All Forum Posts by: Reece Teramoto

@Tom Gimer Yes, there are two title companies involved. The original one that the seller has chosen brought up the title issues, so they've reached back to the title company that had insured the title on a past sale of the property. The old title company is willing to provide a letter of indemnity to the new title company. I will admit that I don't completely understand the policy setup that you're describing, but does that setup only allow for additional protection in the case of a future claim? 

The main concern I have is my future ability to sell the property and my future ability to refinance the property. It seems like the only way to ease those concerns is simply require a clear title as @Charlie MacPherson mentioned, which sounds expensive / time consuming from the seller's end. Is this understanding correct? 

@Peter Walther, @Tom Gimer, @Account Closed--thanks so much for your replies! 

Just to clarify, yes, the title company is offering to insure with full recognition of the other interests. The insured amount will be high enough such that reasonable appreciation, both forced and organic over the years, should still be less than the policy amount.

Peter, you're right about this title company providing insurance for this property in a past sale, which is why they are willing to do this again. 

The title company is likely willing to do issue a policy because they think there is a very small chance any person with interest in the property comes forward. 

However, the bigger concern that I have is the refinancing/selling process. I do plan to refinance this property after rehabbing, and I don't plan on holding it forever--likely 5-7 years. I'd hate to have this prevent me from refinancing or making it more difficult to sell. 

I'm definitely leaning towards requiring a clear title as Charlie mentioned.

As another update on this, the title company that's willing to provide insurance (that's handled the past sale of this property) is also able to provide a letter of imdemnity to the title company that's currently assisting with the closing. 

Do any of you know whether a letter of indemnity would help clear up the title or provide any additional reassurance? 

Thanks for all of your advice! 

I have a property under contract. We just found out that the title isn't clear, there are other individuals that have vested interests that total a 44% ownership. These individuals were gifted their interests around 4 decades ago, so it's likely they're no longer around, perhaps they've left it to their kids/grandkids. 

Regardless of this, the title company is still willing to provide me with owner's title insurance that should cover the appraised value of the property. The title company is willing to do this because there's a very negligible chance that anyone with vested interest wins a claim to the property. 

So my question is this: the title of this property is definitely a bit sketchy, and I feel like it would normally be hard to obtain title insurance. If the title company is willing to provide insurance while knowing there are still vested interests in the property that total 44%, can I still rest easy with this deal knowing that the insurance policy will cover me in the case of a (very unlikely) future claim? 

I've searched through the forums and it seems like most others that are dealing with a cloudy title are mainly concerned with not being able to obtain title insurance because of it. But if I'm able to obtain title insurance, can I rest easy? Will this make resale in the future more difficult, or is it ok since I know that this title company will be able to insure in the future, too? 

For a particular lender that I'm working with, they are requiring me to pay rehab funds at closing so that there's a better paper trail of the funds. However, my current issue is figuring out how to disperse the funds to the contractor at regular draws. 

I'm currently working with a title company that's willing to accept extra funds for rehab at closing, then immediately pay those out to an account, such as the contractor. This is fine if I plan to pay the contractor in full upfront, but since this will be my first time working with this particular contractor, I'd rather pay in 25% draws. 

The title company isn't able to hold onto any funds after closing, so I'm wondering if there are any options for sending those funds to some other holding account (which can't be in my personal name per lender requirements). Has anyone done this before or does anyone have ideas?

Here's how the money needs to flow--

Prior to closing: Purchase price + rehab costs paid to Title Company X

At closing: Title Company X distributes purchase price to seller, distributes rehab costs to account Y. "Account Y" can be any account that isn't my personal account.

In the above, what are my options for "Account Y" besides just having it be the contractor's account? Maybe some account set up by my property manager / agent to hold the funds and distribute them to the contractor in draws? Ideally I'd also like to not pay too much to have the money held. 

Hopefully I've explained things clearly! 

Summary: For those with a W-2 job but that own 1 or 2 rental properties, are there any expenses that you declare that aren't to one specific property, but are meant to support / grow your real estate investing in general?

A bit more of an explanation...

I've been reading a bit about taxes lately ("The Book on Tax Strategies" by Amanda Han and Matthew MacFarland was a surprisingly interesting read), but one part that I'm a bit confused on is when one can begin to take advantage of the non-obvious deductions for rental properties. 

I have a W-2 job but am currently closing on my first property in the next month and plan to add 1 or 2 more to my portfolio by the end of this year. All properties will be out-of-state. 

Besides the standard deductions like depreciation and mortgage interest, there are other more business-like expenses that contribute to the growth of one's real estate portfolio. Some examples:

• Using a home office for communications with my property manager, agent, etc.
• Attending a real estate conference or training

I've been reading on various forums that REI at this level (just owning a few properties on the side but having a W-2 job) is considered an investment and not a business, so the types of deductions mentioned above wouldn't apply. But others seem to say the opposite.

Does anyone who owns a few properties (not in any business entity) while having a W-2 job take advantage of deductions like the ones mentioned above? 

Thank you for the insight, @Aaron W. and @Ari Hadar! I think I will be taking @Aaron W.'s advice and finding an experienced agent / property manager that's able to give good ballpark estimates that can be used to make the initial offer, then have a contractor join during the inspection, using the inspection contingency to back out if there was anything large and unexpected comes up. 

I've read David's great book on long distance real estate investing, but there was a catch-22 that I couldn't quite figure out. It comes down to finding a contractor vs making an offer on a property.

Here are two of takeaways from David's book:

1. To find a good contractor, start off with a couple of them, have them each submit an itemized list of rehab line items for your property
2. A good rule-of-thumb for analyzing properties (with the BRRRR method) is the following formula: (Purchase Price + Rehab Costs) * 0.75 < ARV

How does one go about doing both? It seems that in order to make an offer on a property, you'll already need to know the rehab costs, meaning you've already settled on a contractor. In order to have multiple contractors submit an itemized rehab list, you'll already need to have secured the property. If either of these statements are incorrect, please let me know. 

So for someone just starting off with long distance real estate investing, it seems like the best option would be to find a property that seems like it could be BRRRR'd, have multiple contractors do a walk-through and give you an itemized rehab list, then based on the their costs, figure out what can be offered for the property for the numbers to make sense. However, if you have a list of contractors, it seems like this process might take a while (or maybe you can have all contractors visit on the same day and submit itemized bids--please let me know if this has been the case for you!).

After all contractors get back to you with their bids, I envision one of the following scenarios happening:

1. It's taken too long and the seller of the property has chosen another offer. 
2. You've determined that the rehab costs will be too high and it doesn't make sense to purchase this property unless you make a much lower offer that might not be accepted.

In both of those scenarios, would I would risk severing ties since in both of the scenarios, I'd have to find another property and repeat the process with all contractors? Or are contractors used to putting in bids and then having the investor not close on the property, but then asking them to submit a bid for another property? 

I mainly want to make sure I can find a good contractor but still be respectful of everyone's time. If anyone could provide guidance on the ordering of how one can go about finding a contractor but also putting an offer on a property, please let me know! Any advice would be greatly appreciated!