All Forum Posts by: Steve K.

Flip that sucker like a hot potato. I wish I had some slick advice for you but this was a ballsy, poorly devised plan. In your other post you said the idea was to BRRRR. You can't BRRRR without any of the R's. Rehabbing takes money, refinancing requires financing. There's a reason credit cards can't be used as down payments and the reason is that lenders want you to have skin in the game. Even if you could use a credit card as a down payment it's not wise because owning property requires reserve funds (especially in this asset class). Will you just max out another card every time a water heater breaks, a furnace goes out, or a tenant stops paying? You'll be stuck with a ton of high interest debt, bills you can't pay, and no credit left to continue the scheme. Playing the card shuffle using new cards to pay off old cards may work for a little while but eventually it will just lead to more debt and damaged credit.

As you've discovered, mortgaging a sub $50k property doesn't pencil out for either party. Even if you could qualify for a loan on this, how would you pay the $2k in closing costs or have any cashflow while paying PMI? Beyond that, no lender is going to give you a loan after they see you've just taken on $20k in high interest debt and used it to buy a house. You just made yourself ineligible for a loan right there.

In your other post you mentioned that you couldn't afford insurance on this property, and insurance isn't included in your expenses listed above. Does that mean it's uninsured with a tenant living there? If so that's extremely troubling. 

You should sell. My advice is fix it up as much as you can with as little money as you can (clean, repair, do yard work, make lipstick improvements, paint but don't paint yourself into another corner haha) and get out of this deal as soon as possible. A BRRRR with no R's is like calling a piece of lettuce a BLT. Call it your first flip instead and if your valuation at $36.5k is realistic, you may even pocket a few dollars. Curious to see how this works out for you and best of luck.

Interested to see what others have to say about this. I’m more of a traditional, 25% down using conventional financing with $20k in reserves type of investor so my head is spinning. I’d say sell that property before something goes wrong then go back to square one, save up for a down payment and ample cash reserves for when something inevitably goes wrong, establish 2 years solid and consistent income, build credit, find a bank to work with and start over again in a better asset class. But I’m intrigued by your approach. If the property is truly worth $36.5k, just sell it, pay off the high interest loan, pay Uncle Sam short term cap gains, and you may even have some cash left over which would be a huge win. That asset class isn’t suitable for buy and hold except on a large scale for experienced investors that specialize in that area. I’d be cautious dealing in that type of property even if you had experience, a nice cash reserve as a safety net and a bank lined up which it doesn’t sound like you do. If my assumptions are correct you’re just one bad water heater/ one broken pipe/ one eviction away from big trouble.

Follow the eviction procedure exactly as your state requires. If they don’t have a lease and aren’t paying, it should be a very cut and dry case that you will win easily. Do not accept partial rent or use any illegal measures such as removing the door. Doing anything that could be considered a “self-help” eviction such as intimidating or threatening them, locking them out, removing their belongings, turning off the utilities, etc. can put the eviction process in jeopardy and put you in legal trouble. Follow the eviction process exactly as your state requires or hire a lawyer to do it for you. 

Tough one. I would reply with something along these lines: 

"Dear Misty, I'm so sorry to hear about your mom's health. It's a good thing she went to the doctor and caught the issue early on. It sounds like she has a good doctor and is in the best hands. Thank you for being straight forward and informing us of the situation regarding not being able to sustain the monthly rent for this unit. There are charity organizations that you may be able to apply to in order to get assistance on rent, and we would be happy to accept rent from such an organization (insert charity names and contact info if you know of any, in my area there are several grant programs that help single women specifically). Or, if you need a few weeks to find a less expensive place, we will let you out of the lease agreement with 30 days notice. Unfortunately we have our own expenses such as bank payments, taxes, insurance and maintenance that require us to rent the apartment at the set price. Wishing the best for you and your mother during this difficult time. Our prayers are with you that the surgery goes well and she recovers quickly."  

It's especially sad when evictions are due to health issues. 100% of the evictions I've had to execute had some type of health issue component, either real or made up. I'd wager that a high percentage of evictions are due to health issues. Everyone gets sick or injured eventually, and it's expensive to deal with. As a landlord you can't act as a charity, you have your own financial obligations to your lender, your investors, your reserve funds, your other tenants, your family, your goals for growing the business, your own health issues, etc.

 Also as an aside, she should have told you from the beginning that her mom was subsidizing her rent, and you should have screened her to make sure her individual income was 2-3 times rent.   

@Joe Splitrock I agree with you that there is little value and unnecessary risk in using a personal name for a new business (unless like Michael Jordan you already have a valuable brand built around your name). When I had to evict a crazy tenant with gang ties last year, I was very happy to have the plaintiff in that case be an LLC and the plaintiff's address as our PO Box. It made the whole thing less personal. If you're in RE long enough you'll probably deal with desperate people and lawyers at some point. It doesn't make sense to pay for an LLC, a PO Box, etc. in order to separate oneself from the business and then use a personal name IMO. It's true an LLC doesn't provide full protection and crazy people can still find you, but why make it easier for them? In the case of the eviction I mentioned, I don't think that person was savvy enough to track down my personal residence through all my layers of protection and it made it easier for me to sleep at night. I dealt with them professionally and they were evicted for not making payments to a business. If my name was on the paperwork as the plaintiff evicting them I would probably have been on the top of their mind during that desperate time, and a few minutes on google would lead them right to my doorstep. I keep properties in LLC's and the business is a generic name for that reason. If I needed an impressive business card I would use World Domination Inc. and list myself as "Head Honcho". I find it's better to fly under the radar though.

In my reply to your previous post I mentioned that including your name in your LLC "may" undo any good an LLC might provide in separating you from your business. "May" being the operative word there. I'm glad you re-asked the question because these replies have been informative. I did not mean to imply that choosing a different name will provide 100% anonymity or remove the risk of being sued, but I do think that naming it after yourself creates a grey area that MAY make you seem like an easier target for a lawsuit. In my experience grey areas are places where lawyers can make a lot of money so I avoid them wherever possible. All the different opinions on the matter on here further implies a grey area exists. To me the whole point of creating an LLC is to separate oneself from the business and limit personal liability, so naming it eponymously goes against that idea. Do a cost benefit analysis of using your name in the LLC vs. having a totally different name, and decide for yourself. Another thing to consider is whether or not having an eponymous name reduces the possibilities of the company in terms of growth. I wouldn't start a businesses that isn't easily scalable and I always think about being able to step away personally or, even better, sell the business down the road. It may give the business more flexibility if it has a generic title. Just my opinion for what it's worth. For business card and marketing purposes I actually think it looks more impressive to have a business name and then list yourself as "Owner", "Principal", "Founder", "President", "CEO", "COO", etc. Having your name as the business name can come across like a one-man or family small time operation. Of course A.G. Edwards, Audi, Abercrombie & Fitch and many other giant corporations named after their founders are exceptions to this, so who knows maybe Handel Housing will be the next Trump Organization. Then again, Trump has been involved in over 3,500 lawsuits so maybe that comparison actually supports my case! Whatever you name it, the most important thing is that you like the name yourself.

If you had taken Jim K.’s Soaring McRib Eagle course you would already know this high level stuff. Don’t forget to find your freedom number first and just buy as many White Houses as you need to reach your freedom number.

That said, I agree with the others that the LLC name isn’t really something to spend too much time on. If you like the name go for it. A lot of folks start a new LLC for each property and just use the property address for the name, such as 142 Main LLC

If you name your LLC after yourself it kind of defeats the purpose of having an LLC (separating your personal finances from those of the business). It may even make it easier for someone trying to sue you to “pierce the veil” and go after your personal finances if the company is named after you. Also IMO any business should be scalable and setup so you can eventually step away and let it run itself without your involvement, so an eponymous name is a poor choice in that regard because the name implies the company will never grow bigger than you.

What’s wrong with 100 year old houses? As a carpenter I can tell you that newer houses aren’t always better. A house that has survived 100 years of neglect has probably got good bones, while modern construction is often all about slapping stuff together as quickly and cheaply as possible in order to maximize profit for the developer. As one extreme example of newer homes not being better, in Connecticut there are 15,000 houses less than 10 years old that were recently condemned because the builders used bad concrete on the foundations. Many brand new houses I see being built in Colorado are built so poorly I’d much rather own a 100 year old brick house instead. I’ve seen brand new patios slope back towards the house, joist hangers attached with deck screws instead of nails, brand new roofs that leak, etc. there are a ton of hack builders out there creating problems for whoever buys the houses they build that’s why it’s recommended to hire an independent 3rd party home inspector even for new construction. I love old houses with big moldings, cool original details and some character. Cookie cutter subdivisions and contemporary designs aren’t my thing. There were some periods of really bad construction over the years and some questionable materials used, just learn to avoid that and do due diligence on any home new or old, at least on the old ones it’s easy to see if the foundation is going to sink or not, if it was gonna sink it would have started by now. I feel like some of the new materials being used today like MDF which is basically glued together sawdust will be looked back on in the future like what were they thinking to use that stuff. Even the new automation and internet of things houses that are controlled by apps, I don’t want to use my phone to adjust my thermostat. I’d rather put another log in the wood stove. I’d much rather have a 100 year old brick building with good bones (and updated electrical, appliances and plumbing) that was built by true craftsmen than a new stick framed house covered in glued together sawdust built with poor workmanship and controlled by smart phones but maybe that’s just me.