All Forum Posts by: Adam Johnson

The correct answer to your question is...it depends.  I would definitely advise seeking the advice of your accountant before you do anything with this.  I understand what you are trying to accomplish for a financing reason, but the lender will ultimately decide whether to include or deny the income from such a use.  From a tax perspective, it gets complicated (surprise, right?).

I am not giving legal or accounting advice here. I have a mixed use property that is owned by an LLC that I have 50% interest in. I own a property management business, also an LLC, that I own 100% of. My management business leases a substantial portion of the property at a market rent. When I refinanced this property a couple years ago, the arrangement drew extra scrutiny from the lender because they didn't recognize it as necessarily "arms length". However, after extra digging and research of the financials of both entities, they decided to include a portion of the rental revenue from the management business' lease.

This is a fairly complex issue and I would advise you to seek more in depth professional advice before making a final decision.  Don't just use either my or other poster's responses.  I have only scratched the surface of what we do and how we do it and my situation may not be identical to yours.

Not sure if that really helped a lot.  Hope it at least gets you pointed in the right direction.

@Jon P. - your post states the law says to remove or cover the lead-paint hazard.  I am not familiar with MA law, but in NY where we operate, much of our housing inventory pre-dates 1978 and lead paint is a common issue.  By covering, I assume they refer to "encapsulation", which is essentially removing loose lead-based paint and covering/encapsulating with a latex based paint, using lead-safe work practices.  I have taken the RRP training and working lead safe is an added expense, but not necessarily cost prohibitive.  To grossly simplify it, it means containing the mess you make and cleaning up afterward.  RRP is a federal law, but several states and many more local municipalities have additional requirements.

I sense your frustration, but I question the need to put an end date to the law.  As you state, over a long period of time, it will become less of an issue simply as a result of the loss of older housing stock or eventual abatement of lead based paint hazards over an extended period of time.  As a result of those 2 factors, the law will become less burdensome all by itself.

I am not a huge proponent of lots of new laws to spend my money or complicate my business.  However, as a contractor/investor that comes into contact with lead paint on almost a daily basis, I also appreciate the need to make both workers as well as tenants/homeowners aware of the hazards.

I'm not trying to swing you to my way of thinking about this, just offering another point of view.  Personally, I highly doubt that even if every landlord spoke up to have the law changed there would be any change toward leniency.  I  also doubt that 30 years from now ALL lead paint will be gone, though I expect it will be less common.  This boils down to "choose your battles" and I don't think your battle can or will be won.

In my humble opinion, finding ANY website or even making one to give an estimate of value is not a good idea.  Ultimately, value of a given property is determined by a ready, willing, and able HUMAN.  So basing a buying decision on some web-driven algorithm is dangerous.  In short, a property is only truly worth what somebody will pay for it, not a penny more.

I understand the frustration behind waiting for a Realtor or appraiser to give you an informed value guesstimate, but having human input from an experienced advisor has far more value. I too used to wait for value opinions. Then I got sick of it and became a licensed broker and I pay for access to MLS Data now.

I just made it to the last of the posts, skimmed through all of them.  It appears the applicant himself was a visitor for a short time.  I did also skim through the applicant's comments.  At first glance, it seems like he is/was legit.  HOWEVER, the fact that he went out of his way to find BP, set up a user account, read all of the responses up to that point, then offer a lengthy post to rebut what had been said already strongly reinforces MY gut feeling.  That is a LOT of time/effort, in my opinion, to respond to a rejection of an application to rent a house/apartment.  The first word that pops in to my head is "really?".

The bottom line is this - a lease is a contract between 2 parties.  At the end of the day, the contract is only as good as the 2 parties that signed it.  If one of them is shady OR if the 2 parties don't see eye to eye on things for ANY reason, then it really isn't a good start is it?  See my previous post about tuition cost above...

 There are a lot of responses I haven't read yet, but the consensus is exactly what I was thinking...NEXT!

As to the quote above, as far as being a beginner, you are right to trust your instinct.  If it doesn't feel right, it probably isn't.  I have struggled with certain applicants because of my instinct, because on paper they may qualify, but something doesn't "feel" right.  Find a reason not to approve if your gut alarm is sounding.  If something isn't accurate on the application, deny for not being truthful if you have to.  Whatever reason you can come up with that doesn't put you at risk for any fair housing violations.  Several years ago, I added "have you ever been evicted?" to my application, followed by "when?".  It is amazing at how many truthful answers I get.  A yes can be grounds for denial.  An untruthful no can also be grounds for denial.  This one little addition has saved me several times when I needed a valid reason to deny.

I learned in 2001 to trust my gut feeling about people that I am entering into contracts with.  I went against my gut feeling.  That lesson cost me $ 104,000 in "tuition" cost.  I don't need to be taught the lesson twice.

@Karen F. - these tenants sound to me like what I classify as "professional tenants".  They know the system and know how to play it.  I agree this might be worth running by an attorney as far as how to handle the tenant situation.  More on that in a minute.

As far as finding something different in the code, here is a thought for you.  Why not take a copy of the section of the code so that you can quote it directly to the code's office?  You need to do this in a diplomatic and professional manner so you don't make a small problem bigger, but simply pointing out that the code reads that no common area can be powered off of a tenants meter can also be accomplished by alternative energy sources being used for common areas.  You may or may not win this, be gentle but firm with your position when explaining it.

The tenant that occupies the basement could be twisted a couple of ways.  I'm not an attorney and not giving legal advice, by the way.  It sounds like technically you permitted them use of the basement, so you may not be able to get them out of there without evicting them (ask your attorney), if they choose to fight you on this.

Here is a "dirty rules" idea to run by you.  I like to save it for special situations like this.  Can you talk to the code enforcer, explain the tenant problems, and essentially ASK for him to post your property for no occupancy for failure to comply with the requirement for the common area meter?  This essentially requires tenants to immediately vacate and could lead to them coming after you for relocation costs, so again, talk to your attorney.  However, it does get problem tenants out much quicker.  You will also likely have to install the electric service afterward.  You will also likely have a fine (not usually much) to pay and will likely need to have the whole property inspected for re-occupancy.

Another idea would be to have hallway/porch lights next to each tenant's door powered by their respective meters, but that doesn't do anything for the basement lights.  If you have electric panels or other items down there, code will likely require you to have lights there which, in turn, will kick in the need for a house meter.

If I were in your shoes, I would read through the lease that was signed carefully and see if you can get them on something else other than non-payment.  It sounds to me like the tenants need to go and I think you are thinking the same thing. 

Another "trick" I have used successfully in the past (again, not legal advice) is to simply do nothing right away.  I have even gone so far as telling the tenant to their face that I don't plan on renewing their lease and it will be much easier to fix the problems after they leave and move all of their stuff out so I don't have to work around them.  This situation is exactly why I prefer month to month leases.  We have many long-term tenants, but we clear out bad ones much quicker by simply not renewing their monthly lease as opposed to having to wait until the end of the year.

Tough situation indeed.  Good luck!

I use HM on deals pretty regularly.  I am a buy/rehab/hold investor.  I buy distress (condition, management, or both), fix the problems, then refinance and hold long term.  At first I was inclined to stay away from hard money due to cost.  However, after trying it a couple times, and after factoring the money cost into my analysis before buying, I have found that it helps me to get deals done quickly on properties that would not be finance-able going the traditional route.  If you don't close transactions, you don't make money.  Factor the money cost into your analysis.  If it still makes sense, close the deal.

I also LOVE owner-financing as it tends to be much more "gentle".  This isn't always an option, but I always ask if it is an option and try to make it work first.  

First, thank you for your service.  Second, I will throw another twist your way to consider, which goes along with other posts already made.  I tend to discourage people from going to/taking "guru" type training.  That is not the same training you refer to in order to become a licensed Realtor, so don't confuse that.  I do, however, recommend you read everything you can get your hands on.  You will learn a lot here on BP.  You will also learn a lot reading books, some of which may be published by the "guru's" that want you to buy their $ x,000 program to learn the "easy" way to invest in RE.  Real estate investing is simple, but it is not easy.

I got hooked on RE investing several years ago at a "free" seminar which turned out to be an infomercial for several types of guru training courses, all of which cost quite a bit of money.  My wife and I left and went straight to the book store instead.  I devoured every RE book I picked up, even if it wasn't necessarily on a type of investing I was sure I wanted to do.  When I started out, I swore I was going to flip a bunch of houses and that would be my new career soon.  After a couple of flips and a couple of flops, I found my true calling in buy/rehab/hold multi-unit properties.  I have done very well with this, even though I started out thinking being a landlord was the last thing on earth I wanted to be.  We are building a nice life for ourselves.  

Others do well with other types of investments.  Part of the challenge is figuring out what you do well and what you enjoy doing.  Learning about all aspects of investing will help you "explore".

A couple books/series to recommend, in addition to many titles you will find by searching other threads in the forums here, include Rich Dad Poor Dad series of books as well as The Millionaire Mind/Millionaire Next Door series of books.  Neither is a "how to" series as far as how to invest in RE.  They both are "how to" think books.  I have found both extremely helpful in overcoming the way that 99% of people in our country think about money and investing.

Buy used books too!  It doesn't matter to me if a page is dog-eared or if somebody highlighted a sentence, the words are exactly the same on the page.  This goes along with my attitude toward investing - how do I buy $ 100,000 worth of property for $ 50,000 easily translates to how do I buy $ 100 worth of books for $ 20.  It is a mind set.  You can find used books on ebay, Half.com, Amazon, and probably others.

Back to your original question - as a licensed broker myself, I would think there are not a lot (maybe not any) of brokers that would pay for your licensing courses, especially given that you are currently deployed.  That is simply from a business perspective, PLEASE don't take that personally.  I appreciate the sacrifices you make as a serviceman.  From the broker's perspective, paying for training/education is an investment that needs a return.  Let's say they spend $ 500 training you to get licensed.  If you are deployed, they will likely see a 0% return on that investment until you are back Stateside and actually start selling real estate and earning the broker commissions.  This brings up an important lesson when doing any deal, know how the other party makes money on the deal!  This will help with future dealings with Realtors, wholesalers, bankers, sellers, etc. on every single deal you do.

None of what I am saying is intended to discourage you.  One of the fundamental lessons that is drilled into our heads starting on the very first day of basic training is to never give up.  Look at your current situation and use it to the best of your ability, take advantage of it.  Reading/learning write now helps you toward your goal and fits your situation well because you are deployed (what the heck else is there to do when off-duty, drink?).  Use your free time to better prepare yourself and don't pay attention to the "Debbie Downers" that will undoubtedly break your chops because you are doing something different with your spare time.  When you are back Stateside, you will be much better prepared to jump in and get going.

Feel free to PM me.  Hit the "connect", then colleague request button.  I am not an expert or know-it-all, but have learned a lot and made my fair share of mistakes that I don't mind sharing to help you get started.  There are many other helpful people here too, get involved in the forums, ask questions, start a post if you want to learn something.  The only stupid question is the one that you decide not to ask!

Good luck!  Be safe!  Happy investing!

Wow , this thread took an ugly turn.  @Arlan Potter, I'm pretty sure I get the thought behind your post.  Basically, live for today in case there isn't tomorrow, right?  I will run with that thought and add that if you have the ability financially to do so, that would fit my definition of wealthy.

Here is how I do under-performing properties, which is basically everything I buy.  There are other approaches I am sure, this is just the way I do it.  I seek out a property with "issues", whether property condition, management, or a combination of the 2.  I buy with either cash or private/hard money loans, usually hard money which is expensive, but well-suited to this type of property.  I negotiate 18-24 months with the hard money lender to "buy him out" of the deal, basically pay him all cash for the mortgage balance or refinance with a traditional lender.

I then go in and do what I do well, fix the property, fix the management, and thereby raise the value of the property.  After a month or two of the initial purchase, I am already talking with lenders that I already have built relationships with about my project to see who has a taste for it.  I keep them informed with what we are doing, how progress is going, etc. so that they know 3-12 months ahead of time when I will be knocking on their door to talk about a refinance.

Here is an example of a deal I am working on now.  I've thinned out the details so I don't have to type a book, but this gives you an idea of what can be done when you have the right relationships in place.  Portfolio of 4 properties, consists of (2) 4-unit apartment houses and (2) mixed-use buildings, one of which is a mess.  Poor management has put the real estate trust that owns it behind on taxes and facing a tax foreclosure.  The rough building I wouldn't buy, but the other 3 I would, so I take the good with the bad.  Sale price for all 4 buildings is $ 75,000.  I borrow money from a hard-money lender I have worked with, mortgage amount is $ 100,000.  We went in and stabilized management, paid the back taxes at closing, and are now talking to lenders about refinancing the 3 buildings I would plan to keep.  The fourth building is in the air what we will do, it is a huge project if we keep it.  Anyway, we are looking to refinance in the neighborhood of $ 150,000+ for the THREE buildings, which would leave the fourth free and clear and give us more cash in hand after the refi is complete.  Our lenders (both hard money and bank) like it because we have good history with them and the properties are now well-managed and cash flow well (that is why we are not including the fourth building, by the way).  We like it because we have gained cash-flowing assets AND "made" cash to roll into our next purchase by way of doing cash-out refi's.

This was a honey of a deal for us, but the formula is used by us regularly.  Buy right using hard-money (it is expensive), fix the problems, refinance to better financing for a long-term hold hopefully with cash out at closing, use the cash to buy into larger projects of the same distressed-type, repeat.

I will say, that I hustled my tail off starting about 8 years ago.  The deals we are doing now I only dreamed about then.  However, I followed through on early smaller deals with my lenders and built a reputation with them.  It is finally getting easier.  Part of getting easier is that I am much more confident in myself and my abilities, and so are my lenders.  I tried to put together a couple home run deals in the beginning that I couldn't secure financing for.  In hindsight, that was a good thing.  My lenders MADE me find base hit deals first because that is all they would finance, good solid base-hit deals.  As a result, I learned the difference between the 2 types of deals.  When I call them, I will tell them that I think a deal is a solid base hit or it is a home run.  I don't get many home runs, but I will take solid base hits all day long, as will my lenders.

I like commercial real estate as well as commercial financing exactly for the reasons above.  It is a far different world than Fannie/Freddie lending and it has allowed me to go much further in my investments.  It is very simple, but certainly not easy.  Ask questions, meet with people, and talk to them.  If something happens on one of your projects that was not planned or potentially puts it at risk, don't hide it.  Talk to your lender and tell them what is happening.  They may not like it, but they want/need you to succeed, so they may give you the advice you need to help you fix it.  They will also remember that you were honest and up-front with them.  

Relationships are everything, as is your reputation.  Start building them with a couple local lenders that are aligned with your goals.