All Forum Posts by: William Hochstedler

If you intend to continue investing in real estate, you should also familiarize yourself with a tax deferred exchange or 1031 exchange and add that to your list of options.

Wm

@Ken Fricke

If you're flipping, you should certainly consider the costs of resale. We estimate 7-8% in commissions and other closing costs. Also, we build in a 5% reduction from appraised value for our projected sales price.

Therefore, at FMV of $140K, your back side net to seller would be around $122-124K as a starting point to apply your rehab and profit assumptions.

What's it listed for? I've found that in the last couple of years, our local listing agents have gotten pretty good about listing properties close to what the bank will accept. Obviously, there are always exceptions, but we haven't seen huge discounts after the BPO's (Broker's Price Opinion) have been submitted to the bank.

Finally, @K. Marie Poe has a point when she asks what it's worth in it's current condition. Locally, there have been a lot of pretty marginal properties selling for ARV minus rehab costs with no position for investors.

Good luck!

Wm

There is definitely a contingent of people who think that real estate agents are nothing but self serving scum suckers who do nothing to earn their compensation.

However, the tune can often change when acting as a principal in a transaction and the commission can be taken off the table (if necessary).

Also, Realtors can be somewhat limited by certain legal and ethical standards that would not apply to a non-licensed investor--like the required disclosure of the license itself or respecting other agents' implied agency relationships.

But the license provides many significant advantages when approaching deals and strategies including the ability to exclusively list a property, represent buyers directly rather than assigning contracts, get direct access to properties, access state approved forms, write tons of offers that have low chances of success, etc.

And of course there's the MLS. Utah's Wasatch Front MLS is one of the best systems in the country and I feel is a requisite tool for evaluating properties. It is almost exclusively what residential appraisers use to find comps. It has some very powerful search tools and over half the properties in the state that have been sold in the last 18 years are on it in some capacity.

I encourage everyone who is considering getting into this seriously (and particularly those who are already taking the classes) to license up as it can give you a lot more flexibility on how you make money in real estate.

Overcoming objections from stubborn sellers with preconceived notions about value is something we're doing already anyway.

Hope this helps,

Wm (licensed broker)

This is text book investing: Lock up a property and immediately make a change to create equity. You are doing this on the seller's dime and without risk.

Well done!

You do have it under contract, right?

@Jessica G.

Does he prefer a clean break like foreclosure? I think you need to do a little salesmanship here. A guru once told me, "Find the seller's primary motivation to sell and satisfy it overwhelmingly."

Your offering a creative solution where he can walk away from his property while his mortgage continues to get paid, thus improving his credit. Moreover, you can do it quickly.

When you get title, after 3 months you can put it up for sale and after 6 you can refi based on appraisal (if advantageous). Or he can spend the same time frame receiving certified mail and having public notices taped to his door only to destroy his credit for 3-7 years.

If I were in his shoes, this wouldn't be a difficult choice.

Good luck!

Apologies. I think AITD is what you meant by the sub2. I think that @John Chapman (and me) took it as "subject to" improvements, which is typically how we use that term here.

Banks like Wells Fargo have programs that will finance improvements. I think they only apply to owner occupied.

If your friend is just walking away, why does he care what happens if the mortgage gets paid? In other words, why would you consider a quick refi, instead of riding it for a while?

Cheers,
Wm

I agree with @John Chapman that the equity is pretty thin. Most investment loans are 70% LTV, so even if you could finance it based on appraisal rather than purchase, you could only borrow $94,500K against it meaning that you'd still need to bring $19,500 to the table (plus closing costs).

I don't know anything about Texas lien law, but if it is a lien theory state, you should have the option of an all-inclusive trust deed, sometimes called a wrap-around mortgage. This means that your friend would seller-finance the property to you subject to the existing mortgage which would remain in his name and he'd continue to pay (often through escrow).

Lots of caveats with wraps including the "due on sale" clause, so make sure you know what you're doing, but it is an option allowing you to get into the property and refi it based on appraisal (6 mo -1 year) or when the LTV reaches 70% or whatever banks are offering at that time.

Even with a relatively small equity position, to be able to get into an investment property for closing costs, and if your friend would extend this instrument for 5-10+ years, it could be a really nice deal.

Good luck!

Wm

Welcome to Utah!

I'm a little confused. According to the Ogden City Zone map there are a bunch of R-1-x. These zones are single family. There is also a zone R-2EC which is two family.

In one of your posts, you say the agent lists it as non-conforming. If it's a triplex in a two family zone, it's non-conforming. The question is it legally or illegally non-conforming. I would think that by using the term "non-conforming" the agent means "legally non-conforming" otherwise it's just "illegal" as "illegally non-conforming" is redundant. Our agents up here are pretty good about making that clear.

The following is the language from the Ogden City non-conforming certificate application:

"Ogden City is an older community, there are some uses which may be nonconforming (nonconforming means the use was allowed when it was constructed, but now does not meet the present zoning regulations.) These nonconforming situations have a right to remain and be used as they were constructed.

"To clarify any questions, Ogden City issues a Nonconforming Use Certificate in order for owners and future buyers of such properties to be assured the properties they buy are allowed as they exist.

"A Nonconforming Use Certificate is the City’s acknowledgment that the use was legal at its time of construction and is allowed to remain. If the use is vacated for a period of a year or longer, any nonconforming right is lost. Therefore, verification must be given that the use has been continuous since first allowed or approved."

If the property is legally non-conforming, there will be (should be) a recorded certificate. Either call a title company and ask them or go to the recorder's office to verify whether or not a certificate was recorded against the property. If there is nothing, you (or the seller, I guess) have an illegal triplex.

Finally, just because the use is allowable in the zone, does not necessarily mean that a particular building is necessarily legal. The use has to be created legally (building codes etc) at the time of original construction or conversion. In other words, zones and building codes change.

I should probably say this is not legal advice at this point ;)

Hope this helps.

Wm

"Non-conforming" probably means "legally non-conforming" or grandfathered. This just means that the duplex use does not conform to the, most likely, single family zone. Also, look at the actual non-conforming certification for number of legal units, not the property type on the tax roll summary. Most likely the listing agent has the info correct.

We've seen a lot of these situations up here. I've taken this question to the city as a hypothetical and they are confused when the building meets total occupancy limits. Our code only addresses occupancy per unit, but does not define unit. We have 4-plexes listed as triplexes that are all one BR units. The city allows a single family or up to 3 unrelated adults/unit. Four couples in four units are less than the city maximum of 3x3. I haven't explored a duplex with one unit as a mother-in-law apt although it should be legal as well (but much harder to rent).

I'd start by calling the city and telling them that you are considering purchasing a grandfathered multi-family property and was wandering what the occupancy limits are in the given zone. If the unit configurations would comply with duplex occupancy as a triplex, you should be fine.

Up here, parking is far-and-away the biggest red flag. Is the parking ample? Is the property surrounded by other multifamilies or already a problem in a primarily owner occupied neighborhood? Is it a functional triplex or a duplex with a band-aid 3rd unit? Would it be easy to convert (back) to a duplex if need be?

I agree with @Joel Owens though. The asking price should reflect duplex both in comps and cash-flow because that seems to be what it is legally recognized as.

Could be a great opportunity and good for you starting with your residence as your first investment!