All Forum Posts by: William Price

@Mike Kratz Assuming they are a CPA, I would be more focused on their experience and client base. There are a lot of people out there with a lot of certifications and letters behind their name but don't necessarily have a lot of experience. I think you would be better served finding someone who has a lot of real estate clients and knows the industry. Even better - find a CPA who is also an investor.

@Jaysen Medhurst  - I wish I could do myself, but I'm not local and it has been extremely challenging finding anyone reliable to even manage the property so I'm happy to sell it to another investor.  The property is in very rough shape so even a partial rehab would be an improvement so I don't see much downside to holding a note for a year.

I'm getting ready to sell a property that needs a full rehab.  I've explored several different strategies and it looks like my best option is to sell with owner financing. I'm going to pay off my existing mortgage at closing and then have a promissory note for the sales price. 

Since it needs a full rehab, I'm only requiring a small down payment and then I was planning on doing an interest only note for 1 year with the full payment (less down payment) due at the end of the year.

I'm having an attorney draw up the promissory note and handle the closing, but I want to make sure I'm not missing anything here.  

I only want to do 1 year b/cs I don't want to tie up the money for more than a year.  Also, the rehab should only take a few months and then the buyer can go to a bank and refinance to pay off my promissory note.

Is there anything wrong with this strategy? Any pitfalls?  If the buyer stops paying interest or isn't able to refi, I would be able to foreclose on a rehabbed unit.  

Thanks for any advice.

@J Scott - thanks for the wrap suggestion.  @Account Closed - thanks for the contract for deed idea.  

I'll run both ideas by my attorney and ask his advice.  I'll make sure I abandon the lease option idea.  

I have a multi-unit that I'm selling that needs extensive rehab.  I'm selling for the cost of the mortgage; however, the buyer does not have the cash to purchase or the ability to get a loan until the property is rehabbed.

The seller wants me to do owner financing, but I would have to sell, pay off the mortgage, and then hold a note while they do the rehab and then refinance.  I don't want to do this b/cs I would have to come to closing using other funds to pay off this mortgage.

I proposed a lease option and they agreed, however, they want a clause that says if any damage happens during the rehab, I will reimburse them for all damages.  This is a bad part of town and we are constantly dealing with squatters trashing the place so I don't think that's a good option. 

Another hurdle is the insurance and who needs to carry the policy during the rehab (I'm assuming it's me (seller) under a lease option).  If I do owner finance, I think it would probably be the buyer who carries the insurance with me named as an additional insured, but I don't know.

The final option I'm aware of is a subject to deal where title would transfer and they would take over my payments, but I'm concerned that if they run into any problems down the road (15 years left on the mortgage), I'm on the hook.  Can you do a subject to for a 1 year period while they do the rehab so they would have title, could get proper insurance, and would still pay my payments.  What is my recourse if they are not able to obtain financing after it is rehabbed or stop making payments on my mortgage.

Thanks for any feedback or guidance!

I have a multi-unit property that needs a complete rehab and I have a buyer who would like to buy it using a lease option.  I suggested this because they can't get financing until they complete the rehab.  After the rehab, it will be a great cashflowing property worth significantly more than the lease option price so they should be able to easily obtain a loan.  

They have agreed to put down a non-refundable option fee that I will credit at time of purchase.  They have also agreed to pay a monthly rental amount while they are doing the rehab.

I have at attorney who does not appear to have any experience with this so I have several questions on the forms to complete.  I guess the first question is if this even makes sense, but assuming it does, here are the additional questions:

1) Do I need just one agreement that includes non-refundable option fee, monthly amount of rent until they close, and the option to purchase agreement at a certain price within a certain time period?

2) What happens if they do the rehab and then can't get financing within the option period?  I think I would own the rehabbed building, but I don't want to put them in a bad position so how can I make sure they are protected in this deal?

3) Do I need to get a different insurance policy for the rehab since I still own the building while they are doing the rehab or is that something they would get?

4) What clauses should I include in the lease option to cover myself in the event they stop paying rent?

5) Any other pitfalls or items I need to address?

Thanks so much for any advice.  

Thank you @Rick Pozos, @Frankie Woods, @John M. Erdek for the very helpful advice.  Much appreciated!

I have recently put a property under contract and I have a private money lender who is funding the deal. It will be a cash purchase with funds from the private lender.  This will be a long-term buy and hold.  The private lender wants to do an interest only loan for 7-10 years and does not want any equity in the deal.

I'm trying to figure out the best way to structure the deal and had 2 thoughts and was hoping for some feedback on the 2 scenarios or any other suggestions or advice.

Scenario 1:

I set up a single member LLC in my name and the private lender contributes funds to the LLC and I purchase the property with cash in the name of the LLC. I create a promissory note from the LLC to the lender specifying interest rate and terms of payment.

I'm assuming after the deal closes that I would record the promissory note as a lien against the property, but I'm not sure about the logistics of this.

Scenario 2:

I set up a LLC with both of us as members and could structure the operating agreement with guaranteed payments of the agreed upon interest rate to the private lender and all other profits and losses to me (this is what the investor wants). I think I could set it up so they are a 1% owner and I would be 99% owner so that we have the necessary 2 members and the profits and losses can be distributed according to operating agreement.

I don't see any advantage to Scenario 2 and I think that as long as am able to record the promissory note against the property in Scenario 1, that's the direction I should go.

Are there any holes in Scenario 1?  Any suggestions for other ways to structure the deal?  The lender is a family member and does not want the money for another 20 years so there is no danger of having to restructure the deal to pay back the investor.

Thanks for any thoughts or advice!

@John Clark  - I would approach the meeting almost as a job interview.   Even though you are not applying for a loan at this time, I would put together a folder of information that you can leave behind.  Pretend like you are going to prequalify for a loan.  This will set you apart from every other investor who wants to go meet him and talk about loans, etc. This shows you are serious and you have your stuff together!

I would prepare a personal financial statement for yourself (assets and liabilities) and include the following in the folder:  1) W-2s for the last 2 years, 2) Tax returns for the last 2 years, 3) Your current house value, purchase price, mortgage statement, etc., 4) Your business plan of acquiring 2 properties and using your parents as partners, 5) Your current resume - this shows you are in the corporate world, have a good education, career, etc.  I would put a table of contents summary sheet on top of all of this and hand it to him.

I'm guessing he will immediately take you seriously and know that you are not just a tire kicker.  Good luck!

@Gerald Marshall - My leases are typically just 1 year leases so I don't have an annual rent increase.  If I have good tenants, I will email them 2-3 months before lease expiration and let them know that I'm planning on increasing the rent if they are moving out, however, if they want to stay, I'll give them a discount, essentially waiving any rent increases.  This discount approach has worked well for me.

To me, it is worth not having the vacancy (even if just for a week or 2), unit turn costs, showing the place, etc.  

I think not having the rent increase in the lease could also help if you had bad tenants or high maintenance tenants where you didn't want to renew their lease.  Instead of a 3% increase predetermined in the lease, you could hike it up by 10% and they would not renew.  I think not having the rent increases in the lease allows you some flexibility in choosing your ideal tenants and what to charge.