All Forum Posts by: Saim Chaudhry

I am representing a client with a gas station for sale in CA - the sellers have a potential buyer that they want to do a deal with. It is both the real property and the business that are to be sold. There is one major issue with this gas station that turns potential buyers off - they have underground tanks for their gas that need to be replaced with "double walls" instead of the outdated "single wall" tanks by 2025 per CA law or face being shut down. That is a large cost to a new buyer, and that is the main reason it has not sold as a regular transaction since it has been on the market. 

Instead of buying outright, the potential buyer my sellers brought has offered to do a lease option. Purchase the business for 50K, lease option the real property for 600K with a 2.5 year lease term and $3,500/month payments to the sellers. 

I want to ask, what would be most beneficial and protective option for the sellers...a lease option, seller finance, wrap around/AIDT or something alternative? I am worried that in 2 years the optionee doesn't upgrade the tanks and therefore doesn't exercise their option to purchase. Or they don't exercise their option for any other reason. That would leave the sellers with a defunct gas station that will most likely be shut down by the county for not having double wall tanks at that time. 

The second thing that worries me is if the buyer defaults during the lease period or decides not to exercise the option, the 1st DOT which is an assumable SBA loan will affect the sellers negatively because they are not going to have the money to upgrade the tanks and put it back on the market, therefore the SBA lender will foreclose since there is no income coming in to cover the monthly payments.

The thing I DO like about the lease option vs seller finance is that the Real Property remains under their name, so no need to go through a foreclosure if worse comes to worst and the optionee defaults. 

Any feedback or suggestions appreciated!

Hi all

Doing some numbers on a deal and I have a few questions. The property I am looking at is 100% occupied, Class C 1970's construction. There is no RUBS in place, and rents are below market about $100-150. After renovation, rents can be increased an additional ~$100-150.

The plan is to renovate units & achieve the post rehab rents & have the property completely stabilized and performing at its peak within 3-5 years.

I'd like to ask the best way to implement RUBS and rent increases for a 5 year hold.
1. Should you do both at the same time? This way vacancies may increase and you can aggressively remodel and turn units, or should one be done after the other.
2. To implement RUBS - should you go straight for 75% to the tenants or increase quarter by qaurter, or year by year?
3. What is a "safe" number of units to renovate per year, is it a third, a quarter, or just go in as aggressive as possible to get the majority of them done in the first year? What is the best and most efficient way to balance?

And an off topic question on calculating vacancy during renovations for 40 units

Assuming 1/3rd of the units (13.3 units) renovated each year

15 days per renovation for each unit

40 units x 12 months = 480 unit-months per year

13.3 units/0.5 months = 6.65 unit months

6.65 unit months/480 total unit months = 0.0138

0.0138 x 100 = 1.38% vacancy?

Doesn't seem right - is my approach correct?

Thanks!

The guy is a scam - I invested 2,500 with him because I was looking to learn about apartments and he was a fast talker. Once I called him out on everything he claimed - he tried flipping the switch and posting craigslist ads about me and how I was the scammer. What a joke - I wasn't the one "mentoring" people for money. It sickens me that he's still out there and now targetting out of state people. From his fake $11,000,000 "proof of funds" from Edward Jones to his fake checks. By the way Edward Jones in Elk Grove was alerted to his shenanigans and they confirmed he had no such account with them and were looking into possible legal action against him for fraudulently using their name and claiming he had an account with them. I demanded a refund and he said he paid me back 500, but couldn't come up with the rest. I still have all the emails and correspondence to prove everything. I could post up everything if I really wanted to go after the guy, but theirs no point of further embarrassing him as he is doing that quite well himself. Its just annoying that he's in my backyard in Sacramento and taking advantage of people's hard earned money who might be brand new to real estate and looking to learn. 

Ask him for specifics on any deals he has done - any properties he owns - he will push the subject away and divert attention however he can. He is a fast talker, but has no real experience. His claims of buying houses and flipping them and wholesaling apartments, syndicating big deals, having a large pool of private money and big buyers, its all a sham. Ask him for specific addresses of deals he has done, or put under contract himself. If he gives you any - look it all up through public records to verify his claims. Do your own due diligence and you will see for yourself. I could go on and on about all the lies and the red flags that eventually made me realize. I guess I should have been smarter and it's my own fault for not doing my due diligence and it was an expensive mistake. 

I'm not an attorney but the investor that is taking the lead on this project has attorneys that handle these type of cases. The property is residential. 

As far as funding the second mortgage, that would be the default amount to catch up the first note

Thank you for your insight, definitely helpful 

I have a property in Sacramento I am looking for ideas on how to handle the owners situation

Owner purchased and developed a lot of 6 homes, lives in one, sold the others, lease optioned one of them right next to his house in 2009. Consideration was catching up the mortgage which was ~30K in default. The optionee and his wife are both attorneys, signed a lease option contract stating they would take care of all principal, interest, taxes and insurance, and catch up the default. The option period was for 15 months, with an option to extend for another 15 months if optionee was unable to get financing in a reasonable amount of time. Option price was $850K. The optionee was added on title and this is where the problem begins. Optionee is unable to obtain financing since he had a foreclosure in 2013 and has multiple judgements against him. He is also in default of his lease option contract a long time ago. 

Optionee has paid 50+ late payments, essentially ruining the owners credit. Property is currently in default since April for ~$80K. Optionee now lives in the property for free, not making any payments and threatened owner if he did anything to pursue, he would come legally "take him down." The current loan amount, estimated is $780K. Property currently comps at about $980K . The owner was planning on letting the property go & get foreclosed and not pursuing any course of action. He had spent money on attorneys the past 3 years, but none were a big help. In fact, the advice he received was to just let it go into foreclosure and not litigate since the tenant is also an attorney....

Now, I already have a local investor with much more experience in these advanced problem solving techniques taking the lead on this one. I wanted to see other investors' input on different solutions. The problem being that there is a title dispute. He could either:

A.) deed the property over to us for a small consideration ($1000), we would then litigate, case is pretty clear cut as everything spelled out in the lease option contract is in owners favor, evict and eject the tenants and possibly claim damages for ruining owners credit. Owner could also do this by himself instead of deeding the property to us but weary about paying more attorney fees 

B.) Have the owner deed the entire property over to the current tenant, have the current tenant catch up the default if he agrees since he will now be more vested in the property, create a 2nd deed of trust payable to the owner, bridging the gap between what is owed on the property and its current value. If owner defaults this time, foreclose him out 

Hi all,

I am looking to purchase my first rental property in my local market (Sacramento, Stockton, Lodi). However, I am unable to qualify for any bank financing as my credit score is in recovery. I was financially irresponsible when I turned 18 and opened credit lines which I was late on paying. It will definitely take a while (a year to 2 years) for my credit to be acceptable. I have been much more responsible and learned the importance of credit through this journey and won't be making the same mistakes.

My goal is to purchase 2 investment properties by the end of this year. I will have about $50,000 capital to work with. I am posting to see if anyone has any experience, or any pointers, or even any leads on any local owners of any property in my marketplace that would be willing to sell based on owner financing terms. My goal would be to owner finance an investment property. I would like the most bang for my buck and would love a duplex or any other multi-unit property, the more units the better in my opinion, especially if it is over 5 units so that I can add value to the property by increasing its NOI and trading up by doing a 1031 exchange or refinancing and expanding, versus just purchasing a single family residence with a single tenant.

The terms I would be looking for would be a seller financed property with possibly 10-15% down. For example: If I was to purchase a $299,000 4 unit property and put down 15%, that would be $44,850, most of my money in which case I probably would only be able to purchase one property this year and not 2. However, I would be OK with this since it is multiple units. I am prepared for C and D class areas so long as the property has a strong rental history and I can find a property owner who is willing to sell with acceptable terms for both of us. The terms I am prepared for is paying a higher interest rate to the seller (6-8% or even 10-12% if the numbers can still work out). Turn key would be best since it is my first property and I would not have the rehab experience or money. Also thought about possibly doing a JV to have more buying power for an investment property. I would like the loan amortized over 30 years but am prepared for it to be due in 1-2 years, at which point I could refinance and be qualified for financing.

I would like to get some thoughts. Is this a bad idea for my first investment? Is there anything I need to be specially weary of, such as the due on sale clause if someone is seller financing a property with a mortgage already on it? Is there a better use of my money with my goals and situation? 

Cash flow is most important for me at this point in my life. I would like to start building a small portfolio of investment properties and eventually exchange my way up to small to mid size apartments in a few years, rather than owning a bunch of single family homes. Would love to get some thoughts.

I am copying/pasting questions from 2 BP users in an article regarding lease options. The questions were unanswered and they are excellent questions, would appreciate someone to shed some light on these

1. Do you tell the seller/landlord that you are an investor and will be “subletting” the lease-option to a buyer of yours? What percentage of sellers/leads will generally be okay with this type of transaction (assuming they are okay with the LO in the first place)?

2. How do you generally structure the option with the seller and your buyer? How long of an option time frame? How much option money do you pay to the seller (in option fee) and how much do you collect from the buyer? Etc…

3. Will you sign the lease-option with the seller before you have a buyer? Or do you like to have a buyer lined up first?

4. What happens if the buyer forfeits his option? Do you generally renew the option with the seller or just let it expire? Will you ever purchase the property and then flip it in these cases?

5. Who pays the home insurance during the lease option? Property tax? 

i get properties in San Francisco, greater bay area and mostly sacramento . if they don't fit my criteria I usually wholesale them to other investors. What are you looking for exactly? Shoot me a message 

First things first make sure you have property type SFR selected. Then, you want to make sure you have only absentee owned selected. For equity, you can specify equity % which would be the most effective for what you are looking for. And finally, last market sale date would probably be your safest bet to weed out anyone that has purchased the property in the last x amount of years. I wouldn't worry about the mortgage tab at this point.

Other possible niches you may think about marketing to are properties that are absentee owned and have a notice of default. And a 3rd property type may be absentee owners that are free and clear. The possibilities are endless. Happy hunting!

Thanks J! I got a good laugh at the tax bit, but its really a great idea