All Forum Posts by: Mitchell Goldstein

@Zach Carner    I would sell and take the profits to invest into a multifamily near you.

Your profit is minimal so utilize a strategy to get the most gain: 

1. The market is predicted to be going up for the next three months.

2. You can list your property on the MLS by using a realtor who offers a Flat Fee for $100 and avoid the 2-6% commission. With a typical flat-fee package, you can expect to have your listing posted on your local MLS for 3-12 months with anywhere from 6-25 photos, along with a brief description of your property. But as a trade-off, you won't get the full-service selling experience that traditional realtors offer. You will be your own realtor.

3. Sell utilizing a 1031 Exchange to avoid capital gains taxes. You must be careful of the time restrictions inherent in a 1031 deal, i.e. 45 days to identify the new property and 180 days to close on it. Coordination is key. Once sold, delay closing on your home until you have identified the property you will be purchasing. 

4. I research the tax delinquent data bases for my acquisitions. You will find multi-family properties that have not paid their property taxes and can create a very good transaction with these very motivated sellers.

5. Try to purchase using the Subject To method so that you can take over the existing debt instead of applying for a new mortgage. In this manner you should be able to purchase a much larger property.

6. The 1031 cash profit from the sale of your house can be used pay off the seller so they can move on; or to pay the outstanding taxes should the property be close to a tax auction - but only if you have the deed in your possession.

7. Alternatively, banks have clients with mortgages that are in arrears. Find a bank with a small complex and offer to take the problem off their hands.

Good luck. Contact me with any questions.

CoachMitch.com

@Ravi Kiran   I'm really sorry for your situation and happy that your tenant is not badly hurt. It could have been much worse.

There are several "good" things in this "bad" situation. Your tenant will be going after the driver and not you. There are several insurances involved that should cover most of the losses. That your tenant is willing to pay 50% of the rent is interesting because a property must be habitable to live in and to pass inspection and your home is likely not habitable.

In my lease, I have a clause that covers this exact situation. The tenant will pay to go and pay for a motel of my choice for 30 days. I will cover any motel rental amount over the house rental, which is only fair. If I cannot bring the tenant back within 30 days, I allow the tenant out of the lease if they choose or the tenant payment clock starts again for the next 30 days, etc.

I presume that you've checked your insurance policy to see if your insurance covers rental loss. My guess it does not. You or your tenants rental loss and other losses, such as, extra costs of eating out, laundromat costs, etc. seems to be a simple smalls claims issue, presuming it is less than $3-$5,000. If more, then you will have to go to the next higher court with its higher initial costs, about $300 in my area of NYS.

In addition, be sure to check how long your homeowner's policy will stay in effect when empty. Insurance companies will not cover an empty house for more than 60 days so a different policy will be needed to cover any time over 60 days. Make your insurance agent your best friend.

MOST IMPORTANT - hire a Public Adjuster to represent you with your insurance company. Do NOT sign any agreement with your insurance company until your Public Adjuster has looked over their offer. When I had a loss, the insurance company offered $4000. The Public Adjuster got them to pay $40,000!

Good luck - you may need it.   CoachMitch.com

@Maurice Burnett  All good info in these posts. Different government entities have differing standards; the federal standard having the lowest requirement with the states being stricter and local jurisdictions being even more strict. This is typical. You MUST know before you purchase what you are facing so I applaud your due diligence.

Did you ask the appraiser how he came to his conclusion? 

Understanding how an appraisal standard is created and applied is important, as you are seeing with this issue. Check with Code Enforcement before checking with the appraiser so you have ammunition for your argument, especially if Code differs with the appraiser. Code wins - all the time. Even if the bank lends on projected cash flow, you are at a deficit if Code requires closets that you do not have. Armoire's are not as desirable as closets, so reduce your rental projections to accommodate this reality.

Good luck. www.CoachMitch.com

@Robert Duncan Beginning Rules to Understand

1. The newbie gets real estate analysis paralysis because he is afraid to lose money or make a wrong move, so he keeps on looking for a formula that will help to prevent both.

2. To prevent losing money or making a wrong move, consider taking control of the property using a real estate option.

This little known legal device allows the potential buyer (you) to control the property while having no responsibilities for the property. The seller wants to sell. You merely need to convince the seller that you are capable of performing, i.e. buying the property and/or finding a buyer for the property, which is what I do. A big advantage to an option is that it conveys an inchoate ownership position, i.e. a future ownership. Therefore, you will be able to list the property in the MLS. Check, but you should be able to maintain that you are an owner in areas where anti-wholesaling laws are prevalent.

3. The time frame to choose to buy the property can be long; I've never optioned for less than 6 months, usually one year.

4. The properly drawn up option document will have a very low earnest money down payment. I have only ever paid $1. People think a big earnest deposit will guarantee action. If the seller is convinced that you will take action, then the need for a big deposit goes away.

5. If the property is owner occupied then make sure the seller will cooperate in the sale, i.e. putting out signage, answering questions, not being in the property when there is a showing, etc.

6. If you think of anything that can mess up a transaction, then create a clause to protect yourself.

Using my option, the most I can lose is $1 - that makes it safe. 

If you concentrate on finding distressed sellers, then you will have the best chance of having an agreement that suits you because the seller has few choices.

I have had as many as 225 options in place at one time, never paying more than $1 for option consideration.

Good luck. Reach out for any questions.

CoachMitch.com

All the responder's have valid points, however I do not see any suggestions for a fix.

From the sellers side, the buyer should expect to provide a bank pre-qualification for the amount of the purchase. From the buyer's side, the property is expected to appraise for at least the amount of the purchase.

In this case, the After Repaired Value, ARV, did not rise to the level needed. Why not? What more would the bank require in rehab so that the property would appraise for the needed amount? If the buyer agrees with the additional fixes and their cost, and it does appraise at the needed amount, then the problem is solved.

Your earnest monies should be refunded in this case, because the loan was turned down and that is the language of the agreement. However, the sellers attorney could object on the basis that the base property did appraise, which is the sellers responsibility and the proposed improvements did not bring the needed appraisal amount, which is the buyers responsibility. As there was no contingency for this eventuality, the buyer wins by default.

This situation is a good lesson for sellers who are selling to a rehabber. The seller should not be punished if the rehabber does not make sufficient improvements to satisfy the banking requirements. A contract contingency could be created allowing the seller to keep the earnest money deposit should the improvements not bring the needed ARV. It is prudent for the seller to know enough about the market to properly analyze the improvements and their effect on the value of the property.

From the buyers side, only put down an earnest money deposit that you can afford to lose. I've been involved in hundreds of transactions and have only ever put down $1 as a deposit. Sellers want more but I convince them that I can and will act. So far that has satisfied them. Good luck.