All Forum Posts by: Costin I.

@Natalie Kolodij - Not exactly an answer to your question, but close...related threads of possible interest:

A thread on a scenario one would be better to have the asset protection in place before this happens: 561300-urgent-help-potential-tenant-with-pitball

509923-when-has-an-llc-actually-saved-your-assets

553185-rental-properties-and-law-suits

560036-asset-protection-success-stories-are-there-any

607544-been-sued-please-share

443411-do-i-need-an-llc-to-invest-in-real-estate

@Spencer William Quesenberry - Here is a diagram to help you on your quest:
https://www.biggerpockets.com/...

@Dan H. First of all, the 96K realized profit is a dream. Unrealized yet. 

For which she paid 60K. So, that "profit" drops to 36K. To realize it, you have to sell - commissions and closing will wipe out most of it. 

2. A correction in the market (and I think most of us would agree that we are closer to, if not past of the peak, than in the ascension phase of the appreciation curve)  and it's all gone, for an investment cash flowing negative.

3. That "profit" leaks 9K per year. If that "incredible rate" and "incredible market appreciation" doesn't pan out (and counting on it is pure speculation, not investment), any longer vacancy, tax increases, rental cap, repairs will transform this opportunity into a money pit.

Speaking of repairs, I would call finding a property for 20% under the market, without need for any repairs (minor or capital) a unicorn, not the RE investment norm or beginner territory. While occasionally existent, giving this kind of examples/advice to new folks like @Christopher Davis has the same allure of the snake oil gurus dream selling seminars.

@Diane G. 

I’m trying to understand how this can be considered a good investment, and not a speculation on continued price appreciation.

That “120K instant equity” is a bird on the fence, yet to materialize. And is only 60K, because you paid 60K to get it.

Usually, condominiums have HOA, but maybe yours doesn't. You don't have anything factored for PM and vacancy (usually 8% property management and 8% for vacancy), nor anything for capital expenses and maintenance repairs, nor make ready. Depending on what number you would use here, you'd end up with a $500-$800 monthly negative cash flow.

So, your 60K investment brings you a negative (!) $2,400 - $9,600 annual return. That is pretty much guaranteed. Any longer vacancy, tax increases, rental cap will only make numbers worse. So, what is the play here? A bet on SF market continuous rise?

@Diane G. At 680K, with 25% down payment, the mortgage alone (without taxes and insurance) is close to 3,000. How are you cash flowing on this deal?

Even if somehow you BRRRRed this and have little actuall money in the deal, you are still negative cash flow and negative as ROI. This is crazy.

@Eliza Greenwood - you might have trouble getting financing on a house with foundation problems.

​There is more to foundation repairs than just the foundation. Here is what I collected as "warnings" or lessons (from various sources and some experienced myself) about foundation problems and/or repairs:

1. If you have brick on the exterior, you might have to do tuckpointing. $$$

2. If you have tiles inside, the tiles will crack. And if they have to drill holes for interior piers, you pretty much will have to replace the entire flooring. $$$$

3. You'll have drywall cracks, so you should factor in drywall repairs and repainting. $$$

4. If the doors were adjusted to a crooked foundation, you might need to readjust or even buy new doors. $$$

5. A hydrostatic plumbing test is recommended to be performed by a licensed plumber post Foundation work. Plumbing leaks may void warranty. Old houses have cast iron pipers that will disintegrate (because of age and/or foundation shift). You'll have to replace all plumbing at that point. $$$$

6. Depending on how bad is the foundation state (how many inches you have to correct), is very possible the sewer line will disconnect/break in the horizontal portions. Repairing that requires tunneling, a repair that could be very expensive. $$$$

7. If the driveway- garage differential is big (for example, the driveway slab is sunken and you need to raise the house, you'll end up with an even bigger gap after repair) you might need to replace the driveway. $$$$

8. If you are dealing with an addition built on 12" beams (or if the original foundation is old and not built to current standards), the repair company might not be able to push the piers down to refusal depth or psi due to the beam not taking the load, thus leveling it, but not guaranteeing it will not continue to move in the future, thus not providing warranty.

9. The owner may be required to provide a structural engineers evaluation prior to warranty work.

10. Read the fine print in the foundation repair contract: Damages to the property, interior and exterior as a result of the foundation movement are not covered, during and after works completion. This usually includes but is not limited to PLUMBING, flooring, landscape, utility lines and masonry. The foundation repair does not cover any repairs that may be needed to the home during and after works completion. And you'll have new cracks in unexpected places, old cracks that will not close, but instead enlarge. My suggestion is to add at least 25% to the cost of the foundation repair as mitigation to the problems that will come from the foundation repair.

11. The foundation repair company salespeople (and even owners, in some case) of structure companies are not engineers and though they may be right most of the time, there will be gaps in their assumptions. Unless it's a small job with an obvious solution, get an engineer ($250) to look at it and sketch up a scope of work for a contractor to do.

12. Many foundation problems have water as a root cause - be that infiltration in a crawl space, drainage around the site, cracked sewer line or water line. Before solving the foundation you might want to get to the root cause of the foundation issue and resolve it, otherwise you might repair the foundation for nothing.

13. If you repair the foundation on only select places, don't be surprised if the other sides will suddenly start "working". If the house is stabilized on one side, you might get cracks in the other side soon after. In other words, if you do a foundation repair, it's better to get the whole house stabilized and the warranty for the whole house.

@Mark S. - usually eviction procedures follow a specific timeline and flow, specific to your state regulations. I would look into that and get clear on how and when you need to post notices and initiate further actions. 

For example, the late fees might accrue, but you might not be able to charge a late fee till the 5th day past due. BUT you can initiate eviction procedures the day rent is past due - and that might be just sending a registered letter to the tenant. Then 10 days after the letter is received and you have proof of that, you can proceed to court filing, etc. 

The idea is you give the tenant a break, but you also do the steps you can on your side to protect your interests. That way, if at the end of next week he comes back with another "explanation", you'll not be out of two weeks time and you'll be ready to move to next phase. Maintain communication with the tenant and explain it to him that you do NOT wish to evict him, but in case he is not keeping his promise of pay at the end of the week, then you are prepared to do it. If he pays, all is forgotten, and you continue in good terms. That way it will be clear that business is business, and you have your obligations to fulfill to on your side (does your mortgage give you a break if not paying?) and him on his side.

Note: do NOT accept partial payments - in most states that resets the clock and you have to restart the procedures again.

@Keith A. @Carolyn Hodo - 

That unicorn does exist, but is called "portfolio LOC" or "asset based LOC". You just need to ask the right person for the right product at a bank.

1. Do not confuse HELOC (home equity line of credit) with HEL (home equity loan) - one is a "reusable" product, the other is a one time deal. LOC you get charged interest on the balance when used, the other you get charged interest on the whole balance from the moment you get it. LOC you can pay it down and reuse, the other you pay it down and gets closed.

2. There is no HELOC for an investment property. But you can get same thing - a line of credit (LOC) or portfolio LOC or asset based LOC - you just need to find the right bank and the right person in the bank who knows about this type of product (usually a commercial banker). Don't bother to ask a residential loan officer about HELOC on a rental, they will tell you "impossible" and not even know of alternatives.

Again: You can get an LOC on your rentals by asking a commercial lender about asset based LOC or portfolio LOC. A residential loan officer doesn't know about this product. We do have one LOC secured by two rentals that we use to make cash offers on properties we rehab, lease, refinance and repeat.

3. Shop around - the differences in LTV/LTC, fees, renewal fees, periods, terms, rates, closing, documentation required, etc. are substantial from bank to bank. You can see below a comparative sheet I used to bring them to an apple-to-apple comparison when I was looking for something like this 2 years ago.

4. You can get a portfolio LOC from several sources - I recommend Amplify CU (and to stay away from Wells Fargo). Most likely they offer portfolio loans too, that is an easier option to get usually.

[Note: this was from 2 years ago! Rates and conditions changed since then. We renewed ours at 6.25%. ]

Let me know if you have any questions or need more information.

@Eric B. - have you read this fresh article - 8 Ways to Identify the Best Places to Buy Rental Property ? Know about https://www.housingalerts.com/?

@Justin Witt - A transfer most likely will trigger the Due on Sale clause (DOS) - and while in the past, in an environment of falling interest rates and prices might been a rare occurrence, like they say, past performance might not apply to future results, and with rates increasing and "aged" loans (where the bulk of the interest was already collected, since you pay most at the beginning part of the amortization schedule) the banks might be more interested in collecting on the DOS clause and redeploying the money at higher interest (especially if the valuation of property makes for an easy sale in case of foreclosure).

A detailed resource on Due on Sale you might want to read is: the-truth-about-getting-around-due-on-sale-clauses (https://johntreed.com/blogs/john-t-reed-s-real-estate-investment-blog/66000067-the-truth-about-getting-around-due-on-sale-clauses).

Also, these threads might be worth reading:

386043-bank-called-my-due-on-sale-clause ()
183825-due-on-sale-clause-was-called-by-bank ()
232247-due-on-sale-clause ()

Also, FYI - The Fannie servicing guide, for about a year now, explicitly excludes a transfer into an LLC you own from the due on sale clause. You still have to close in your personal name, however. Link: oh-yeah-the-due-on-sale-clause-is-now-llc-friendly-sometimes

Then, if you choose to proceed, at least you'll know what you getting into.

But...it takes two to tango, and this can be a two-way game: if the bank hits you with the DOS letter, you can transfer the property back in your name to cure the problem and play that game, back and forth, if you want/can/afford. Or you can refinance, if your position is solid. So there are ways to deal with it.

Be careful when/if choosing to use a Quit Claim Deed:

A person receiving a purported real estate interest via a quitclaim deed may receive no legal right to the property whatsoever. If the person seeking to transfer real estate with a quitclaim deed has no legal interest, nothing legally is conveyed. In the absence of title insurance--which is not available for a quitclaim deed--the person receiving the quitclaim deed has no legal recourse because the deed itself states that only the interest of the grantor, if any interest exists, is conveyed.

Whether title insurance terminates by transferring real property depends on the type of policy, and how “insured” is defined in the policy. You take a risk which could result in cancellation of your title insurance and complete loss of your real property without compensation in the event that a title issue regarding your real property arises.

Contact your title insurance company to determine coverage and if your policy does cover transfers , and when or how.