All Forum Posts by: Sergey A. Petrov

Quote from @Michael Baum:

@Sergey A. Petrov, if it is state or federal land lease, even if you have 50 years left on a 99 year lease, they can cancel it at anytime. Almost all the land leases I was talking about were multi year leases that we simply canceled with notice by the government.

Well that doesn’t sound good! My only exposure to leasehold was with a private party. A family has owned several plots of land for 100+ years. It was multi unit complexes that were built on it. Going off very vague memory but believe that same family built and sold but kept the land. Do not remember if it was cancelable before expiration/ renewal. Suppose the moral of the story is either proceed with caution and really really know what you are getting into and what your exit strategy might should the lease be cancelled or walk away! Thanks for the insights!

I am narrowly focusing on your 2nd house as it doesn't sound like there is much you could pull out from your primary home - $375k owed / $510k value is about 74%. If your W2 income & credit allow and you are lucky to find a lender to give you a HELOC you might be able to pull $25k or so. I'd start here but it might not be doable.

Now onto my main thought. I wouldn’t sell the second house. $60k for “some roof and floor work” sounds excessive if the damages are minor. I suspect the damages are major if you can’t even meet lending requirements. Do you HAVE to spend $60k. Can you do something less drastic for say $10-$15k to make it habitable and livable and meeting lending requirements?

Once the basic repairs are done, I would maybe look for a handy tenant at a reduced rent (I am making a wild assumption that you don’t feel you are capable / too busy with kids, work, life). Would not typically suggest this route but trying to get creative. If the repairs are such that permits aren’t required (no re-plumb, rewire, moving of the walls, no structural, major exterior, etc) you might be ok accepting the risk of your tenant screwing something up. Or everything just might turn out great. The tenant gets a reduced rental rate and you get their “sweat equity”. 

Once habitable, livable, insurable, and generating revenue as little as that might be, it’ll be a whole lot easier to do a cash out refi that you can use on your next investment.

Depending on the quality of the tenant you get (the one that gives you that sweat equity), I’d let them stay long term. And if they are handy and do a good job, they could be your most trusted and best repair person for your other investments and minor projects. A mutually beneficial relationship could be built here…

I would guess all that would likely take you 12-18 months to accomplish. Selling is easier (and you can sell anytime after you undertake the above journey) but do you think the proceeds from the sale TODAY would put you in the same position in the same timeframe? You’ll already have a rental with built in equity, hopefully a contractor for all your little projects, and some cash to move onto your next project.

Again, I typically recommend against all of the above and the mixing of business and landlord-tenant relationships so grasping at straws here but starting out can be tough without some cash…this just might get you to that launchpad in under 2 years.

Check your condo docs. There should be some language there as to what happens in these situations. The owner below may have sole responsibility for the repairs (so long as you weren’t negligent) even if the alleged damages originated from your unit. I know it sucks to hear that but imagine the same thing happening to you, assuming there is another condo above yours, and the condo owner above actually showing you that language - you’d have to fix your own unit, file a claim with your own insurance company, etc. 

or assume you own a single family home and a tree that is on city property falls on your house - do you call the city to fix your house or your own insurance company?

These are common issues that arise in associations and each is its own beast depending on what the docs say…

Quote from @Rosell Kal:

My purchase price will be $640K and the current price for the same model is $670K that the build sold recently. 

If I walk away, I have to let go $7K.

Can you assign the contract to someone else at say $660k? You make $20k without taking possession and the buyer saves $10k on the purchase. Or some other middle ground that works for everybody. You just need to find the buyer.

The cleanest way is to treat it as if someone else was the "purchaser / owner" and you and your partner are simply employed by that party. Someone brings cash, someone brings construction labor, someone brings professional labor. What are the reasonable rates for each party? If you were that third party owner / purchaser, would you hire the same team at the same rates? Granted you ARE that third party but take a step back and think about it if you weren't. Capital in (labor, materials, cash, or otherwise) determines your share. Ultimate proceeds once liquidated are split based on those percentages. Assuming you are buying under an LLC, you should bill the LLC for the actual expenses / rates. The LLC could pay as bulls are received or once the property is sold. Once all the expenses are accounted for what is left is the gain that would be split based on your contributions. Makes sense? Just a thought…

Knob and tube wiring anybody? Insurance companies love those!

Just takes time to build a team you trust! A good friend of mine bought a decent chunk of land in Hawaii (they are not in Hawaii nor have spent any quality time there before the purchase). Went through several contractors, lost money on deposits / work not being done on time (or at all) before they found a trustworthy one who eventually built their house. An expensive way to learn and create that network of trusted professionals. Talk to locals, find a good one you trust and can work with and chop it up to lessons learned. I’d still send a notice of default / opportunity to cure letters to the prior contractors and consider legal action…

What is the value of the property today vs when you signed? With new construction and PSAs being signed months or years before actual closing, you might be ahead of the market. A short term pain in terms of the impact of the increased interest might be worth it. But if the values dropped in addition to putting you into a negative cash flow position you might want to back out. What is the cancellation clause like? Run the numbers, that’ll tell you!

That is interesting! I’ve managed leaseholds but never actually went through the process of negotiating a lease renewal or faced a non-renewal. Would love to hear more from those that went through that. Is buying a leasehold property still a safe bet if the land lease is good for another say 50 years or does it start depreciating the closer you get to the renewal / expiration?

Quote from @Chaim Tarkieltaub:

Thanks for the valuable info and perspective!

Regarding #3 I had a management company run the property and and they said it is standard to charge a daily pool heat fee. It sounded petty to me as well, but once I started seeing the bills it made sense (some months the gas bill runs more than $1,000). I wonder if it is indeed standard to charge for pool heat in the Orlando area, and if not is a 1k/ month gas bill something you just eat as part of doing business?

Go with what your management company tells you is standard practice in your area. And, yes, if you are converting LTR to STR (or owner occupied to STR) expect a significant spike in all utilities across the board, pool or no pool :)