All Forum Posts by: Burt L.

I'm in an awkward position with a family member who has offered to buy my 1/12 interest in a partnership that owns underlying real estate appraised 5 months ago. 

My grandather left the property to his 4 kids and 8 grandchildren equally. The 4 kids visit the property once per year and the grandkids almost never visit the property as it doesn't have the same attachment. I have been once in my life at age 12.  The partnership was formed 30 years ago. 

In a sense, myself and my cousins are financing the use of the property by the previous generation. It is in a remote location and the previous generaton would like to keep this  arrangement for as long as they remain. I'm no longer able to travel to it, even if I wanted to. 

I've been offered approximately 60% of the shares value - if I accept the offerors appraisal as the market value. I suspect appraisals can  be somewhat influenced by the person purchasing the appraisal, especially if there is no sales contract involved. 

The family member insists on a lack of marketablily discount, etc. I could see that more easily if it was an arms-length transaction rather than a purchase and sale between family members. There is no mention of discounts either in the appraisal or in the partnership agreement. Quite honestly I find the matter of taking a discount insulting between family members. 

The same family member wants to have the partnership agreement redrafted and needs unanimous approval to do so. I am the only person who has not provided an answer after receiving and decling the 60% offer though the other 11 members are alright with a "restated partnership agreement".

The person making the offer is quite well-off  whereas I am not and also have a sense of being taken advantage of in that respect as well. This family member has paid quite a bit in legal fees so far in anticipation of re-writing the agreement which will be lost if there is no restated partnership agreement. If I were to sell, the rest could then do as they please to redraft th ie agreement. 

So I'm stuck in a PS I don't care to be in, or take what I consider a low-ball offer from a family member.I don't think an Action for Partition would be great as the property is sold on the courthouse steps, so to speak. If I refuse to go along with redrafing the PS agreement, I presume the old agreement continues and I'm still where I am. The PS agreement doesn't specify, but few wise persons outside the PS would want to buy the share at above 60% of value either. The partnership was recorded in my deceased grandfathers state of residence, Connecticut, and the property is in New Brunswick. Its doubtful I'll ever visit it again. 

What might the greater BP community suggest? Its certainly a better community than the PS I'm a part of!

Hello BP Nation - the thread title says most of it. I"m in Colorado and a business mailing address and the name of the person filing the annual report are required as is probably the case in most states. I two LLC's are for two multi-families owned and another for my operating business.

If I file the annual report myself then I am identified as the likely owner along with my address. One is not supposed to use a UPS or USPS mailbox. as the business address of the LLC though I believe some people do that anyway.

If papers are served to the business address then of course I have to respond and there doesn't appear to  be any benefit in making it harder to serve papers as thats legal notice of service anyway. Keeping your personal information personal would seem to be beneficial for other snoopy persons who could create other problems. 

I understand there are Registered Agent services available as well. I had my attoney form the LLC's but she is retiring soon. What might I be missing in the Annual Reporting Matter and/or how can this be handled better? I am up against a deadline for a late filing penalty but at $50 (used to be $100) thats not the end of the world.

Thank you. 

Caution- much info ahead; I needed a pen myself!

I much appreciate the replies. I considered the deceased a friend and hadn't yet had someone this close die. To clarify my initial post:

A) I remain the owner of the 4-plex I bought on owner-carry from the deceased. B) I was his landlord for 9 months after the sale as he rented back the same unit he lived in at the time of the sale for those 9 months after the sale. C) He died living in another landlords rental, where he lived for 3 years after moving out of the unit he rented from me. D) His daughter is the sole heir, though she hasn't begun the probate process. E) The sales contract specified at the time of my purchase that if he passed payments are to go his daughter. Of course a sales contract doesn't transfer ownership of a note and there was no will. I have followed his request and sent the first payment of $4,200 to the daughter though probate hasn't been opened.

Many important subjects were mentioned in the responses to the first posting such as purchasing an option on a First Right of Refusal if the note is to be sold, or offering a discounted payoff instead. There was much chaos at the time of the deceased's passing and he was surrounded by unreliable people. I don't know if the original promissory note was preserved (I have a copy).

The sole heir/daughter hasn't started probate and I’m not sure she will if she's already receiving note payments and it was the sole asset - which raises many questions - such as whether assigning the deed of trust would be valid or insurable by title companies and likely would not be absent probate. However, I'm confident the note can't be sold before going through probate either. I don’t know if an option is valid if the personal representative of the estate hasn’t been established.

I'm not in a position to purchase the note or finance a discounted payoff for at least a few months as I'm in the midst of another 4-plex remodel about a mile away from the property this post focuses on. There would have to be a new mortgage on that property to pay off the daughter entirely and I don't currently qualify as I’m stretched too thin on remodeling this subsequent property.

At 5.5% the note on the property is looking better as interest rates are continuing to rise. Of course, even if the note is sold I can keep this 5.5% rate. So I'm making the payments to be consistent with what the daughter read on the purchase contract she got a copy of. I also don't want to set the matters about the note in motion currently though I know a beneficiary would prefer to have a lump-sum all at one time instead of payments as its similar to winning a lottery and the daughter isn’t particularly well-off. Her husband was certainly in a hurry to get the first payment to her.

The current loan balance is $700K. There is about 40-45% equity in the property now but I don’t look good on paper for lenders due to my cash position.

The earlier properties in one’s career can require walking a thinner, riskier line before a base of core assets are under an investors general belt. The subsequent 4-plex that I’m remodeling has me financially and physically pushed. The labor market is very difficult and I'm most of the labor force myself on the property. Interest rates are rising while I complete the project slower myself and its success is being squeezed more and more tightly. It began as a home-run deal based on interest rates just a month or two ago and hope I don’t rescue defeat from the jaws of victory on this second 4-plex.

I'm simply continuing the payments to the daughter for now – not making waves about probate or the interest component being taxable income and buying time in the belief I will receive credit for having made these payments – until I can get the second property completed and financed with a cash-out DSCR loan.

At some point I may have to say there will be no more payments to the daughter until I have her SSN and proof of being the Personal Representative so I can report the interest paid to the daughter and which may set a lot of things in motion like suddenly undertaking probate and shopping for a note-buyer.

So I’m not taking action on the first 4-plex that the post concerns currently, as I can’t meet competing offers on the note. I’m too financially exposed on the second property right now and know there likely will be issues with the promissory note upcoming as you’ve been kind enough to point out.

I'll certainly keep the suggestion made of writing a Right of First Refusal on selling of the underlying note into future owner-carry contracts in mind. I need to be sure that an assigned deed of trust is insurable by a title company also. Buying at a reduced payoff also works and I hadn’t considered that. As mentioned, I don’t know if the original promissory note was preserved by the now-deceased owner. He died 3 days after the police-raid on his subsequent rental house in which his roommates were arrested and his subsequent landlord cleaned out the house in short order afterwards to re-rent it.

Like a weary traveler who just wandered in - there is still "much to unpack" here.

I suspect you’ll let me know where I’ve made a mess of things again!

@Bob E.

@Tracy Z. Rewey

I've learned the individual who sold me a 4-plex on owner carry a few years passed away a month ago. The promissory note will transfer to his only child and he wasn't married. He was a fine, personable older fellow but had a habit of sneaking in persons not on a lease as he did with me when he was on a post-sale occupancy agreement for 9 months. He was a likable,  lonely guy though these were street-people he took in and who were of the worst character such as drug users. I evicted the first person he brought in and not him, but learned that person was replaced with a former daughter-in-law, who was also a user. 

His subsequent landlord of 3  years also learned about bringing in drug users after this fellows passing and stated to the daughter that he had damages of $20K and that the promissory note I now pay to the daughter has value and that he should pursue it for damages -  its the only remaining asset of the estate. I don't think he will as dealing with a tenants passing is difficult and I believe his damage  numbers were inflated as he did the fix himself over the the last month and can't bill for his time. He indicated he could pursue it but probably wouldn't, in my conversation with him. He had every reason to be upset. 

I had gone over to see why the April payment hadn't been deposited and saw the landlords note and number on the door - he had never called me to check references 3 years ago and I would have been in a difficult situation on what to say.  Apparently this fellow eventually died of shock after being handcuffed on a drug raid of the people he let in. He lived on life support 3 days and passed in the hospital. 

The current landlord brought up the subject of the promissory note being a salable asset to the sole heir, the deceased's daughter. I would like to buy the note as some point and believe it has more value to myself and can pay more than a note wholesaler offering a low price to her if/when she goes to shop it around. I may simply get a notification that the note has been sold though she hasn't started the Colorado process to become Personal Rep and he died without a will, but becoming the PR cab be done quite quickly here and she can sell the note without mention. 

I don't think she knows that about $3200 of the payment each month currently is taxable interest income to her -yet- but still a good income while the principle of $1K per month  isn't taxable. It was at 5.5% on a 30 year with a ballon at 20 years and all to go to her if he passed at anytime.  He insisted he didn't want to pay taxes on an outright sale or pay a Broker. He wanted it specified in the sales contract that that it was to go to her and she got  a copy of that contract. A sales contract doesn't transfer title of the note upon his passing, but she is the sole heir anyway. 

How can I approach this- I got some real headaches during his tenancy and would like to be the eventual buyer of the note rather than a note trader. I believe its worth more to me than to note wholesalers, etc. The sole heir could sell it in short order as its the sole asset though I see she's about to do quite well on the sale of her own house that is currently under contract. 

Apologies for mentioning the dramatic events in addition to the question about the note. That can cloud questions - its been a memorable week. 

I'm finishing up a small Condo Conversion in Denver on an existing 3 plex that can only be split using the Condo approach. It will be self-managed by the new owners. 

Getting back quotes for a Master Policy that just insures the walls and roof with the only common area being one sidewalk - plus General Liability Insurance- that make zero sense. Its much more than insuring the entire structure with an Umbrella policy for liability. Each owner will also have liability insurance. 

How can this be done better? It is adding a prohibitive amount to monthly HOA fees.

Hi again BP,

I have an associated thread inquiring about DSCR lenders and have contacted all those lenders mentioned by posters to that thread and much appreciate the contributions.

What I am learning is that Portfolio/Private lenders don't have to make the same disclosures that lenders who resell to Fannie/Freddie must  make. There doesn't seem to be a GFE, Good Faith Estimate or TIL, truth in lending statement required. I've already had a conversation with a lender whose rate has moved up 50 basis points in the few days since we last spoke after telling me his rates rarely move at all. 

As this area isn't so regulated, how does one actually receive the" benefit of their bargain" if after committing to a loan, the different figures begin to drift those those understood as the agreement?

I understand one should do a rate lock at the time of application but how is the Private Lender also locked into the agreement without the required disclosures that regulated lenders must comply with? It still seems to be wild-west like. 

Nobody wants to be in a 4-6 week process only to learn the terms have changed on your very largest rental expense - when you're down to the wire - but those changes won't be to the borrowers advantage. I have also read of people doing multiple-applications as something of a safeguard. Of course you have to pay for multiple appraisals at a high rate so that would be costly insurance yet still not very assuring. 

How do investors protect themselves on a DSCR loan?

BP Nation,

I keep reading again and again how important DSCR Loan Brokers are, but have been unable to find one by searching.

How can I find one - I'm in Colorado but know there are many national DSCR lenders.

The 4 unit property is a LT hold, with with Cash-out after the approaching completed fix. Where can I find these apparently elusive creatures? I also read of the conflict of multiple credit inquiries for a mortgage will hurt your FICO, or conversely that you can have many inquiries for the same item, within a 2-3 week period. Using a mortgage broker would also seem to keep credit inquiries down as a more pin-pointed application process. 

Thank you,

I've worked to follow the Info Template above:

I had a good year in 2017 and when time to pay the rest of the taxes in 2018 and after getting a call from a motivated seller, I instead made an installment agreement with the IRS and bought that initial Colorado 4-plex on owner-carry for $800K using that $50K earmarked for the IRS - for the down payment. I used credit cards to do the remodels and have high credit usage and which balances I still have, of about $80K. There are student loans of $60K, currently in government remission. 

I owe $717K on that owner carry, at 5.5%. If I were to split the side-byside fourplex into separate legal descriptions - townhomes - they would sell for $1.65M or a little more, but I intend to hold and assured the seller that I wouldn't sell and pay him and he get his whole tax bill with one whack. Due to the credit card balances my mid-score is a 680. This initial property cash flows $2500 per month. I am also behind on the property taxes as it seemed a relatively low interest rate compared to the credit cards. If this fourplex were sold as one legal description, then likely worth $1.2-1.3M as that is how a lender would value them in a combined (foolish) sale. The higher values as separate legal descriptions were clear from the outset. 

In addition to wholesaling, I also do condo-conversions, parcel reconfigurations, zone-lot amendments, and re-zonings for buyers on properties I have sold them or sometimes on properties I did not sell. My wholesaling has been slow since Covid.

This spring I bought a second Colorado wholesale 4-plex from myself on an estate deal for just $240K that had an appraised ARV of $850K and am rehabbing it and getting close to completion. I declined a six-figure wholesaling fee to instead take it down and rehab it, which is not my specialty. It will likely appraise at $900K now as the 4-plex immediately across the street just sold for $1M and was dated inside though larger but still 2 bedroom units. This property is nearly a total gut/floorplan changes but I have a HML and rehab budget this time and am under budget as doing much work myself with another fellow. I can use the amount that I'm under budget to pay the other's property taxes if needed, as I have access to the rest of the budget if not used on the rehab.

My self-employment in 2020 was low at only $16K absent depreciation add-back on the other property. It was only $35K pre add-back for 2021 and few liquid reserves so I'm told I need to do a DSCR loan. With the rehab and HML payoff I will be at $370K on a Take-Out Loan.

I would like to take more funds for a downpayment on the single-family rental I inhabit - on owner carry or then FHA/Conventional if not. I previously wholesaled the single family but have rented it for years sub-market but the owner wants it back to sell and its in the $400's now. Getting the take-out loan on this fourplex takes priority though, but I would like to do the single afterward if possible, even closing during 2021. Rents on this fourplex will be $6.5K per month and PITI at the 5 1/4 I was quoted with my mid-score leaves me at PITI of $3K.

So my LTV will only be 40-50% and my Debt Service Coverage Ratio will be a little over 2.

I have the IRS/state payments of $800 per month which don't appear on a credit report but do appear on bank statements and which I suspect would be loan fraud not to disclose, and the back property taxes and very high credit usage. A lender who quoted said its hard to get a DSCR loan without credit above 740 but that he had been able to find one. Perhaps he's trying to make it sound like he'e the only one who can get it done. But he doesn't know of the IRS/credit cards. I have no formal IRS lien but the installment agreement may be viewed the same. I don't contest the debt.

I would like to "buy this fourplex from myself" and not have to sell it and take the ST Cap Gains hit. I'll be approaching critical mass as a landlord again after a 15 year absence due to doctor stuff where I had to sell all properties and crush my financials but I'm still topside. I also better appreciate how rare these types of deals are. 

 What is my strongest course of action to obtain take-out financing? Thanks for listening.

I'm slower than the continental drift on getting back, but I did complete the move-in with the tenants and all is good to date. 

When I suggested the potential tenant meet me at the bank and I would return the cash for a lease termination agreement there were profuse apologies and then some crying. I was told its my decision on what to do.

I had earlier checked with my long-time attorney who said I can be liable if they have an executed lease but are denied occupancy. They could rent something much more expensive and I would be liable for the difference, but that I was welcome to offer the cash back in return for a termination agreement. 

I'll certainly make note not to sign a lease myself until the tenants are moving in, to have an AS-IS clause, to have a non-refundable portion of the deposits, and to make use of the "Happy Clause" or "The property clearly isn't ideal for you" approach. 

Just when you thought you'd seen it all....there's more ahead. 

Appeal to BP Nation- I have erred in accepting tenants and seek to cancel a lease before the tenants occupy. 

I went through my usual screening process which has treated me well for decades and it looks like I missed something on some tenants I accepted. The tenants were fine with the condition of the property and asked if there was going to be a professional cleaning and I said I"d never done that before and they agreed that no professional cleaning was necessary - the carpets had already been cleaned by a pro. 

On the date of move-in, tenants refused to take occupancy or move any items in, and said it had to be cleaned by a pro and wanted me to pay $350 to do so. They were absolutely freaked-out that they literally had "found a dead fly" on a countertop. I've already been threatened with legal action before ever taking occupancy. 

I can see this will be an extremely difficult tenancy and would like to return their monies in exchange for a lease termination agreement. I really think the one person has an undiagnosed medical/mental condition, despite their 800 credit score, etc.

In considering what their "damages" would be - they are living in the basement of the wife's mother, where they moved to take care of her after a surgery, shortly after their wedding - so their damages would seem minimal. They have a 5 year rental history as a couple prior to their wedding, before that. 

The lease agreement was made on July 28, though for some reason I signed my side of it on July 31 as I had in my mind that they could move in on July 31, despite signing it on July 28. 

They paid me in cash and are also besides themselves now - that they didn't get a receipt from me. I was given a deadline of yesterday to provide them with both a receipt and a statement that I will pay for the professional cleaning. I am told they have a relative who is an attorney, etc. I haven't mentioned that I want to cancel the lease yet but the best time to get rid of a problem seems to be before it moves in, so to speak. There is no shortage of interest in the Denver, CO market. 

The tenants make 3.1 times the rent (which is acceptable) and so are close on the rent/income ratio and not especially "long on cash". If I say I will return their monies of $3700 in full for a lease termination agreement - or they can take me to court - they would probably choose to have their money back now so they can pursue another property. 

How can I exit this situation, as I now know the character of the persons I"m dealing with? The escalation/controlling during phone conversations has been unbelievable. 

There will probably be another dead fly in the property -perhaps even a spider - before the lease would conclude and I just don't need to go through all this, especially in such a strong market. It seems I"ll be more their "employee" than their  landlord throughout the term of the lease. This would seem like the best time to assert myself. 

Help!