All Forum Posts by: Ronald Allen Barney

It's helpful to understand the nature of the market's cooling.  What has happened is that owner-occupiers who were in a huge mosh pit earlier this year outbidding each other for homes got themselves under contract and found out the hard way that the bank appraisal came well short of the bid-up price and they didn't have the cash to cover the difference.  Some of those have recycled back into the market with a lower price range but still with loan contingencies, and some have given up and gone the rental route for housing.  Some, a smaller segment, are cash-rich but picky on condition and location of the property.

New construction inventory is down 20%, some hoovered off the market by big capital groups, and in some cases the builders refusing to build under extremely gouged prices for materials (e.g., Canadian lumber).

To get all cash, which some investors are willing to do, especially some of the more established flippers or BRRRR-nauts, it'll be more of a sure thing going with an agent as stated above. If you FSBO you will get a number of characters banging on your door that in hindsight you'll wish you could have sent to an agent instead of having to say no to 30% off asking lowballs all day.

It can be a different address.  Most banks just want it to be a mailable address where you can receive correspondence although different banks may have different policies.  Some won't take a PO box.

Because HELOC is a sort of "right sized" loan where you only borrow what you need, it's ideally suited to rehab projects that can hit you with surprises along the way. It's there if you need it, and if you don't it stays where it's at. If you find your rehab costs for BRRRR highly predictable because of your rehab know-how you might want to cash out refi just a smidge more than you think you'll need and let the rest of the equity build up for future cash outs.

Couple of reality checks. First, the term "Percent down payment" is misleading on the part of mortgage lenders. It's really the reverse percentage of the so-called "down payment" as a Loan to Value (LTV) percentage. The "Value" in LTV is APPRAISED value, not the asking price or sale price. In a hot market where buyers bid war prices to above asking, so many buyers have been shot down by the banks telling them the property appraised at significantly less than asking, got told a cash amount they needed to make up the difference, and they couldn't afford that cash requirement. Sellers get pissed off because all that time was wasted, and obviously buyers were pissed off because they got misled about "down payment" percentage.

Second reality check.  Account for minimum $10k in closing costs.  It sounds like a lot but you wouldn't believe the fees that get piled on at closing.

Third reality check.  "House Hacking" is now such a fad that those MFH with one open unit fly off the market even faster than the shiny object dream homes for owner-occupiers these days.  It's like finding a unicorn on the head of a needle buried in a haystack.

Targeting the specific question about cash reserve:  ask the seller about deferred maintenance, the age of the roof, and the age of the mechanicals.  Look for sagging beams or signs of a sinking foundation.  If it looks pretty clean as far as the big pieces go you can build up your major maintenance cash reserve later.  If there are issues that you know you'll have to address early on, give the seller a lowball based on those issues.  If some eager other buyer snatches a property with issues like that, they just "won" a time bomb.  Walk on.

In most people's cases starting out with no cash is going to make it near-impossible to invest, however, being a realtor puts you in a special position to be able to find deals for other investors, and part of your routine realtor's day can be combing the MLS for its hidden gems. You probably know the ones I'm talking about, where the listing agent was dumb and put wrong data in there so it ended up in the wrong search template (and he's wondering why it's sat on the market for 40 days now), properties like that. You can also find sellers willing to sell off-market at a discount for a faster easier process. Those kinds of deals you can find for investors that have cash to put into them, and in lieu of a flat finders fee or a commission, you might be able to negotiate a percentage of equity on the deal. In that way you just "invested" (your time and skill in this case) to get a piece of someone else's door(s).

Numbers numbers numbers.

ARV rent of $850 gets you to total income of $2550. Getting to ARV is probably required to have any rental income at all so consider it an all in rehab and rent, or sell/1031 to learn your lesson and move on.

Selling versus hold and refi are a wash at near-0 since it's a new purchase.  No equity to compare.

Cash outlay to hold is estimated at $40k. Cash flow is not known for sure but I would take a wild stab and say the mortgage on $155k and some default cost percentages would put your cash flow at $750/month total at ARV. Your cash on cash return to rehab and hold would be 22%. Barring something insane like the Russian mob having a war in your neighborhood I would definitely do the rehab, get better renters, and hang on.

Put yourself in the shoes of a renter.  Do you want to be in a high crime area?  No.  Avoid that.  Do you want to be near shopping, restaurants, and amenities?  Sure thing.  It's nice to have.  Do you want to be close to work or public transit?  Probably.

That gets location out of the way.  The rest focuses on the individual deal and if its numbers work.

Brand new garage door opener systems range from $120 to $1100 depending on the bells and whistles that come with them, and they support a huge variety of garage door designs.  It would blow me away if not a single one of the opener units out there could support the way your garage was designed, a situation that would have taken skill by an evil architect to make a future homeowner's life more miserable.

But if it's true about the garage door not being rent ready based on a core design issue, get a couple of different quotes from contractors for redesign where the door can be automated.  $80k sounds pretty high to me even to tear-down-rebuild, which is probably an excessive approach just to make parts align right.

The dividing line between owner-occupiers and investors in buying and selling decisions is the investor approach is the numbers.  If the numbers bake out good but negative emotions get in the way, take the negative emotions out back for a beat down session and get back to the table.  If the numbers look bad but the emotions want to cling to a money-loser, do the same.  In your case the numbers are not yet nailed down, but once they are, let those numbers (and remote property management figured into those numbers at 10% of rent) make the decision.

With the eviction moratorium you definitely have to verify the tenants are paying.  If they are there non-evicted that might mean they just couldn't be evicted at the moment.  Although this is a sellers market for the owner-occupier space with crazy offers being made above asking price by people who buy on emotion rather than numbers, landlord burnout is at an all-time high due to government imposing its will and saying investors need to pay for the "won't work for money and won't pay for housing" lifestyle.  And if you buy into bad tenants that next burnt-out landlord might be you.

Reviewing financials was mentioned, and one thing to add there:  if the property was self-managed and they don't show as paying themselves for the management, that will throw the numbers off.  Unless you want to fix backed up toilets at 2 a.m., you'll be doing the smart thing and hiring a property manager, even if tenants aren't paying because it's not for their sake but for the sake of the property and for you.

Generally, tenants have two to three years to file in Small Claims Court against their landlords. Lawsuits involving contract violations have a six year statute of limitations. I think your decision is between keeping an LLC alive and paying basic fees on it (e.g. registrar), versus exposure to small claims for 3 years or contract breach for 6. It's an interesting decision because it's very little cost on one side versus very little risk on the other, as long as you re-review the contract and make sure you did nothing to breach it.

I suppose the deciding factor for me would be the wave of landlord hate that's sweeping the pop culture right now, which may inspire some former tenant shenanigans. So I guess if it were me I'd hang onto the LLC. Give it $1 of assets for them to attack if they draw their six-guns.