All Forum Posts by: Gerald Demers

First rule of investing - don't invest beyond your sleep factor.  If your investing is keeping you up at night, you are investing beyond your risk tolerance.  

You typically cannot strip the equity out of an investment property as easily as you can your own home unless you travel back to 2003.  Even if you could, my advice for rental/income property is to NEVER strip the equity.  If expenses increase or rents soften, that is manageable if you have some breathing room.  If you strip the equity and create a larger monthly payment requirement, WHEN something happens (and it will happen at some point), where does that leave you?  

All that being said, one danger of investing using your Heloc is rising interest rates can hurt you. I would not count on the heloc as long term debt though with interest rates the way they are, they won't rise anytime soon. One suggestion if you do use your heloc is to begin looking for a money partner; someone that wants a good return in their IRA or something like that. If your HELOC becomes unmanageable, you can engage a private lender and close off the HELOC. And if you have not stripped out the equity, this is a viable alternative for you.

Or, you can use the HELOC to purchase, replace it with private funds, then use it again for your second property. You will not get cheaper money that what a HELOC would cost today but the interest rate is adjustable so it's a moving target.

Sleep well and make some money!

Gerald Demers

It depends on the deals you can find, what are the rents, age of properties, are you managing the properties yourself, etc?  I think with prudent purchasing, properties generating 900 per month rental income, you can factor in $200/month per unit with monies owing on the property.  You will get more cashflow than that but expenses/repairs will reduce it.  $200/month is $2,400/year.

100K/2,400 is 42 houses with mortgages.  However, once you start paying them off, it is going to be SIGNIFICANTLY MORE.  

And all of this is a SWAG - Sceintific, Wild Assed Guess.  But it's a good place to start.  Our 8 rentals generate about 1,900 per month after expenses and there were plenty of them this year (22,800/year).  With this math, we would need 35 properties, but prices are rising so the deals are harder to find.  

Hope this helps.

Gerald Demers

Hello @Mark Douglas, what is in your lease regarding people residing there not on the lease?  In our lease, anyone of the age of majority signs the lease and each party is wholly and severally responsible to all monies owed.  

If anyone does move in without our approval, it is an additional $200 a month per person.  

Do these people not on the lease have anything in writing from your tenant allowing them to stay?  

There are always options to getting them out but some are more expensive than others and again, it really depends on your lease.  

Gerald Demers

Time for probate varies and depends on other assets and what the beneficiaries of the estate do. If they are disagreeing, it can take a long time but that in itself creates some opportunities. Some beneficiaries are in no hurry to complete the probate process; some are.

How long to send? You keep sending until the property is sold to an arm's length buyer. This is the challenging part of probate but there is value in it and a great job for a VA.

I have my mailing list in Excel and I constantly scrub it. I add several columns to the front to record the days I mailed to them. If I get a response from them, I move that record/line to another worksheet called Contact Received. I connect with them and capture mynotes and take appropriate action. If I make an offer on the place, I move that record to my Offers Worksheet. This way, I know how many times I sent to the address, if contact and offers were made and the result.

At the same time, I can also look on the property appraiser's site for changes in ownership. If I see a new deed with a reasonable sale value assessed with it, it has probably been sold to a new arm's length buyer. If I see this, I remove this record from my mailing (scrub my list). If you see it transfer to a beneficiary, I update the record in my Excel worksheet, move the record to my Beneficiaries worksheet and mail to them.

I hope this helps you, 

Gerald Demers 

Well done @Tim Johnson.  Is the duplex one property according to the county property appraiser or two?

Gerald Demers

Thank you for your response @Bill Gulley.  Apologies for using the wrong term Double Closing.  I was referring to back to back closings (two completely separate closings); nothing illegal and no mixing of funds.  

I am not sure why you keep referencing guru and guru group.  I am an investor: I have wholesaled, purchased short sales, rehabbed and resold, fixed and kept as rental portfolio properties, and purchased and sold notes.  I am focusing on notes right now because the prices here in Central Florida are approaching ridiculous and over valued again.  I get help from these forums and help where I can.  

I do not know how the "gurus" suggest assigning contracts so I cannot speak to that.  You mention "We've had many broken hearted wannabe wholesalers on BP, many just want to go down the yellow brick road, all I'm saying is wake up!"  If this was your intent, I didn't see it.  To me, your response seemed to assume they were going to do it wrong and good luck with that; maybe you'll learn but if you don't, not too worry, you can get a free Orange jumpsuit.  I just don't see the value of such a response.  

I have never wholesaled a property or assigned any contract to anyone other than a cash buyer or one using unconventional financing such as hard money.  Nor have I ever seen anyone buy from a wholesaler using conventional financing so I assumed no conventional financing came into play (maybe that was an incorrect assumption).  Not saying it isn't done; just saying I have not seen it.  Any time I have assigned a contract, the seller was informed I am doing so and they agreed, they were clear there were no additional fees to them and if my found buyer failed to close, I would still close (I promised to perform when I signed the contract and remain committed to performing as promised).  We then added an addendum of understanding to the original contract that all three parties sign.  If they didn't agree with the assignment, I could still do a back to back close and get paid.  

I have never seen an assignment fee collected before closing.  I am not saying it isn't done; just never seen it, no one I am associated with would suggest it, and I would certainly not pay it before I closed.  What recourse would I have if the seller failed to perform?  I would have to chase down the one that sold me the contract and i have better things to do with my time than that.   

All that said, if I had a property under contract and I found a buyer willing to pay more but was financing conventionally, how would I do that deal and get paid in a way that won't stop the closing?  Hmmmm.  The buyer would have to be rock solid and I would do a back to back closing.  Not because of legalities; i just know that if a bank is involved, if you do anything outside convention, they will say no; even if it's legal.  My agreement with the end buyer would include daily penalties for a delayed closing and if they failed to close, they lose their deposit.  Actually, this is in all our sale agreements.  Deposits typically become non-refundable (go hard) after the inspection period but we always add penalties for delays.  

Gerald Demers

My pleasure @Mohammed Mallick.  as you get more info, if you have questions, post them.  The key is to get it under contract, then start your due dilligence.  

Gerald

@Dylan Swinney, talk to a tax attorney, CPA and others to get suggestions on the best business structure for the type of business activity you are doing and income you are generating.  Then talk to your CPA about the best ways to capture that income so it's all legit and easy to account for (books, entries, taxes, etc.).  

Gerald

Hello @Bill Gulley, I am really confused by your response and quite taken aback, especially the last paragraph - you're on the wrong road to success in real estate.  Why such a horribly negative and depressing comment that also alludes to doing something illegal and going to prison?  You say don't listen to gurus but your website paints you as exactly that.  Were you implying I was coming across as a know it all guru?  I hope not as I am certainly not.  Regardless, I don't understand the purpose or intent of your comment.  

@Dylan Swinney's question was specific to income and taxes.  Yes, all the closing statements need to show all costs; in this case, his fees would be on the buyer's side of the settlement statement if he is assigning the contract.  He could also be doing a double closing to generate the income but again, all that would be captured in this case, on two settlement statements.  

Also, it's not really a flaw to assigning.  A flaw is usually associated to something that does not work.  It would be an important thing to note that all costs and income are property captured in your settlement statement/s or in could create issues for you, your buyer or both.  

All that being said, there are a few other ways to capture and show costs that are all legal and create no accounting nightmares or a need for Orange jumpsuits.  

In all cases, the income generated is short term income and is taxed at the highest rate.  If done within a business, there is opportunity galore to offset that income which is why I strongly suggested Dylan find a CPA that knows real estate investing.  

Still blown away by your response...

Gerald Demers

@Mohammed Mallick, first of all, well done on creating the opportunity.  

Do you have any experience with commercial?  If you don't, and it doesn't sound like you do, that does not mean this is an opportunity you should step away from, but maybe get some local help with it.

The value of a commercial property is based largely on income but also the types of leases each tenant has can be a huge factor.  You will see and hear terms like net, triple net, etc.  These have a lot to deal with who is paying utilities, taxes, making repairs, general maintenance like parking lots, garbage.  Some leases have profit sharing components where the tenant may pay less per month but the property owner can get a share of the profits.  

So, questions to ask:

• What is the total square footage?  What is the sq footage of common areas, and those of each tenant.
• You have basic building questions overall: age of the roof, type of roof, other major systems, you will want to see a history of maintenance or major repairs.  
• Ask questions so you are clear what are management responsibilities and what are individual tenant's.  Does each tenant have the same responsibilities or are they different?  
• You need to see all the numbers from them and you need to look at their books. Have your account/CPA help you with this.  
• Of each lease, what are the terms, when does the lease expire; do they all expire soon or at or near the same time?  If they do, you can suddenly find yourself with a vacant building.  How strong is each of the businesses; are they struggling or successful?  It does not matter what type of lease you have, if they go out of business, you have no rental income from them.  
• Of the leases, are any expiring while you are looking at the property?  If yes, you want to see that lease before it's finalized.  You do not want the present owner signing a sweetheart lease that you have to but cannot honor once you become the owner.  

There are so many things to look at but know you have time to look at things,  Get the property under contract and give yourself and your team sufficient time to analyze the numbers and other info and then find someone with commercial experience to help you.  

Gerald Demers