My wife and I have been priced out of the Charleston, SC market for a long time (we are in our second live-in flip and had a good bit of capital after the first one, but still struck out on a year's worth of deals). We took out a HELOC on our primary, and found a deal that still penciled out after including the NOI increase from the monthly HELOC payment. It was the toughest closing yet of our 4 mortgages, but a few things that seem like no-brainers are where we made mistakes. Maybe someone can learn from the following:
1. How do we get rents and deposits-- We did not specify that we want deposits and pr-rated rents by closing. It is understood that the deposits and pro-rata come to the new buyer, and the check is in the mail (supposedly), but it would have been nice to have it in hand after walking away from the closing table for peace of mind, and to fund some cap-ex (rent proceeds not deposits which shouldn't be touched), but it didn't go that way. Next time, we will ask for this in the contract
2. Assignment of leases--Our closer assured us that if any of the tenants decided not to pay rent on the grounds that we are not the ones who entered the lease originally, that they would lose due to the fact that the property was obviously sold to us, but we are in the process now of having the tenants sign new leases which are identical to the ones they signed with former owner. Assignment of the leases by our attorney is $400. Next time, we will specify that the leases should be assigned to us by closing, that we want the seller to handle this, or that we want seller to draft new leases for us.
3. Repairs and cap-ex--we negotiated for a new roof to be put on (cap-ex that would have had to have been incurred after sale, but this way it was financed). We did not choose the contractor, and we did not specify the color. We ended up with a roofer who damaged other parts of the property and a shingle the color of rust that looks 10 years old already because it was probably on sale. Next time we will ask to pick the contractor or at least specify a non-crap color. This can be applied to any capital changes requested.
These seem obvious, but not what my wife and I were thinking about as we were were going through the rest of the process.
Great insight @Daniel Vella . These are often things that we overlook or don't think about while in the process of purchasing a property.
@Daniel Vella . Thanks for the insight!
I need to review this closely. I am getting close to putting in a offer on my first multi unit.
Good luck with it @Scott Pearson. Multi is what we're continuing to look into. Divides up your liability with vacancies. I am renovating one vacant unit while not going broke. Last year we had a 3 month stretch on our single fam and lost a good bit. I think people might get scared of having multiple of everything (4 bathrooms, 4 kitchens, 4 HVACs) that could break and need cap ex, but another way to look at it is that you're vacancy wallet is 1/4 as liable since the others can subsidize.
Multi family sure helps with vacancies. They also tend to have better cash flow. At least in my area.