extent permitted by law."

Even if that language is in a lease, a tenant can't be held liable for a landlord's actual negligence or actual breach, can they?

@Todd Rasmussen

Thank you for the feedback. I hope you're right, but I don't follow how you arrived at 2nd and 3rd year returns. And that's exactly my question. As an investor, do I think of this as a one-time gain, or is there additional financial gain in holding the note?

If it were a rental, there would be a return each year as in your first year calculation [annual net cash flow/all-in cost]. The net cash flow may vary in subsequent years, but my all-in cost stays the same, and importantly, I still own the asset at the end of the day.

If I sold the asset for 100K cash, I would have a one-time return of 25% that I could reinvest in another property.

But isn't a note simply a (discounted) stream of payments with a present value equal to the amount financed? So if I exchange the asset for a future stream of payments of equal value, isn't that the same as selling for cash except that the cash is not available to reinvest right away?

As I think it through, it seems like it's a one-time gain of 25% with the proceeds reinvested at 5% over 10 years. And a 5% gain on 100K is equal to a 6.25% gain on 80K. So my hypothetical would be like getting a 6.25% annual return on the original 80K investment. Is that right?

Let's say I'm flipping a property.  My all-in acquisition/repair/holding cost was 80K.

Ignoring selling costs, let's say I sell it for 100K with seller financing.  And I require 10% down with the rest financed at 5% with a 10yr amortization.

What is my cash on cash return?

Is it simply the 25% markup + 5% interest = 30%?

Or is it a calculation of total annual payments divided by net all-in costs?

If you're open to a 30yr loan on a new property, suppose you refinanced the current property to 30 years instead.  You could reduce your payment (i.e. increase cash flow immediately) and/or take some cash out to put toward your next property.  Cash out refi proceeds are not taxed.

@Robin Gravlin

Assuming you don't need income to support yourself, throw all your surplus cash flow at one of your two current loans.  Maintain open communications with lenders, so they can see the rate of paydown.  Find out the point at which they would be ready to refi either property.

Consider commercial loans. Yes, you can get a commercial loan or refi on a SFR. Terms are not quite as good as conventional, but qualifications are not as strict either. I did it, and I'm about the same age without a W2.

Be patient.  I think you will get your financing within 12 months.  Then consider multifamily.  @Account Closed is right about the difficulty of scaling SFRs.

Just saw this @Dave Rav.  You probably have an answer by now, but a local surveyor might be a good resource for re-zoning advice.  I've been using Ashley Land Surveying in Summerville.

@Wade G.

Return on Investment vs. Return on Equity. Before I buy, I analyze based on the ROI the expected cash flow will produce. After I've owned it a while, and especially if it has appreciated significantly, I start looking at ROE. If that equity could be redeployed to another property for a better return, then it may be time to sell.

For example, I own a rental SFR that I bought 2 years ago for 90K with 20% down. My ROI strictly from cash flow is around 15%. That's great, but now the house is worth around 130K, so I have >50K in equity. That puts my ROE around 5%. Time to sell? Probably so, if I don't expect continued appreciation at the same rate and if I can find another 10-15% ROI property.

@Russell Brazil

Why will Verizon give me a free phone to switch from AT&T?  Because they can lock me in to an exclusive agreement to provide cellular service.  Why will a bank give me $100 to open a new account?  To acquire a new customer.  Call it a loss leader...a marketing expense...cost of doing business.  The downstream revenue is worth way more than the up front cost. 

If I'm an agent, and I stand to earn a 30K commission on a 1MM property, would I pay a seller $1/month to lock up the exclusive right to earn that 30K?  If it's legal, you bet I would.  Would I pay $10/month?  Yes.  How high would I go?  I don't know...depends on how quickly I think it will sell and at what price.

I just don't understand why an agent or brokerage will routinely print promotional materials, prepare market reports, spend hours touring homes and pitching to potential sellers, send mailers, cold call, etc. all in the interest of getting new listings, yet it's unheard of to incentivize a seller directly for the exclusive right to sell their home.  

I wouldn't expect agents to be receptive, but I thought it was a worthy topic.

@Russell Brazil@Nick C.@Caleb Heimsoth@Wayne Brooks I appreciate the feedback.

Don't get me wrong.  I'm not proposing or advocating.  And I'm not looking to "sell" my listing.  

I'm just curious why market forces seem not to come into play if there's a strong demand for new listings.  Ok, so it's beneath the dignity of a reputable agent.  Is it prohibited by law or regulation?  Is it an ethics violation?  Or do the economics just not work?  What keeps Zillow from paying a seller to list exclusively on their site?  Why will that never happen?  Beneath their dignity? 

Do real estate brokers ever pay sellers for exclusive listings?

I ask the question, because I had a property on the market...the listing expired without selling...and now I'm getting a bunch of calls from agents who troll MLS for expired listings.

I have something they want, and I'm wondering how much they want it.  What is the value of an exclusive listing?

Hypothetically, let's say there was a non-refundable monthly fee paid by the broker to the seller for the exclusive right to sell a property.  Agents would not take listings they're not confident they can sell.   Agents would be motivated to sell quickly or release the listing.   Sellers would be compensated for a listing that isn't moving.

Obviously, agents won't like the idea, but I'm just curious.  Does it ever happen?   If not, why not?  If there's a demand for a seller's listing, why should the seller give it away?

Looking forward to a lively discussion.