All Forum Posts by: Rob Green

To give you the best answer, it would be helpful to know the following:

1. What is your strategy with the property?

2. What is the LTV for the current value and the ARV?

Thanks!

I'm also very interested. Was a time, date and location decided on?

It's been my experience that if someone can pay off their bills, but won't, you'll never get them to pay.

Just because he's drawing a large salary, does not make him a good credit risk for you. If he's not paying his personal bills even though his able to, it's not unlikely that his business is following the same pattern. If one of his businesses' creditors get a judgment against him, they could get a writ of execution and drain his company's bank account. 

 If his personal creditors start filing judgments against him, and he skips out on rent too, you'll likely have to go through an eviction process. You could and end up spending more money in legal fees to evict him, than what you would have had to pay to cover your vacancy for awhile. 

I'd recommend moving on to another prospective tenant.

Even though you may have legal grounds to keep a portion of the money, the headache you will receive will likely outweigh what money you keep. IMO, it's usually best to put up some more ads, and give back the money and move on.

I think it really depends on the value this partner is providing you, not just what percentage of the money he's providing. However, a bigger concern in my mind is the risk exposure and who is bearing the bulk of it. From what you've described, it sounds like you are the one taking most of the risk. Especially if the holding period is 10 years and the silent partner has no risk other than the down payment.

If this is a deal that is entirely undoable without the down payment money from this exact person, it may be better to get 50% of something rather than 100% of nothing.  But, if it's still possible, I'd suggest shopping around for other sources for the down payment. If you find one, you can negotiate better terms with them, or with the original investor. If not, you still have a deal that you have potential profit from.

Well done! Keep us posted on how round 2 goes.

In most states, if the seller has listed the property with an agent, they likely have signed an exclusive right to sell contract. These contracts historically transfer the entire right to sell the property to agent. And, there is usually a clause that specifies that if ANYONE who expresses interest in the property during the time of the listing period ends up purchasing the property, a commission is owed to the agent; even if the agent wasn't the one that introduced said buyer to the property (which is what seems to have happened here). 

You may want to check and see what type of listing agreement the seller has with the agent and see if this is indeed the case.

However, if the seller reserved the right to sell the home in addition to the agent being able to sell the home, then you may have some leeway. It's usually called the "Exclusions" clause of the listing agreement. If this is the case, then you have a few more options.

It sounds like, in your case, the seller has delegated all sales issues over to the agent, since the agent called you after you contacted the seller. If the seller did sign an exclusive right to sell listing agreement, I'd suggest that you keep the home on your list and check on it again once the listing has expired. Others might have a different opinion. But, I've found that a litigious agent could come back and foul up any transaction. I've seen some agents put a lien on a home claiming a commission was owed. It caused lots of problems for everyone involved.

Find out what kind of contract the seller has with the agent before you make your move.

I'd recommend that you ask the seller to review their tax filings regarding the properties for the last couple of years. That can give you a better understanding of what the maintenance expenses actually might be. Regarding the vacancy rate, reviewing the seller's tax filings will also be helpful for you. Additionally, you can contact a local property manager and ask them what average vacancy rates are for your area.

I'd also recommend creating a recurring capital expenditures budget amount to set aside each month to hedge agains upcoming replacements for major items like roof, furnaces etc.

I'd recommend you visit with @Brian Gibbons about some advanced options regarding doing a JV with the seller. He's a bright guy when it comes to these situations.

Thanks @Brian Gibbons for the wealth of info you have shared on BP!