All Forum Posts by: Pete Harper

Quote from @Emilie Adamovic:

Hey BP I am an investor in Northern New Mexico and have a tax deed auction question. In my county they post the list of properties that will be up for auction at the tax deed auction ahead of time. I have been using deal machine to look up the properties on the list to find information about the properties, owners etc. I am finding properties that are not in that much tax debt that are completely paid off (this matters in NM because other liens like a mortgage are not erased with a tax deed auction like many other states). Basically, is it possible that all these paid off properties with not a ton of tax debt are going to be sold at these auctions? It seems insane to me that someone owning a 500k+ property that is in less than 10k of tax debt would let that happen... Am I missing something or are these properties really being sold at tax deed auctions and the owners with hundreds of thousands of equity have no recourse? 

 I've attended several tax sales in Texas.  Here is what I've found.

1) All the "good" properties get taken off the tax sale at the 11th hour.  The owners scrape together enough cash to make a payment.  Frequently this same property will show up on the next sale a couple months later only to be taken off again.  I've watched the same property go to auction 3-4 times this way.

2) In Texas there is a redemption period that is different for Homestead vs non-Homestead property.  Homestead properties can be redeemed by owner for a period up to two years.  Non-Homestead is 6 months.  Meanwhile you can't make significant renovations to or resale.  Be prepared to have your money tied up a long time.

3) The majority of properties that do make it to auction have been abandoned for years.  Typical scenario is the owner has passed away with no heirs.  The property sits abandoned for 3-5 years before the property lands at auction.  Do you due diligence.  I've found homes "missing" as the city bulldozed them down because of fire hazard.  Not uncommon to see roofs fallen in or other major differed maintenance. 

4) When a "diamond" does make it to auction.  Be prepared to bid against the Pros. These guys are brutal and are willing to pay top dollar.

5) One strategy I did try was to contact homeowners pre-auction.  Offer to buy the house pre-auction for a little more than taxes.  This is potentially a win-win the seller gets a little cash and you get a property with clean title at a reduced cost.  I've had one deal like this but backed out after I found the kitchen roof had caved in.

Tax auctions sound great on paper but you really need to know what you are doing.

My wife and I have been investigating developing a tiny home village in Central Texas.  We are looking at a 15 acre parcel of land with an existing mobile home.  The site is in the unincorporated county.  No zoning issues.  The only permit requirement is for sewage treatment.  The site already has power and city water.  We would put in a shared septic system, gravel roads, gravel pad, stub out water and electrical connections.  Nothing too fancy.

 Has anyone done a similar development?  I'm looking for estimates on development costs so I can do a rough financial analysis.  I've looked at similar developments in the county and they are getting $400/month sight rental.  We have a large demand for affordable housing.  I've watched a similar development fill up within the last year.  

Thanks, Pete

Quote from @Adam Christopher Zaleski:

I had a tenant for two months. They got evicted for not paying rent and eventually left, but on their own terms. It's a 20-year old rich kid that has zero accountability. His dad is very wealthy and is a bully

His son left owing 18 days of rent, cleaning fee, late fees and some lawn maintenance fees because he didn't mow the lawn for 30 days and mowing the lawn was part of the lease. 

The dad wants a full deposit return minus the cleaning fee, which is not even connected to reality. He also mentioned that he thinks there is a gas leak in the rental unit and his son had to go to the doctor twice to get treated for head aches. This is a totally made up story. It never happened. I interpret this as a threat and intimidation. I have all the documentation needed to show that he gets zero deposit back and still owes an extra $1500. 

All deposit disputes are handled in small claims court in my state, no exceptions. If we go to small claims court, I win. He doesn't have a chance. As a result, I think he is going to try alternative methods. I am expecting a threatening letter from a lawyer in 1-2 weeks. Any ideas or suggestions on how to handle bullies? 

Agreed, the father is trying to intimidate you. If it were me I would call his bluff. 9 times out of 10 this is all for show.  He isn't going to hire a lawyer at $400/hr just to reclaim $1500. This is all an attempt to intimidate you.

When you say evicted do you mean that you went to court and received a judgment or you asked him to leave and he willingly agreed to leave.  Big difference. You have a much stronger case if you have a court judgement.  

I would not communicate with the father, only son as he is the primary on the lease agreement.  Send the son a copy of the court judgement, if available, and an itemized list of money owed.  Don't delay, in some states you only have 30 days to do so.   Once you've done that stop all communication.  Don't respond to any other communications.  If he gets a lawyer to send you a letter, ignore that as well.  You are under no legal obligation to respond to his lawyer.  Only respond if you receive a letter from the court.  At that point you should get an attorney.

Meanwhile as a CYA call the gas company and have them do a courtesy inspection.  Most will come out and inspect for free.  Don't tell the gas company about any threats of litigation.  If they find something take care of it immediately.  Don't share test results with tenant unless required by the courts.  A clever lawyer could try to spin even a negative result against you.

Quote from @Tamika Howard:

Hi,

I have an older 1,300 sqft rental home that I'm rehabbing in GA.  Do i need to upgrade the breaker box from 100 to 200 amps?  How much is the average cost for the upgrade?  The stove & hot water heater are currently electric.  I am adding a new HVAC system the house did not previously have central air.  Thanks for your help!!!!! 

 Too little information to give an accurate answer.  Have you had an electrician tell you you need a 200A service or are you just assuming?  Most of our units in Central Texas are running HVAC, water heater, microwave and stove on 100A service.  Are you running out of breaker slots or are you concerned with overall amperage?  

Something else to consider is the wire coming from the pole.  In many cases the wire coming into the house is not rated for 200A.  In this case you not only need to upgrade the panel but also the wiring coming into the panel.  I'd recommend you get a qualified electrician out to take a look at it.  

Quote from @Gabriel Gutierrez:

I have a small fourplex each unit in the fourplex does not have a washer or dryer connection and there is no space to install a washer or dryer connection. I'm thinking of installing and outdoor washer and dryer for the tenants. Has anyone ever installed an outdoor washer and dryer? So, any tips? I think I need to install an outdoor washer and dryer or it could impact my ability to rent the units in the future. 

We recently purchased a duple with limited space for indoor washer/dryer hook ups.  It did however have a covered back porch area.  The kitchen sink backed up to the porch making it a simple upgrade.  We already had hot and cold water and a sewer line in the wall adjacent to the porch.  To add washer hook up was a simple matter of knocking a hole in the brick wall to provide access.  We were already doing a kitchen upgrade so there was very little added cost.  Maybe $1500 to run plumbing and electrical.  Now the washer dryer sit side by side on the back porch. This is quite common in Central Texas with no risk of freezing. I plan on doing a similar upgrade on the other side once it becomes empty.  After reno the rents were increased from $500 to $950 for 2BR/1BA.

This is a small local bank. By portfolio loan I mean they are holding the loan in-house rather than selling on secondary market. Not FHA, Fannie Mae or Freddie.

Quote from @Erik Estrada:

If the property needs rehab, how much would it need to increase the rents? Any deferred maintenance on the property? What is the estimated value AS IS? What is the expected ARV?

With a 6-unit, rates on a DSCR loan are about the same as what you are being quoted with your portfolio lender, with more fees. What would their rates be with a higher DSCR?

It might make sense to go with a bridge loan and renovate the units, refinance with your current lender or explore full doc commercial loans if you want the lowest rate. 

Asking price is $335k. ARV $490k. Needs substantial work estimate $45k-50k in reno. I do not expect the need for renovation financing. Our strategy is to take a few units at a time and renovate. This normally takes about a year as we turn over units as leases expire. The excess cash flow from the remaining units self fund the renovations. We've done eight other boilings from duplex to 12 units using this strategy with zero out to pocket cost on renovations. Current portfolio of 38 units. I'd like to be in a position to refinance in a year's time to get a lower rate and/or BRRRR into the next opportunity.

As I mentioned earlier we were stuck in a Visio Loan on a 4-plx with 5% penalty.  Purchase price was $205k current market value $375k.  We missed out on the low interest rates and were not able to pull equity out when rates dropped.  This loan resets to 9% in 2024.  My options with this loan are to sell or refinance paying the penalty.  We've decided to sell and put equity into new properties.  I don't want get trapped by another penalty clause as rates will likely drop in the next year or two.

Quote from @Nick Belsky:

@Pete Harper

If the DSCR thresholds are not met, then it will cause your down payment to be higher... It's no so hard to find DSCR loans for 5+ units at 70-75LTV. They have to cash flow enough to support it. Many lenders push the DSCR minimum up some for 5+, some do not. I have been pricing these some this past week at mid-7s to mid-8's on 30 year fixed. Your not being quoted a crazy rate...

DSCR loans are lite doc loans. We would ask for rent rolls and such, but it normal for 5+ unit. Not usually looking at tax returns or personal income too much either... some do, but many do not.

I am a bit biased towards DSCR so I will not be able to offer you many cons with them. For investors, they are superior to conventional financing for a variety of reasons to me. Of course, not all would agree. The only potential issue with them for me is the prepayment penalty. They don't factor as an issue for me, but some get really hung up on them for whatever reason.

Are you working with a broker by chance?  Brokers can offer insight into a variety of financing resources that can help match you up with a program that fits exactly your scenario.

Cheers!

I not sure I want to get locked into another loan with penalties.  Our first investor loan was with Visio.  They had a 5% penalty for early refinance.  At the time rates were 6.5%, we totally missed out on the opportunity to refinance when rates dropped.  This same loan is now going to reset to 9% after 5 years.  I'd rather not repeat that mistake again.  In all likelihood rates are going to drop in the next couple years, I'd like the option to refinance.

No, I'm not currently working with a broker. For portfolio loan I have a direct relationship with the bank.  They already have all my financial info.  When I purchased a property last June they didn't require any additional information.  

I'm looking at financing options for the potential purchase of a 6-unit apartments by my LLC. The property in question is an older 6-unit apartments. The property is fully rented. However, way below market rent. The property is priced right for condition. Our strategy is to fix the property up and raise rents to market rate for long term hold. We have a good track record with this being our 9th similar acquisition. In the past I have used portfolio loans from a local bank. I have a total of four loans with this particular bank, they have been very good to work with in the past. My only issue is the current interest rates. I'm being quoted 8.75% on 30yr fixed, 25% down, no fees. I know rates are up but I wanted to look at other options. Ive heard a lot about DSCR loans and wanted to see if they are a good option. We have cash reserves for renovation so I don't need funds beyond purchase.

Pros and Cons for DSCR loan in this situation.

Thanks, Pete

Quote from @Bill B.:

Are you sure on your long term capital gains tax? You’re using 30% I thought it was usually 15-20%.

As mentioned don’t forget 25% depreciation recapture “tax” of approximately (80% of $205k times 25% of (3.63% times the number of years held.)) (a little under $1,500 a year.)

You might have a hard time finding a lender for a $250k property with a $216k downpayment. (You have to reinvest all cash received or that will increase your tax. Unless you can pay the rest from cash on hand.)

 Bill, I'm using 25% LTCG; $175k x .25 = $43.75k  No state tax in Texas.

Good point, I did not include depreciation recapture.  That is a bit more complicated. Using your number of ~$1500/yr held 4 years is $3000.

I have a couple options on the small balance load.  I could hold onto more cash and take out a bigger loan or make up difference from cash reserves.  I have a portfolio lender that is willing to make small loans.  We did a $64k loan earlier this year.  It all depends if I find a second property or not.  Here I was looking at worst case where I only identify one property and not able to use the entire 1031 exchange value.  Dave's answer was spot-on.