All Forum Posts by: William Whitley

Hello Mike,

You probably do need a property manager, but you want to make sure that you interview them to help you get a good one.

You can expect to pay somewhere around 10% of gross monthly rent, give or take. The property manager should handle securing a tenant, collecting rent, sending you a monthly profit and loss statement, along with your net rent, and if necessary, going through the eviction process. You can also have them pay utilities and other expenses out of the gross rent, so that all you have to do is receive the net rent every month. Ideally, the property manager you select will do all of this for you, but you should discuss all this with the property management candidates you interview.

I hope that helps.

Hello, Alex,

First of all the sales contract should specify how to handle the security deposits.

That being stated, I am taking a different viewpoint than you on this. Yes, the security deposits in part are for covering damage done to the unit beyond normal wear and tear. However, in theory you are being compensated by the purchaser in selling the property, because presumably it is being purchased based on the condition of the property which, if those expenses have been incurred would mean you improved the condition via those repairs.

Typically, security deposits pass to the purchaser as part of the sale. As long as the deposits are still security deposits, the money doesn’t technically belong to you; the money belongs to the tenants. When you transfer those deposits to the purchaser, the money doesn’t belong to them either. It still belongs to the tenants. It is a liability on the balance sheet to the property owner. Only when the tenants are charged for the repairs and the charge is paid from the security deposit does it transfer from a liability to an asset at the time it is transferred from the company escrow account to the company general bank account

As such, I recommend you first look at the purchase agreement to see what it says about the handling of security deposits. Second, I recommend you get a legal opinion from your attorney, because as previously stated, security deposits while typically held by a property owner, are considered liabilities (other people’s money, i.e. tenants’ money in this case) until such time as they become assets due to a transfer to cover repairs and/or unpaid rent.

Good evening, John,

My first thought/question is, where did the $450k ARV figure come from? Just because the house is listed for $450k doesn't mean it is worth that. So that's my first thought

Secondly,  does the tenant have any desire to renew the lease for 6 months to a year? That would give you more time to execute an exit strategy, while maintaining positive cash flow.

Being that the property is located in a rural area which may have lower demand compared to a more populated area, there could potentially be a little more risk involved in this deal.

What would be concerning to me based on the information you provided is how long it would take to secure a new tenant should the current tenant vacate the property following the expiration of the lease. I also would consider obtaining a real estate appraisal for the property from a well qualified, competent appraiser prior to negotiating a purchase and consummating the sale, so you have an independent opinion of market value. 

Considering your potential investment in the property, it just seems to make sense to invest in an appraisal to help with your decision making process, as well as to potentially assist in negotiation of a purchase agreement.

All the best! 

Bill

Congratulations, Nick,

I wish you well in your endeavors. 

Bill

Good evening, Gabriel,

First of all, I appreciate your motivation and initiative that you have shown in getting involved in real estate at such a young age. That will benefit you well in the future.

In order to do it independently, you will probably need to wait until you are 18 years old, as that is typically the minimum age to enter into a contract without parental consent. However, if your current arrangement is working for you, go ahead and continue until you reach 18. Since you already have 1 year of experience, by the time you reach 18 years old, you will have 3 years of experience, which will give you an advantage.

I started in real estate at 18 years old, and now have over 30 years of experience in real estate. It can be a lifelong career for you, whether as an investor or other real estate professional. 

I wish you all the best!

Hello Natalie,

Perhaps you need to have a lease amendment to address the vehicle charging issue. If the tenant wants to charge the Tesla because it’s convenient, they need to pay for that convenience, and not just enough to cover the electricity. They need to pay a premium for that convenience above and beyond the cost. They are receiving value for that convenience, so the amended lease needs to include a premium for that value. 

That is my recommendation. 

Good morning, Ken,

I'm not familiar with the BP bookkeeping doc you are looking for, but if you need something specific regarding bookkeeping, like a sample chart of accounts or something else, feel free to reach out to me. I might be able to provide you something or answer any questions you may have. 

Bill 

Good morning, Alexander,

The purpose of the security deposit in part as it relates to needed repairs left behind by the tenant is to assist the property owner in covering repairs that are not considered normal wear and tear. The question then becomes, is this normal wear and tear? A follow up question is, would the carpet have been replaced anyway after the tenant vacated? Certain things are normal wear and tear, like repainting a unit prior to leasing to a new tenant. Sometimes carpet replacement is deemed normal, especially if the tenant occupied the unit for several years. 

The other thing that you should probably do is take a look at the lease. What does the lease say about this situation? If it is vague or doesn't address it at all, then two things come to mind. First, you probably need a better, more detailed lease, and second, you might want to err on the side of caution and simply release the security deposit in full, assuming the tenant otherwise has fulfilled their obligations of the lease.

I hope that helps.  

Good morning, Jay,

So the owner is 7 months behind on the mortgage, wants to sell the property, receiving $500,000 while still remaining in the property for 3 to 4 years?

While on paper this acquisition as you presented it would provide you $900,000 in equity, as you have indicated, that could either increase or decrease over the next few years.

Here are some things to consider: First, if they are behind 7 months, you would have to catch that up, which at $20,000 a month, that’s $140,000 before late fees. Second, if they already have fallen behind, how are they going to pay rent enough to cover the mortgage if you acquire the property? Even if they receive the $500,000 up front, in a little over 2 years, that money is exhausted if they use it to pay rent. Next, do they expect to receive $500,000 and stay rent free for 3 years, while someone else is paying the mortgage in a subto situation? That would not be reasonable. 

It seems to me the seller is not in a good bargaining position, and they want a lot even though they are potentially on the verge of losing their home should it be foreclosed on. While I’m all about win - win scenarios, it seems like as presented, the only one who would win in this deal is the seller. 

It seems to me that with the amount of money you would have to come up with $640,000 ($140,000 to catch up the mortgage plus additional for late fees and $500,000 assuming they receive it at the time of acquisition), you would be better off getting a new loan and leasing it to them, if you could even get a new loan in this situation. Even if the cash to buyer were paid if/when you resell, there’s still a lot of up front costs that you wouldn’t recoup for a few years.

I just see more costs for you than benefits, and it seems like a lot of risk to take on based on the information you have presented. 

Good afternoon, Ashley,

If you are looking to maximize your potential sale price you may consider having a qualified commercial appraiser and/or a qualified commercial real estate agent provide a consultation and perhaps a market value estimate. Typically the maximum value of land is based on what the highest and best use of the land is for the location. A commercial real estate appraiser would perform a market analysis and highest and best use analysis as part of the process of completing an appraisal on the property. You may not necessarily need a formal appraisal, and an experienced commercial real estate agent could potentially provide a value estimate; however, they would likely want to help you sell the property.

While you could potentially sell it yourself, it may be beneficial to have a commercial property professional assist you to avoid pricing it for less than market value. The cost very well may be worth the benefit in this situation.

I hope that helps.