All Forum Posts by: William Hochstedler

I realize this is an old topic, but I recently started asking these questions myself.

Our standard state (Utah) approved purchase contract has lots of language about financing contingencies.  As all deals that are not seller financing close in cash (borrowed or not), I asked around to find out what purpose this contingency really served.

First, it is a notice to the seller that additional contingencies and risks apply: specifically that the buyer may not qualify and that the property must appraise to justify collateral.

Second, many conventional lenders require this clause in the purchase agreement for underwriting.

If your lender does not require a financing contingency and you, as a buyer do not need the escape clauses to fund and close, I do not see any reason not to tell the seller it is cash.  If your private lender doesn't like the deal, it's probably because the numbers don't add up.  If this is the case, you would back out because of due diligence regardless of the financing.

Alternatively, if you plan to close with cash but must liquidate another asset first, this is not a financing contingency the way it is written.  If your stock portfolio (the source of funds) tanks after you make an offer, it has everything to do with how the property is being financed and may influence your decision on whether to move forward, but has nothing to do with the financing clause language.

Bottom line:  If my ability to fund a project is not contingent on my bank approved credit worthiness and/or a formal appraisal, all offers are cash...And, so far, no one has had a problem with this.

Wm

@Darren Hibbs 

My apologies.  After looking over the post, it sounds like it's your first purchase of any kind, not your first investment property.  (Although, it can be argued that any purchase of real estate is an investment).

That being said, the first thing to do is find a good real estate agent. As a buyer, it generally costs you nothing as the seller typically pays both sides of the commission. If you find something that is not listed on the MLS, it's probably worth paying a commission for guidance through all the paperwork (and relationship building) on your first one. Moreover, a good agent will help you define your criteria and provide introductions to lenders, title companies, etc.

I got into real estate because, when buying my first house (primary residence), I picked up the phone book and signed with a random Coldwell agent.  I quickly found myself in the drivers seat and realized after shopping for 3 months, I was better able to find value in my market than the agent I hired.  I needed the agent to guide me through the transaction process, but not to help me find my house.  I did 50 drive-by's a week and was the one who found the property we finally bought (which I still have as a rental).

The process was so much fun that I went and got licensed knowing I could certainly do as well as the agent I hired.  

@Account Closed Thanks for the kind words.

Wm

I respectfully disagree with @Curt Davis and @Account Closed 

A great number of successful investors got into this business almost accidentally.  Either they decided not to sell their primary residence and kept it as a rental or stumbled upon an investment opportunity that fell into their lap (grandma's house).

Of course it would be helpful to know more about your situation, but I would recommend just the opposite--as the best way to learn is by doing.  Also, what are you looking to do from a flip or hold standpoint?

If you own your own residence, look at that transaction as a template.  Were you impressed with your real estate agent?  Did you buy correctly from a market perspective?  Would your own property cash flow if you were to rent it?  Was the home inspection helpful? Were there problems or issues in the transaction?  Did your lender seem knowledgeable? Etc.

I'd pick a geographic area that seems stable, familiar, and matches your risk profile (crime rate, tenant pool, job market, etc). Ask for investor friendly agents and lenders here on BP or at your local REIA. Have a real estate agent set you up on their MLS to send you all activity including under contract, expired and sold and watch the market.  Talk with a lender to understand your borrowing options.  As a contractor, talk to your contacts in the trades and see if any colleagues of yours have interesting resources.

As you tell people you are actively looking for properties, you will get leads.  Use these suggestions to further hone your criteria.  At some point, you will see something that looks compelling (or even better).  Make an offer, and come back to BP and your other resources as sounding boards.

If everything looks good, pull the trigger and have fun!

Good luck.

Wm

Absolutely!

My in-laws had a similar rural family estate on 150 acres (woods and rivers) in West Virginia @$2500/mo.  They weren't prepared to sell psychologically or market-wise.  The farm sat vacant for 2 years before we were able to fill it ourselves from CraigsList postings in nearby metro areas (DC & Baltimore--about 2 hours away).

Interestingly, the tenant we found was from another rural area in WV who had a unique story and has turned out to be great.  They couldn't find anything suitable in their local listings and were looking at the same metro CL listings for rural properties.

We would gladly have paid  2 months rent to any professional who could have placed a tenant and we even let a local PM have a six month shot at it with no results.

I would discuss the possibility of full commission to the agent if they find the tenant through their own marketing or MLS and a reduced commission if you find one. This way you won't be competing.

You may be looking at many months with a property like this, so certainly pay a commission for broad exposure to find the right tenant.

Why are you not trying to lease the home and the land separately, perhaps to a neighbor, if its farmable?

Wm

@Joseph Zanazan Great information.

I think that the short answer to the question is that it's entirely up to the bank/investor.  In 2007-2008 we saw short sale offers accepted/rejected at percentages that were all over the map.  We found that the banks that went under (IndyMac & CountryWide) were impossible to work with and wouldn't accept 95% in two cases while Wells Fargo was taking 60% on similar props.

I had one that was rejected for 4 months at 87%.  When the file was transferred to another desk, they quickly accepted a different offer at 72% (same everything except buyer and price).

As mentioned, banks' (investors') assessments of their own liquidity, capital requirements and exposure to the market have a lot to do with it.  And some negotiators are just better to deal with than others.  We once got an approval from Citi 11 minutes after the foreclosure (and they were junior!).  

Wm

I have a client who is considering liquidation of his real estate holdings and 1031ing into either of these two companies.

Has anyone done business with either of them?  Our client is claiming that they provide consistent 8% returns.

Thanks BP for being my vetting service!

Wm

Welcome @Michael Heslop 

Up here 2-4 units are tough as well. Duplexes sell for "break even" on the MLS. (PITI = GSI at 100% leverage). An owner occupant willing to live in a duplex can live more cheaply than in a comparable bed/bath single family primary residence.

Therefore, to find cash flowing 2-4 unit props, you must look for distress in some form.  Non-conforming, run-down with potential, conversions, etc.  Good deals are out there, but take work and patience to find.

Ogden definitely has opportunities, but watch your neighborhoods.

Good luck!

Congrats!

Wm

Hi All,

I have a client who has a property that he has leased to a master tenant with the understanding that the master tenant can sublease rooms to meet rent obligations.

Everything has been going pretty smoothly for years, but a number of problems have arisen that my client does not want to renew the lease with the master tenant that expires at the end of the month.  Notice was properly given etc.

The problem is that the master tenant sublet to a number of subs with leases that extend beyond the term of the master lease.

Any thoughts on how to approach this?

Many thanks,

Wm

@Josh Butler 

There's a UVREIA luncheon today with the topic prospecting for opportunities.

Might give you some ideas.

Wm