All Forum Posts by: Travis Hughes

@Alex Montiel the due on sale clause can be a risk, but probably not a short term one.  In a past life, I did owner finance wrap transactions.  No one on my team, nor anyone I had ever met, had heard of a bank calling a note due under the due on sale clause.  So far so good.  If interest rates and prices continue to rise, though, it could mean danger.  If prime rates are a few percentage points higher than your underlying loan and the asset is appreciated significantly, then it would be in the bank's best interest to foreclose and re-sell the asset.  They would make more money that way.

Overall, having worked owner finance wrap transactions for a couple of years, my opinion is that they aren't worth the hassle.  Between the due on sale clause, buyer default, federal regulation compliance, etc, there are just too many possibilities for failure to be worthwhile.  You can deploy your capital with similar rates of return and much less risk. 

@Joe Dunbar as @Gabe K. mentioned, "the owner's agent called us and said they didn't believe we could FC from 2nd position."  I've heard this a few times in other locations as well.  For some reason, some people just don't believe you can foreclose on a second position loan when the first position is being paid... 

@Stephen Bagnani read all of the books you can find, but skip the gurus.  Invest your money instead of forking it over to Rich Dad.  There are plenty of people in real life that would love to talk to you about investments and help you along. 

Also, I'll have to second @Jill F.'s recommendation to get your real estate license.  My philosophy is that it makes sense to work in the industry where you want to invest.  

@Don Parent LTV = Loan to Value. It is the starting principal balance of your loan divided by the appraised value of the property. 100% LVT means if your property is worth $100,000 you started out with a $100,000 loan ($0 down payment). With that much leverage, your payment is too high to cashflow.

One of the great things about BP is that most of these acronyms and terms are programmed to display definitions to you if you just hover over them.  Anything with the little blue dot lines under the word will display a definition if you hover your mouse over it. 

@James C. Might have the right idea with staying put and buying a fresh property as an investment.  I don't know about USDA terms, but you are probably at a really low interest rate? If the loan terms are great and you guys like the house, you could just continue to occupy it and buy other properties while you pay down the principal there. 

What does your lease say?  (What it should say in my opinion, local laws permitting, is that rent is due on the 1st and late on the 2nd.)

My opinion is that you need to be strict and immediate with enforcing your lease.  That doesn't mean you are necessarily going to kick them out, but they need to know that if rent is late, you're calling to ask about it, sending them a demand letter, and promptly filing an eviction.  The filing can be dismissed once they pay.  (Your lease should also say that they have to reimburse you for the legal fees of any evictions that you have to file against them.)

You can treat everyone with respect, dignity, and equality in your rent collections processes, but don't give an inch of leeway.  No one wants to not pay their rent - all of your tenants want to pay you - but if they can't pay, they can't stay.  If you don't send demand letters out immediately upon delinquency (ie on the 2nd) and you don't start calling and emailing to ask for the delinquent rent (ie on the 2nd), then they are going to assume that it's not a problem for you and they can just pay whenever they want.

For example, there is a decent segment of people that will always pay the day before late fees kick in.  Notice I didn't say "the day before the rent is late."  For example, many folks have leases that read "rent due on the first, late on the 2nd, late fees start after the 5th."  These tenants will always pay you on the 5th because they are going to take every inch you give them without actually being penalized.

Eviction takes several weeks to a few months in most markets anyways.  For the folks that legitimately cannot pay the rent, you don't want to be delaying your collections actions.  For the folks that can pay the rent, but want to take every inch of leeway that you will give them, you are just letting them pay you later and later with no benefit on your end. 

@Patrick Martone check out my response on this thread:

https://www.biggerpockets.com/forums/311/topics/39...

@Quin Weidner thanks for that.  Sometimes with our backgrounds and knowledge, when someone asks as question, it's too easy to jump to the end and assume they are following the logic.

If I were trying to invest in an MSA that I do not live in, I would interview maybe half a dozen real estate agents that have worked with investors before and ask them for references so that you can speak to some of their investors and get feedback on what it is like working with them.  Also ask about mortgage brokers, contractors, and property management companies.  Repeat with all of these vendors.  Select the ones you want to work with, then ask them for advice on what neighborhoods to target based on your criteria (money to invest, strategy, etc).  Once you have your vendors and your neighborhoods outlined, visit the MSA, meet your vendors, and drive your neighborhoods so that you can get comfortable with deploying your capital there.  

Finally, don't let the analysis paralysis get ahold of you.  These vendors can be a key to your success, but they won't stick with you if you are tire kicking forever. 

@Pieter Bosman does that help?

Find local professionals in the market you want to invest in, check references, ask around here, etc.  Your property manager will do the tenant screening for you.  Make sure you've done your research so that you know what you're getting into.  If at all possible, visit the MSA to familiarize yourself with the neighborhoods.  Don't pay too much for the property on the front end.  I've seen plenty of investors pay too much for a property and be sold on the idea that real estate always goes up in the US, only to find that the home is worth less than they paid three or four years ago. 

Mortgage balance $160k + $20k rehab + closing costs, etc, about $185k into the property for acquisition.  IF you could sell for $215k, you still loose roughly 10% of your sale price to transaction costs, so you're back down to $193.5k net.  There's nNot enough equity to do anything with cash here.  Do not try to fix and flip.

Going to have to look at alternative strategies.  Sandwiched lease option, owner finance wrap, sub to, etc. 

@Christopher Winkler I'm definitely interested to hear of your results with trying to buy individual notes directly from the banks.