All Forum Posts by: Patrick Cruse

It was a big house. 2400sf plus a full unfinished basement. It was a somewhat large rehab and we certainly finished it nicer than the houses in the surrounding area. I have met two great neighbors there so far, which is always nice. I am planning on renting it out section 8, because I found a family on section 8 that has a lot of children that attend (or will be attending) the Paramount School and they want to stay in the area long term. Once it is occupied, I'd be happy to share more details about the rehab, costs, etc. 

I can confirm that it is a rough area, but I am hopeful that it is improving. I think a big part of the potential for improvement is the positive impact that the Paramount School of Excellence is having on the community. I recently renovated a property very close to the school and we had some very brazen break-ins. It is a bad problem in that neighborhood that as soon as work starts being done on a house or if it is vacant the break-ins start happening. The first time they broke in, they kicked in a barely attached basement window and stole the old water heater and of course left the water running. I bought 6 new basement windows and some fake security cameras and left them hidden in a bedroom closet for my contractor to install the next day. My mistake, because they broke in that night and stole the new windows and cameras before they were installed. I bought new windows basement windows (again) and had my contractor pick them up this time so he could install them. They kicked in a new basement window this time, but I had the door from the basement going upstairs deadbolted shut. Now they were trapped in the basement! No big deal for these animals though...they just busted through the drywall at the top of the basement steps and out into the kitchen. Sheesh, these guys were relentlessly. I eventually had steel bars put on all the main level windows, barricaded the basement windows, installed a plywood front door (like HUD homes commonly have on their front doors), and installed SimpliSafe cameras/alarm system. No issues since then, but you had better take plenty of precautions secure the house and don't leave any materials or tools at the job site. I called the police and they basically just said "ya, we know this is a problem, but not much we can do". I talked to another investor that had stuff stolen and found it for sale on Facebook and the cops still wouldn't help him, for some reason.

I'm hopeful to have tenants in my house soon, but it's been a rough process so far. I think once it's occupied it will be much less of an issue. 

Good luck!

 Thanks. It looks pretty grim for a refund of any sort, but I think we're going to propose a settlement of some sort and see what happens. 

My niece was a student at Ball State University in Muncie, Indiana. I have included the section of her lease that outlines how late fees are to be handled at the bottom of this post

I'll do my best to explain what happened in her case:

She would often pay in a few installments leading up to the 1st of the month and then the remainder on the 1st or sometime before the 5th. Her portion of this went was $425. An example of how she would pay her rent would be $200 on 4/25 and $225 on 5/2 for a total of $425 being paid for the rent due on May 1st. On a couple of occasions she got confused on how much she had paid and was short by $30 and $50 for paying the whole amount. Two other times she actually couldn't make her full rent payment in time and had to pay the remainder as late as the 12th of the month. When she was knowingly short on her rent she paid the full amount of the rent but did not include the late fee portion, because she was unsure how much it was supposed to be. Only once in the two years of her lease did the landlord notify her that she was short on the rent. As soon as she was notified she paid the rent in full. Again, he did not notify her of how much she was so pay in late fees. 

Once the lease was finished she was waiting to hear how much of her security deposit back. When she got the letter stating how much she was getting back he had charged her $1225 in late fees and withheld it from her deposit being returned without ever mentioning these fees accruing during the lease. 

Here are the exact examples of when she was off for payments:

She was accidentally short and didn't pay the extra $50 until August 22nd. He didn't mention late fees entire time

She was 150 short, but didn't realize it (rent had gone up to $440/month). He didn't mention anything about it until April of the following year!

She couldn't make rent this month and paid the remainder on the 12th. He didn't mention late fees.

She was accidentally $30 short and he didn't notify her until April

In April he finally mentioned that she was $180 short on rent from the October $150 shortage and the February $30 shortage, but didn't mention any late fees at the time. She immediately paid the $180 in full. 

That's it. Then when it was time to return the security deposit he told her she had $1225 in late fees and took it out of her deposit. 

I feel like he was being very shady with the disclosure of late fees. If he had made it known that late fees were accruing she would have paid them as fast as possible to keep them from piling up. If he thought that they were not taking care of the house and he would need to use the security deposit for repairs, I feel like he would have been on top of the late fees to make sure they were collected. Since he knew they were taking care of it he let the late fees pile up silently, because he knew he'd be able to take it out of the deposit. If he would have made them known he would have been missing out on this "income".

Does she have a legit case for small claims court? It seems obvious to be that he was taking advantage of her by not mentioning the late fees to her so that they could keep piling up. Is he obligated to make her aware of these even if his lease might say he isn't?

Thanks for reading and I look forward to your responses. 

Here is the section of her lease that details late fees. 

Yes, please. I'd love his contact info. Thanks!

@Joe Villeneuve Can you expand on this a bit more? Why is a business loan better than a mortgage? I believe you, I just want to understand it. Is a business loan still backed by the property?

What do you mean by I will only pay for the funds once, but can use them many times? I am close to grasping what you are saying, but I don't have a full understanding. 

Thanks,

Patrick

@Thomas S.  I typed up this post in microsoft word and for some reason when I copied and pasted I left off the last paragraph. This is what it said.

"Disclaimer: Before I go through with any of this I will be meeting with a securities attorney to help me draft my agreement with Blake. I just want to know if I am missing obvious holes."

Please don't mistake Blake for a fool. He is not. We both want to do things as responsible as possible. I don't intend for it to be an "arrangement". I want it to be as "iron clad" as possible. 

Fair enough. Do you @Jeff Rabinowitz see any errors in the logic of the deal? Is it feasible to setup this way? 

Again, Blake trusts me 100%. I don't expect you to trust me at all so I understand why you wouldn't want to take his position. He knows that I will be completely honest with him and have his best interests take precedent over my interests. 

In my opinion (and his), the deal of acquiring 1/2 of a house + an investment that is paying a "guaranteed" 6% for being a totally passive investor with someone you trust is a pretty good deal. 

What type of deal would you expect him to want if you think this is a terrible deal from his POV?

I am looking for feedback on what holes/errors there are in my creative financing plan.

Backstory: I just moved to the Indianapolis area 4 months ago from Las Vegas and decided to give REI a shot. I have been immersing myself in the learning process as much as possible. I have already paid cash for my first property (20k) and I am almost done with the rehab (25k) on it. I hope to begin looking for a tenant within a couple of weeks. I plan to refinance it as soon as possible, but I have yet to begin looking for local lenders that will accommodate me. I hear that part is tough so my expectations are low for it happening too soon. However, I don't want to sit on the sidelines while I am figuring this part out. Half of a deal is better than none of a deal, right? I really want to make my friends money too.

I have friends that have money and trust me 100%. They are also motivated by my newfound passion for REI and are interested in being investors through my work. I am comfortable figuring it out as I go for investments involving only my money, but I want to get more of the details ironed out before taking on investors.

Here is my plan, tell me why I am wrong or what I could do to improve on my plan. Thanks.

• 1.Open an LLC in my name.
• 2.Have my friend (lets call him Blake) roll his IRA into a self-directed IRA using a custodian like Equity Trust.
• 3.Have Blake inform Equity Trust that he wants to make a real estate investment and to have them send my LLC $70k~.
• 4.I would then use that $70k to use the BRRRR strategy to buy a house, rehab, rent, and hopefully refinance the property using a conventional loan. If we were able to get this financing my LLC would send Equity Trust and his self-directed IRA the amount of his loan back.
• 5.If we didn’t get all of his investment back in the re-fi he would get repaid out of the cash flow from the rental income until he was made whole on his initial 70k investment.
• 6.Once his investment was made whole we would be splitting any profits on a 50/50 basis, including any appreciation and future profits on the sale of the house.
• 7.If we lose money, he will get 100% of the money we recoup.
• 8.I would be acting as the property manager and taking 10% of the rent for my duties no matter what. By that I mean, if we ended up breaking even on the deal as a whole I would still have made money from my property managing duties (if I weren’t doing this we’d have to be paying someone else to do it anyway).
• 9.If we are not able to get a conventional re-finance or are not happy with the terms we can get then the LLC would issue a mortgage to Blake's self-directed IRA and begin paying him the mortgage at an interest rate of 6% with a LTV of 80% of whatever the house appraises for. His investment would then be backed by the property and the equity we gained through the BRRRR. If the LLC defaults on the loan for some reason Blake would assume ownership of the property on his own.
• 10.In addition to paying Blake's IRA the mortgage each month the LLC would also be paying his IRA half of the surplus in the LLC's bank account that is exceeds the amount we have determined to leave in reserves for capital expenditures.
• 11.The other half of profit would be distributed to me once per year as well.

My understanding is that Blake would not owe any taxes on any of this money since all of his investing is done within the umbrella of his self-directed IRA. I would owe taxes on my half the profits in addition to the 10% property management fee I will have been getting each month.

Can someone that knows more than I do (all of you) tell me why this plan is foolish, won’t work, or how to make it better? And if you really want go ahead and tell me what a genius I am how this is a groundbreaking idea! I realize there is literally zero chance this is true, but I want to believe! 

Thanks @Erin Donlan Is there anyway to see what condition a comp was in when it sold? I am just wondering if the houses that sold under $45k were in less than move-in condition or if those are the max price that they would sell for in great condition?