All Forum Posts by: Kevin Romines

I may be bias, but I like Farmers policies, but then again I'm an agent for them. I feel they are very competitive, however I don't know what the pricing looks like in your area, so you will need to check into that for yourself. I do know our auto rates have been virtually unbeatable in the last year!!!

Please send me the NREI info as well. Thanks

@Jay Hinrichs 

What happens if my end buyer defaults. If they do, no matter what I have to make the payments per my contract with the seller. I dont want to lose an asset, and I havent lost one. If the end buyer defaults on the lease, I do everything in my power to understand what is causing the problem and work to solve it. Why, becasue if they default on the lease, it doesnt mean they have defaulted on the option. They could leave the property and still excersize their rights to complete the purchase down the road. With that scenario, that means, I must rent the place not resell it until their option period is past, or I can buy them out of the option, which then allows me to then resell the home on a lease and option again.

What happens when my contract period is up, I pay off the seller. If for some reason that wasnt feasible, I might negotiate an extension on my contract, typically, it costs money. but can be done. I prefer to take them out.

As far as the Due on Sale Clause, the lender requires written notice from the seller and all is done prior to any transactions. The lender is then required to acknowledge that notice within a reasonable period of time with either their objection to the seller,  selling via subject 2, or an acceptance. the court would decide what a reasonable period of time would be (typically 30-60) days. The fact that you sending them written notice via a return receipt letter, and that there is a check attached to that letter that specifically is used for that transaction, yes, it can and will hold up in the court of law.  I personally like to disclose rather than not, and take my chances. If the lender ever objects, then I wont be buying that property via a subject 2, I would get traditional or private financing if I still wanted to go forward.

My interest is in soley seeing that buyer completes the contract. This puts everbiody in the best possible position. I have zero interest in having someone default. I have been known to be fairly creative in solving problems.

@ Bill Gulley

I seemed to have set you off quite a bit with my post. Not sure if I should have explained it a bit different, but I dont think your public trashing of me was warranted.

1st of all, there is nothing wrong with buying a property via subject 2 that was distressed (They were leaving the state and didnt want the headache and or payment) and so I negotiated a below market deal. When I said it was close to market value, I meant that I didnt pick it up at wholesale type numbers, but as you can see, there was some profit in it. It was worth every penny of 148k which is what I sold it for. Why, I know it has to appraise at any time within the 3 year lease and option that I gave them. As far as a declining balance, nope there wasnt a declining balance facilitating a disguised financing arrangement. The payments made up front were the non-refundable option fee. The 12K still owed to me is the difference from the price I sold it at. 148K, minus 2000, minus 5000, minus 12k still owed equals 129K that I bought it for.

You mentioned anything over 3 years is will give them an equitible interest. I know that the option fee, even though non refundable gives them this same equitible interest. My comment was about not writing in rent credits, rather you give the same amount that you would have given as rent credits, but do this a closing cost credits.  As far as the contract for deed. They are still done in Washington state and its the state it self that has no problem with them. I dont like them as there are better ways to solve that problem such as subject 2, its safer, but it was how this property was bought.

As for the due on sale clause, well we disclose it to the lender in a letter. We also send along a check explaining if they cash that check, or do not get back to us objecting to the transaction as a subject 2 with a reasonable time period (typically 30-45 days), this constitues acceptance on their part. This has not been a problem and has not been objected to as of yet. I personally dont want to end up in court against a large lender on the due on sale clause, so this solves this issue. As far as complying with the Dodd Frank laws, this deal was done before they became effective with the new changes put in place by the CFPB in January of this year. Besides, this is purely a lease and option of 3 years or less......This constitues landlord tenant law on the lease, and the option is just that, and option they can choose to exercise.

I'm not saying I know everything in the book, but I certainly do not ever do anything that comes anywhere close to not complying with the laws on the books. There is no need for that when a profit can be made legitimately.

Again, I feel either my explanantion was in need of better details, but I feel your characterization of me and my business is totally wrong and served to paint me in a bad light.

I essentially buy all my houses for 1.00 out of my pocket.........I know, I know, everybody is saying no way, but yes its true. I market for a motivated seller that will agree to sell to me on a subject 2 deal. I sit down with them and explain that I'm an investor and that I plan to resell the home via a lease option to my end buyer. I also tell them that I wont close on the transaction until I get my end buyer. They are okay with that or we wont go forward. So we sign the purchase agreement with typically 45-90 days to close. I also negotiate a reasonable down payment to them, along with a reasonable payment and total purchase price. Once all that is done, I just market for my end buyer asking for a larger option fee than my down to the seller, asking for 100-250 a month spread on the lease payment versus my mortgage payment, and last but not least (where most of the money is made) I want a larger purchase price than the price I'm paying for the home. The typical deal nets me about 30K over a 3 year period. I also get the depreciation write offs, and I have the repairs covered in the option as much as I can anyway.

Here are the actual numbers on one of my deals;

Bought for 129K, sold for 148k

Down was only 1.00 as they owed close to market value and were leaving the state. I collected 2232.00 up front from the buyer and another 5000.00 in 1 year.

My monthly payment is (still in the deal 2 years later) 985.00 and I charge 1445.00 per month. So to date we have made 18,732.00 and we are still owed about 12,000 when we get cashed out with their loan. We did our contract as a contract for deed, so there was no closing costs until we get paid off with the buyers loan. Typically we would pay the closing costs and be put on title, but the IRS still considers a contract for deed as a regular contract and so you can get depreciation and other writes offs as normal.

Typically, we want an even larger down, so we can transfer title to us, and we also put a min. of 3 months in reserve in the event that our Lease and Option buyer fails to complete the contract. If so, we get them out as quickly and cheaply as we can, then we turn around and do it all over again, collecting a new non-refundable option fee. We seperate the lease from the option, we dont pay rent credits, rather we give them closing cost credits. We do that so they cant take us to court and get a determination that they have equitable interest in the property even though they defaulted and they then get the equity gain since the time they entered into contract.

There are a few moving parts to it, but you would be surprised how many of these deals that you may be able to find. This works especially well if they are motivated, cant make payments or dont want to, and owe somewhere close to market value. The just use your negotiating skills and their motivations to put it all together.

Hey Wendell

If you are looking for a refi on a  1-4 unit, that would not be considered commercial which is what your describing up above. Any lender or broker can do a 1-4 unit purchase or refi. Most will only do up to 4 financed properties, some lenders will go up to 10 financed properties and some specialty lenders have no restrictions on the number of financed properties. Commercial is treated totally differently and has different guidelines. You need to understand what your wanting to accomplish 1st, is it residential or commercial, and then chase down the lender that has the program that meets your goals.

Having previously been a lender for 18 years, but I have been out of the market the last 3 years, the one thing that stands out to me is the rates. They are doing these as commercial which is fine, but are you truly going to get 5-7% on fully amortized commercial rates? Seems a little bit low to me. The only way this could be is if they are an "A" Grade commercial lender, even then it seems low?

Here is a place to start shopping around for a lender.

http://www.scotsmanguide.com/

Having been both a mortgage banker for 18 years as well as an insurance agent for 3.5 years, I can tell you, the lender has the right to require you to have coverages that secure their collateral. Typically this is seen on the flood insurance front, and typically its the initial lender that makes all the requests. In this case, because the existing lender has these clauses (which are standard in most all loans) they are taking a harder stance than other lenders. They basically dont want to take a chance with their collateral, and the clause allows them to do that.

That said, I would definatley look at refinancing. There are many good lenders that will do a full 20-30 Amortization on apartments (Find a good broker that does commercial). If you are required to have the earthquake insurance, I would give Ryan Schopp (shown above) a call. I have personally worked with him over the last 2 1/2 years, he's got excellent knowledge, and excellent products.

Just my 2 cents.

Oops, forgot one other point?

Another reason to consider an LLC is to seperate the type of business that you may be doing. What I mean by that, is you might just be planning on buying and holding properties as rentals for 1 year or more at this time. Thats fine. But if down the road, you plan on flipping properties, and your doing it all through the same LLC, the IRS is now going to consider you a dealer, and if all properties and transactions went through the same LLC, then the dealer status applys to all your transactions regardless. You pay a much higher rate if you are classified a dealer. So with that in mind, again I would choose the LLC route, and I would plan on splitting my different types of deals into different LLC's.

Just my 2 cents

@Alis B

I agree with some of the comments here, but there are a couple more things to consider. If your goal is to get residential rates and fees on your financing and not have to do an adjustable or a loan that recasts every 3, 5, or 7 years like a commercial loan does, then yes, you will need to buy the home in your personal name and then consider changing title to the LLC down the road.

However keep in mind that you are still personally liable for the loan at that point, and when you do make that change, it actually violates the Due On Sale clause in the loan. It would be up to the lender if they decide to take any action because of that violation, if they even find it to begin with. Typically it shows up to the lender when you make the change on your insurance policy and the insurance company sends them a notice.

As far as your insurance policy, I would recommend that you get pricing on 1 million in liability coverage on your primary policy, typically it is not that much more than the 300K costs, I would definatley follow that up with a min. of 1 million on an umbrella, because the umbrella gives you secondary coverage on all your properties, your vehicles, your rec. vehicles, some business pursuits, and possibley even liable and slander if you have those endorsements on your primary policy. Check with your agent.

As far as the LLC costing you more money than its worth, I dont agree. You can set up an LLC for just a couple hundred dollars, and it becomes an additional layer of protection for your personal assets, or any assets held outside that LLC. That may be important to you depending on how much you have in assets, and how many assets you will accumulate over the next 10-15 years.

There are also some tax advantages to owning an LLC that you dont get with personal holdings, check with your accountant.

Just my 2 cents.