All Forum Posts by: CK Hwang

@Vana G. , I often wonder that too. I get wholesalers trying to sell me houses all the time, and I'm always wondering why so many of them are loosey goosey with the truth and shoot themselves in the foot. Maybe I just haven't met a good one yet. My philosophy is that if a wholesaler is shady about one issue, who knows what they are shady about all the way down the line to the end of the transaction.

Sad thing is if the deal is right for me, I'll buy. I don't care if the wholesaler is making a large profit, if the numbers work, the numbers work. But once I don't get the hard truths, even is the numbers work, I can't work with the person without trust.

I've always thought wholesaling was essentially selling the option to purchase, which means they have locked down the contract with money down, signatures etc, etc. but around here, it really seems more like just pulling MLS listings and saying they have a deal.

@Jorge Guerrero , it really depends on how the deal is structured to determine if the due on sale clause get triggered. I don't generally like to do lease options, but have structured a few. The way I have done it in the past is basically finding a tenant who is seriously interested in buying the house and renting it to them. Then I'll let them know that I'm interested in selling them the house at X price. 

The rent will be set at higher than mortgage payments, then every year when I renew the rental contract to them, I will present them a purchase option with say 50% of the rent paid to date against the price of the house. 

So each year they stay, the house gets cheaper and cheaper to purchase. Of course you need to work the numbers to figure out how many years you want to do this for, how much rent to set, what percent to give them back into the purchase price as each personal situation is very different. 

My strategy in this case is to get out of a sticky situation with a win win for both sides and stop an asset from being cash flow negative, not to make more money. There are strategies to use lease options to make profit out of nothing, but it's too complicated and time consuming for me, so I only use this technique to get out of assets that don't conform to my investment target.    

How about renting it out with a lease to own option?

@Catherine W. , personally, I would just wait till the house is completed before even trying to show it. One thing you'll realize is that most consumers have a remarkable lack of imagination. I remembered one house that I tried renting out, it was hard getting a bite at our asking rent despite telling prospective tenants that we were going to change the appliances. After we put in new appliances, the applications came flooding in. 

The effectiveness of using rent varies tremendously by the sector of the market your rental is positioned in. Most of the houses I have rented out are positioned at the top of the rental market. Any higher rent than that and people start looking at buying their own place. As such, I tend to list my rent a little bit lower than market to attract a larger pool of tenants to choose from, then use a tighter screening process to filter out the prospective tenants. If I used the other approach and raised prices, I would only have 1 or maybe 2 applicants of which there would be a very narrow pool to choose from. And just because they make money doesn't mean they necessarily spend it well and would have anything left by the time rent rolls around. 

I've found calling past landlords and talking to their employers to verify their employment information as the best way to really get a sense of their financial well being. If they own their own business etc, often just a quick look at their website is enough to know if their business is on a sound footing or a fly by night operation.   

@Anthony Kaleta , the bank that is currently holding the loan on your place in London or the bank you've been banking with for the last 8 years while in London should be able to establish a line of credit for you. Generally I find that UK, EU and Asian banks have more products available than US banks. My clients use banks in Asia to establish a line of credit, not US banks. Generally banks prefer to collateralize against assets in the country they are working from. 

@Anthony Kaleta , I work quite a bit with investors who use a HELOC on their properties in Asia to invest in the USA. Personally, if I were in your situation (of course not fully understanding the financial situation you're in), I would try and establish a HELOC against the london property to invest in the US.

One of the benefits of that is that your UK property depreciation is tax deductible against your income here. 

Second you've now got a hedge both for and against the US dollar and the pound. But I would strongly urge you to consider the currency exchange play. i.e., are you short or long the US dollar. For my investors, the currency exchange fluctuations affect their returns by as much as 2-3% in both directions.  

BTW, I have no idea what the interests rates are in the UK, since i don't track the LIBOR, but it would be a good play especially if the interests rates there are significantly lower like they are in Asia.  

At 80% below market, why not flip the house and the profits form it can be used as the downpayment for the rental you want to buy? That way, your residence is not at risk if the interests rates move up. 

Honestly speaking, I would have handled this completely differently. I would likely have sent a letter something like this

Dear Tenant, thank you for being a wonderful tenant for the last xxx years. As an expression of xyz LLC's gratitude to you paying your rent on time, we would like to offer an upgrade to the house you're currently living in by installing a brand new HVAC system and upgrading the duct work to ensure you're comfortable all year round. Unfortunately this work is likely to cause 2 weeks of noise and dust, however, if it's acceptable to you, you will have a wonderful new HVAC system to enjoy. If you would like us to proceed pleas tick yes in the box below. If you do not wish to proceed, please tick no. However, pleasure understand by ticking no, you will have to put up with a outdated HVAC system which may not give you the temperatures you desire. Thank you.

The great part about this is that you'll still be collecting rent while the house is being rehabbed. No months and months of lost rent. and a happy tenant who knows that by paying rent on time, good things will come.   

Oh also wanted to ask, do you keep the reserves in the bank or keep them invested in something like the stock market?

Thanks for the pointers. I'll certainly apply those tips as I take on more debt.