All Forum Posts by: Don Konipol
Don Konipol has started 221 posts and replied 5496 times.
Post: Am I crazy to purchase a resort on a lake in Minnesota?
#1 Innovative Strategies ContributorPosted - Lender
- The Woodlands, TX
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Quote from @Pete Slaga:
I am considering a resort on a lake in Minnesota. It has a main lodge that has 10 hotel rooms, four 3bedroom 1 bath cabins on the lake, and four 2 bedroom 1 bath cabins on the lake. It also has an in ground pool. There is a bar that is leased out for 1,200 a month. The lake location and frontage quality is 7 out of 10. It is a smaller lake only about 180 acres, but it is a sandy bottom. The cabins are dated and I would put them at a 3 out of 10. I spoke with zoning and I can remodel if I keep the current footprint on the cabins. The owners are old school.. They book over the phone and are "fancy" booking on Facebook. My analysis and just the general sense is there is a lot of value add.
Someone share with me the horror stories and what I should look out for that you have learned.
Do you have experience managing similar BUSINESSES - an operation this size is a BUSINESS as much or more than an investment.
Post: Your Loan Has A Due On Sale Clause
#1 Innovative Strategies ContributorPosted - Lender
- The Woodlands, TX
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Quote from @Ken M.:
For years now, all loans have had a "Due On Sale" clause. That means it has to be paid off when the property changes hands, unless the lender approves an assumption. An assumption is not a "Subject To" or called a "SubTo". Assumption and Subject To are different.
Subject To is the cheapest financing you will find.
That means technically, if ownership, or a part of ownership has changed hands for any reason, or in some contracts "is planned to change hands in the future", the bank has the right to call the loan due. That means they can issue a demand for payback, before the financing term is completed. If that payback isn't timely made, they can force a foreclosure sale.
By the way, being in foreclosure does not mean the borrower has already lost the house. There are remedies, but that's for later.
When a Due On Sale is enforced, the lender must notify the borrower of the violation in writing, stating how to "cure" that particular violation and allow a set amount of time for the borrower to fix the problem or the borrower will lose the house. The house could be being used as a rental and losing the house could violate your agreement with the renter. Or if you had sold it but kept the financing, it could violate your agreement with the buyer. Either way, you could get sued. However, there is a safe way to do these.
Banks do not like to wind up with properties, (called REO, Real Estate Owned) It costs them money and they lose the ability to lend a certain percentage of their assets, which is controlled by the regulators. It looks bad to investors and sometimes loan officers get fired. Banks are all about making lots of money, "safely".
The important part is to note, is that it is not illegal to sell a house using various techniques that violate the Due On Sale clause.
It is smart though, to have a solution ahead of time, for each of the common reasons a note gets called. There are solutions, but these are not areas you want to "guess" at. In 30 years and uncounted properties, I've only had two Due On Sale called. One was in 2008 ( I did something stupid) and one was in 2020. If someone has had more than a couple called, they are doing something wrong and need proper training from someone like us. You avoid poison ivy by not walking in the woods, but you walk in the woods anyway, so just know where the bad stuff is.
You’ve done an excellent job of clarifying most of the incorrect information, notably concerning the LEGALITY of violating the “due on sale” provision.
Most of the criticism (at least the more rational criticism) tends to congregate around the disaster that can occur if the new buyer defaults and the sellers limitation on credit capacity. BUT, these criticisms are based on the seller having an alternative of selling to a cash or conventional loan buyer and being relieved of all liability. There are a number of instances where that is NOT a viable alternative. Where the seller has negative or no equity in the property (and can’t provide additional funds to get out” of the loan),where the seller doesn’t have the time available to wait to close, and where the seller seeks maximum sale price for the property and is able to handle the risks of default.
There are numerous “safeguards” that can be put into play which provide a good amount (NOT 100%) protection to both parties. But that requires full disclosure, attorney working for BOTH parties, and neither party having an undisclosed “nefarious” agenda to “screw” the other party.
Some of the best deals I’ve ever done have been with subject to - I’ve been on both sides. interestingly, it’s worked well for me in commercial transactions, but that may be because I’m primarily in commercial real estate.
Subject to (especially in INVESTMENT) properties is an area where both sides of the transaction can truly benefit.
Post: Is it easy to evict a buyer who purchased via Subject-to?
#1 Innovative Strategies ContributorPosted - Lender
- The Woodlands, TX
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To be clear - once a property is sold, whether “subject to” or not, any lien holder or anyone with an enforceable lien against a property must formerly foreclose on the property to gain control. Once ownership is transferred via foreclosure the owner can file for eviction against any occupants including the previous owner.
A contract for deed THEORETICALLY works differently, in that since the warranty deed is NOT recorded there’s no need for formal foreclosure - but in the last 20 years various states have passed laws and or regulations providing contract buyers with greater protections that may necessitate foreclosure or “foreclosure like” proceeding in order to gain “ownership”.
Post: The Craziest Excuses Tenants Ever Told Me for Not Having Their Rent Paid
#1 Innovative Strategies ContributorPosted - Lender
- The Woodlands, TX
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The Craziest Excuses Tenants Ever Told Me for Not Having Their Rent Paid
1. I had the money but then that electric bill came up unexpected like
2. Oh that American Express card don’t stay good forever you know
3. It’s your fault for renting me an apartment I can’t afford
4. I thought I could just skip this month
5. I painted the walls in the entire house black - that should cover 3 months rent
6. I’m entitled to quiet enjoyment and it’s not quiet and I’m not enjoying living here
7. The other tenants are harassing me because I don’t clean up my dogs poop
8. Talk to my ex wife - she gets all my money
9. My religion doesn’t allow the payment of rent
10. I thought this was a nationwide free rent month
Post: What are lp in syndications looking for?
#1 Innovative Strategies ContributorPosted - Lender
- The Woodlands, TX
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Quote from @Chris Howell:
I am interested in learning more on expectations of a lp in a passive multi family syndication?
2. Background/personal history of principal individuals
3. Realistic pro forma statements
4. Limit on upfront fees paid to sponsor or related parties
5. Reasonable “profit” split between GP and LPs
6. ‘Staying power” of GP
7. Transparency
8. My familiarity with property type / geographical area
9. Risk adjusted ROI
10. Cash flow projections
Post: Did I Get a Good or Bad Deal?
#1 Innovative Strategies ContributorPosted - Lender
- The Woodlands, TX
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Quote from @Jaxon Ludtke:
Cash Flow: -$30/month. Yes, negative. Location: Utah Valley, UT. Hot growing market. Avg Appreciation over last 10 yrs in my area: ~8% annually Equity paydown over next 5 yrs based on amortization schedule: ~27k
Bought home for 400k, appraised at 485k.
FHA loan, 30 yr, 5.875% int rate, MIP is $175/mo.
Strategy: Date the rate for 4-6 yrs, pray int rates drop to 4-5%, re finance into conventional with LTV less than 80% due to existing equity, take off PMI/MIP, have a lower int rate, and cash flow ~$200-250/mo.
Good deal? Bad deal? Bad strategy? Feedback.
Any time you can put 5%down, buy for 15% under market, and get close to break even it’s a “good” deal - on the surface. If you hold long term, the area population grows, the neighborhood remains “good” or gets “better”, you will have a deal that’s profitable, perhaps very profitable. If the opposite happens - well then that’s why all investing is at least somewhat risky. But, historical evidence is on your side. As long as you can hold on for the long term.
Post: Lease Purchase vs Lease Option
#1 Innovative Strategies ContributorPosted - Lender
- The Woodlands, TX
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Quote from @Mario Garcia:
but how is the obligation enforced in a lease purchase???
“protection” strategies, how far the plaintiff is willing to go and how much they’re willing to spend, etc.
Post: Can you really start a portfolio with no money up front??
#1 Innovative Strategies ContributorPosted - Lender
- The Woodlands, TX
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Quote from @Eric Sprecher:
So im new to real estate and investing in property. I want to build a rental portfolio utilizing fix n flips. I know a little about real estate but I keep seeing all these videos about starting up with no money. Is that really possible?
Legal clauses later placed into mortgage and deeds of trust make using the second mortgage crank, and seller silent second fraudulent; various laws destined to protect sellers by requiring full and honest disclose limit the effectiveness of subordination and substitution. The expansion of liability to third parties makes title insurers unwilling to do anything without covering their a… nine different ways.
if someone has extensive knowledge, a verifiable track record of success, and excellent credit it IS possible to purchase real estate with no personal capital committed. But please be aware that (1) real property purchased using 100% leverage will almost always have net cash OUTFLOW on a monthly basis, be vulnerable to tenant loss, emergency repairs, and general deterioration. And the property available with seller financing will most often be priced above market, in poor condition, or in some way have a defect.
Post: Norada Capital Management Promissory note investment
#1 Innovative Strategies ContributorPosted - Lender
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“Santarelli told investors they would receive monthly interest payments from income generated from five categories of businesses in which NCM would invest their money, including e-commerce, real estate, Broadway shows, and cryptocurrency.”
No clearer sign that this was going to be a disaster - someone claiming expertise in e-commerce, real estate, Broadway shows, and crypto. I’ve spent my life trying to gain expertise in a SEGMENT of real estate; this guy must have 200 hours in each day.
Post: Tenant Wants to Break 2-Year Lease After Losing Job — Property Manager Says $36,000
#1 Innovative Strategies ContributorPosted - Lender
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The tenants legal standing is the landlords duty to relet the probably - so the landlords damages are mitigated by the rent collected by the replacement tenant. So if $36,000 is owed for the remainder of the lease, AND the lease has no provision for allowing for early termination by the tenant, the tenant will owe $36k minus whatever NET rent is collected for the period of contracted tenancy.
As per the property manager’s conclusion that they would be owed $1,800 in the case of you taking the property off the market, it sounds probable but no one can know if this is correct without reading the contract between yourself and the property manager.
As a side note, many people entering lease agreements aren’t financially or business sophisticated, and probably don’t realize their potential liability. They’re frame of reference seems to be the rentals they and their friends had in their late teens and early twenties where they broke the lease in a low end high turnover apt complex and management had made the decision that doing anything more than sending a few threatening letters to people with no assets was not financially viable.
As a side note whenever I had a tenant claim job loss I always looked closer. It was often the case where the tenant quit the job to accept a new job in a different locale either in a different metro area, or in the same metro area but desired a closer commute. If this was the case I would agree to settle for 3 - 6 months rent additional paid immediately and forfeiture of the security deposit.