All Forum Posts by: Jeff Bridges

Seems reasonable to charge them to replace the bushes that died (at current replacement rate), not your entire original cost for landscaping. Had they not made request for landscaping, they would have had light responsibility for light watering and weeding, mowing etc. Since they requested additional landscaping, they also must assume additional maintenance responsibilities that go with the blanket lease requirement in your lease.

I'd consider only trying to charge them at move-out OR asking them if they wish to have the bushes replaced or if they don't want the maintenance headache. You really can only charge them repair/ replacement costs, so if you make them pay now, then don't replace the landscaping, they could be bitter that you are just pocketing the money (in their eyes). My only value-add to this is to write a polite letter noting something along the lines of "per your written request on xx/xx/xx, I added additional landscaping/ plants and shrubs. Per lease paragraph X, tenant is responsible for basic lawn maintenance. x bushes require replacement due to lack of basic lawn care at a cost of x each for a total of x. Please include remittance with the next month's rent payment. Thank you.

it also bears noting that inspections every three years is not best practice:) you should be doing this annually at a bare minimum. The plants could have died the first season during the winter when they were still fragile, which may make you rethink charging altogether...

I definitely charge for any service calls or repairs that are the result of straight up tenant neglect. The way I am able to do this is that I use a lease addendum which contains more specific paragraphs on each topic (some people bake it into their lease, but i use a state specific lease that allows an addendum). I have a paragraph on cleaning fees ($200 min carpet cleaning fee) that would result if the carpet was stained following moved out (I always have the carpet cleaned prior to move-in and expect it to be in the same cleaned conditon at move-out. You can only have this expectation if its spelled out in your lease and its agreed upon by the tenant ). I have a section about lockouts and how I charge $20 between 8-6 m-f, and $30 all other times. I have a section on drain stoppages that cite that anything besides that caused by defective plumbing, tree roots, or acts of God will be the responsibility of the tenant and contains a list of the obvious of what not to put in the drain and that tenant agrees to pay plumbing cost to clear stoppages beside the above. Coincidentally, your tenant damage issue, while not requiring a special lease addendum to charge for tenant neglect, is covered by my paragraph on drain stoppages:)

I'm trying to look at this from a unbiased analytical approach, so excuse the lack of emotion/sympathy in advance.

First, consider yourself lucky that you haven't lost any money(yet). So don't think that your first venture into real estate was a failure by any means. It's a mostly self sustaining business for the time being. I'd take your experience as a lessons learned and see exactly what mistakes (if any) you made and can apply to future transactions so you do better next time. Did you miscalculate your anticipated rental price? Was it because of the size, renovation quality, location etc? Did you forget to include certain expenses or underestimate them altogether? Could you have done better due diligence on necessary repairs? Did you buy the property at 70-80% market value so that you could more easily sell the property when that time came?

Next steps to ask yourself: what are you exit strategies and which one represents the best opportunity for you? If you were to sell the property in current conditions, would you breakeven, lose money or gain money after considering all closing costs (calculate closing costs from both the purchase and possible sale, including ~6% agent commission at sale). If you kept it, you might get $600 a year (is this including 8-10% vacancy allowance?), but I don't know how much work you put into the place initially and how new the systems are to determine when the next major repair is to be expected. Any major repair would likely result in a net loss on an annual basis. Further, you might need a few years to build up a property repair reserve account based on that income and will be unable to take any profits to reinvest in other prospects. You might have to decide if market is favorable to sell now or sell now anyway and accept a loss on your initial investment or wait for more favorable market conditions while having a risk that repair bills might be incurred during that timeframe. Lots to consider. Good luck!

My scenario listed earlier was assuming you paid cash up front for the property and then did a cash out refi. Banks don't look favorably on refinancing a conventional loan so quickly after closing on a new home purchase loan. Not only do you pay loan closing costs twice so its pricey, but the banks don't make money on all that effort for such a short duration and might opt not to lend to you in the future if you employ that strategy (but talk to a lender first to confirm).

Other investors may use hard money loans (short term, high interest loan) to finance the purchase and repairs, then refinance with a conventional loan within 6 months. I'm not advocating this as this is a risky strategy in my eyes, but do your search on this site for "hard money loans" to learn more. I'm not aware of any conventional investor loans that will also loan repair costs or lend if the property needs work (just be honest what exactly work it may require and lender can tell you if it disqualifies the property). They'll find out during the appraisal and before closing regardless..

bottom line: If you loan up front conventional, you will only get the purchase price amount. If you pay cash, fix up, then cash out refinance 6-12 months later, you stand a chance to be loaned the after repair value, but have a chat with several lenders before making a decision to proceed with such an approach. be very specific.

Cash out refi, you usually need to wait minimum 6 months for seasoning in order for a bank to consider a cash out refi for a post-renovation value above the original purchase price. They'll likely want to see some or all of those 6 months of seasoning with income earning tenants and want to see proof of deposits. Further, they'll order an appraisal (at your cost) to determine market value post repairs. Find the recent comps in your area for the house (or the average selling price for 3-5 others) with similar renovation quality to gauge how high you think it MIGHT appraise for. then take that estimated range based on similar comps nearby to the unit and then take 75-80% LTV (bank will only lend 75-80% of appraised value of house depending on the bank), which will be the amount they might loan to you. tax asessment has no bearing on what the bank will lend you. If recent comps in the area are all 40k, then they might only lend you 32k for example. Hope that helps. Doing your own research on the comps might save you from paying for appraisal, applying for loan only to find out that they will only lend you 32k a the end of it....

Very good strategy and I will make sure I create my bids accordingly. In my fuzzy logic, I was losing sight of the difference between partners with cash to contribute and investors with financing to contribute from a bid standpoint. Things get confusing when you are not using conventional lenders or your own bank account, but I'm believing it's totally worth the increased opportunities private money brings.Thanks all!

While repairs/ and property condition are very important, they are only a part of your analysis on whether to proceed. You provided an asking price for Alabama market, which very few of us know, but we do know things like Cash on cash return/ ROI based on expected rental income. If you're going to spend $20k+ on property, repairs, closing costs, you want to know if your expected income will yield an ROI that will beat alternative investments like stocks/ bonds/ whatever... Also, I presume there are higher headaches associated with section 8 or less desirable neighborhoods and tenants who want to live in those neighborhoods. You have to decide if that ROI/ income stream is worth your having to manage those tenants along with higher risk of property damage, eviction etc. vs non section 8 neighborhood.... You likely want it to be a great deal/ higher Cash on cash return to account for higher risk neighborhood vs. return for a less risky neighborhood that has less management pains/ hands on requirements.

Post some of those figures like, expected rent and expenses along cash on cash return calculations(if possible) and maybe some of us can help identify IF you will cashflow and if that cashflow is worth it....

I guess I was mixing terminology; my mistake. I plan on entering a partnership where both my partner and I provide the cash for the offer. In this scenario, we both provide POF no problem. But there may be family members etc that contribute to my partner's funds. I guess the answer is that they would need to fund his account prior to a bid so he could show POF in his own account.

If instead of a partnership, I sought a private money note from a business colleague who is non accredited lender, do I then help them create an LOI and POF? I would have the note written/ filed by an attorney etc., but just looking to see how people proceed when they aren't using professional lenders. Thanks!

Your loan officer might work for a bank or firm, but FNMA is the underwriter for all of these homepath loans and they have pretty specific paperwork which you will sign at closing that states your intent to occupy within 60 days and live in it for at least a year along with the stiff monetary penalties for not adhering to these requirements, same as what you noted. Your loan officer is not looking after your best interests or is uninformed. You can have all of the intellectual discussions you want about spirit of "intent" and extenuating circumstances that might require you to move before that one year has passed, but the bottom line is the banks consider such activities as fraud if you were to use such a loan to live in it for a few months, then plan a flip, or rent it out. There is a reason why they have different down payment requirements and interest rates for investor loans, and for homepath, the requirements are extremely generous for investors compared with normal conventional loans. So if you're not interested in remaining in the place for at least a year, I suggest getting the investor rate for homepath loan instead.

I have a owner occupied homepath loan, and I plan to live in the property for at least a year, at which point I will start looking for my next homepath property and rent out the current one. rinse repeat....

How do investors handle cash transactions that are funded from private money? How do they provide POF if the source of the cash funds will not be from one of the bidders on the contract ?