All Forum Posts by: Jason Krick

@David Groff

Thanks for asking!  It took some time, which I expected (small, rural town), but both units are leased up.  With it being later in the year, I didn't have as many applicants as I liked, and ended up dropping the rent to $825, but increased the length so that they end in springtime.   So, if I have turnover, I can look to fill the units at a more opportune time.  

Still a win in my book, and I'm off to search for #2 in the near future!

@Chris K.

Excellent point about negotiating with the lender.  Yes, it is a foreclosure judgement from the mortgagee.

As for the zoning, the property always had rentals in it, and it is located on the zoning map where apartments is a use by right.  While they issued a residential zoning due to his non-compliance, there is, in my belief, very unlikely.  Thanks for pointing it out, as I hadn't thought of that possibility, but it is a risk I am comfortable taking.

My best bet, I think is to have my title company run a present owner search, and see exactly what is attached and how much.  Depending on what is attached, I will solicit advice from her, and an attorney to see how/if I can get clean title.

@Chris K.Thanks.  Counsel representing the bank is actually in the same firm as the attorney I ised when negotiating a deal that fell through.  So, I have a connection through him.

Everyone else--This deal is a bit convoluted with many moving parts.  I'm confident that I can get them all aligned, except for the DOL lien.  I will try to be brief, so bear with me.  The building is over 10,000 sq ft  with a huge barn in the back with 4 oversized garage bays.  The original building is very old (like historic).  Over the years, different additions were put on with small hallways, turns, steps, etc. This makes the building impractical to use as-is.  However, it would be relatively easy to walk off a hallway here and there to turn it into apartments.  I counted the possibility of 9-11 units, and also I have a thought to put in a commercial laundromat.  

The current owner had similar plans, but he did not follow through with the township's requirements for zoning.  So, the township zoned it residential.  The owner basically ran an illegal boarding house, as he rented rooms that shared a kitchen upstairs, while he lived downstairs in a 3,000 sq ft owner's suite.  I already own a property 0.25 miles up the road.  I went through the township supervisors and zoning board to convert a house into a duplex.  I have a good relationship with them and they think highly of me.  They've already told me that they want to see it performing again and to just ask if I need anything.  So, zoning won't be an issue.  I walked the property twice with my contractor and commercial lender.  Both agree that it is a huge project, but relatively straight forward.  In talking with the lender, I could purchase it, and get a loan based on an appraisal, similar to what I did with my conversion.  The township "unofficially" indicated that they'd let me temporarily run it as a boarding house, as it was, while sections are being done.  So, now the property would be performing for the bank.  Due to the way it is sectioned off, the contractor will get the other units rent ready.  When tenants are placed, the lender will confirm completion and value will be calculated based on the new income, which would allow funds to be used to renovate another part.  We'd keep that cycle going until it is done.

The final value would make it possible to cover the DOL lien, but not initially.  The first appraisal comes back on the as/is value.  So the loan won't cover that lien until construction is complete.  Plus, I don't want to pay it regardless.

So, that's the reason I need to pick this property up at a low entry point.  

@Chuck Brooking

Thanks.  I have verified on that site, and the parcel search that he is still the owner.

@Josh Caldwell

That's what I thought would happen if I bought it outside of a sheriff's sale or a judicial free and clear tax sale.  I guess I was hoping to find a way to structure it so that the Dept of Labor lien stayed with him after the sale.  The title company I work with can run a present owner search for like $25.  Maybe I will do that and ask her if she has any ideas.

I've been in contact with the owner of an expired listing.  I will keep the story as brief as I can.  The property was scheduled for the Upset Tax Sale in September.  The results say it didn't sell.  Before the sale, I spoke with the owner, and this is where he stands:

Lender has a judgement for $55,000

Back property taxes and fees amount to $16,000

The kicker:  There is  a lien of  $90,000 plus from the Dept of Labor due to a business he previously owned that folded, due to unpaid in employment compensation.

That's over $150,000 owed.  The property is not scheduled for either the current month or next month's sheriff sale.  It was not sold at the Upset sale.

My question is multiple parts.  The first is what happens next?  Who will attempt to collect what they are owed, who will most likely bid to protect their interests, and how much would they bid?  The second question deals with the Dept of Labor  lien.  Is there anyway for me to purchase the property, cover the amount owed the lender and property taxes only.  The deal works at $80,000-90,000, but that Dept of Labor lien makes it impossible.  Also, if it is sold at Sheriff's sale, then what happens to the $90,000 Labor lien?  Wiped out? Attach to it?

Any clarity would be appreciated.

@Ray Agosto

Are these properties in the city, or on the outskirts?  Also, you say that there are 5 properties, but you list the numbers for 7 properties.  Is it 5 or 7?

Well, think of it this way--If you owned the property as a rental and had a mortgage with a bank, it would still be in your tenant's hands. If they stop paying rent, you are still responsible for the mortgage payment, and the bank can sue and foreclose on you if you don't pay.

@Antonio Scerra

I commend you for taking all advice to heart and making a very difficult decision.  As I'm sure you know, this is all about minimizing risk.  You decided the risk was too high.  While I'm never happy to see  a deal fall through, especially when a personal residence is involved, there were many unknowns.  There's no telling what the tenants, who refuse to leave, would do.  

And I commend you for your openness for advice, analysis, and constructive criticism.  And your positive outlook afterwards is amazing!  That attitude will get you where you want to go.

Kudos.

Originally posted by @Antonio Scerra:

That has definitely been a blind assumption of mine...I was definitely being naive thinking that the unit will still be in good condition after they vacate.... @Jason Krick I spoke with my realtor about the sellers responsibility to have the unit vacant on COE. It would've worked just fine had the tenant remained cooperative with the seller and taken the relocation funds he was giving them. It seems like it would've worked out more like a Cash for Keys deal between the seller and tenant and the unit would've been delivered vacant. Since the tenant is not cooperating and the seller will not be occupying the unit, according to RSO  laws the seller cannot evict them. That is where I as the new owner/ occupant of the unit come into play. The RSO laws state that the" owner/ landlord" can evict if they will be living in the unit. So, our contract has that flaw as of right now. The seller offered to cancel because of the tenant not cooperating. I'm really trying to assess this from all sides and I will continue to take the information I receive here and try to make the best decision. @Ralph R. Thank you for that advice. I completed the rental properties calculations using the BiggerPockets calculator and I came up with a negative monthly cashflow number. I will share the info with my agent and see what he has to say. I'm not sure if all of the numbers are correct and I would like to get it verified. I will update the information as soon as I can.

My point is that the fact that the tenant is not cooperating should not be your concern at all. It's the seller's problem.  He/She needs to handle it and deliver the property to you vacant at closing, per the contract.  I would enforce that clause as much as I am legally allowed to, or I wouldn't close.  To me, at least, everything else is you doing much more work than you should do.  The RSO law should be moot in this case because the property must be delivered vacant.