All Forum Posts by: Anna Laud

@Zack Voiro

Hi Zack! I'll try to cover your first expenses here and assume you're basing this on needing some rehab work with HML/PML and what your 'cash to close' at least would look like. If using a conventional loan, these fees up front would still apply (inspection for example) and any fees your lender would have (loan origination fees etc - which is lender based, those may roll into your loan etc)

This is long winded, but hang with me and I hope you'll get the best idea of why investment deals (no matter how financed) do require you to have some reserve for sure. This is broad for both fix & flip, and buy & hold;

I'll kind of give you the avg. breakdown of what some of these fees for "cash to close" might look like and even if you end up using a hard money lender or HML, these might be covered by you up front and then paid back to you as part of your first ‘draw'.

Cash to close is usually 1-3% of purchase price (at least in IN an as example) and that’s what I break down below.

It depends on the HML you might work with if going that route- for example (depending on the property being acquired) we've had investors work with one HML that requires $16K in an account with your name on it, balance held at $16K (the minimum, based on the deal) for 60 days.

The reason for this is you need to be able to finance a few portions of the deal up front, then use your ‘draws’ as repayment.

If you’re using a private money lender (PML) - that’s going to be very much per PML based on what they want to know you have (assets) or don’t.

In both cases with HML/PML you've got to have ‘skin in the game' and they will want to see you have plenty of ‘reason" (money on the line) to simply not walk away from the property.

Whether you are doing a Fix and Flip or Buy and Hold you have three basic costs:

- Closing costs of buying

- Holding costs

- Closing costs of selling (if flipping)

• Real estate transfer taxes charged by the county and/or city
• Title insurance fee
• Processing and filing fees for forms being submitted to the County Recorder
• Appraisal fee
• Home inspection fee
• Insurance
• Escrow fees

Now some of these are more ‘cafeteria style’ than others (picking and choosing what you want- like an inspection, 4 point, 5 point, doing it yourself, etc.)

I wanted to be sure to include insurance as well - you want your bottom line covered, even in a rehab - proof in deals that have had unfortunate happenings after rehab (like fires) but before moved to the end user (sold)

Now typically we aren't dealing with a few items like HOA transfer fees in investment deals- but keep in mind you MAY come across those miscellaneous items in some cases.

With your 4 or 5 point inspection (what many investors choose) your costs are going to be cheaper than an end user (applying for a loan) inspection- and we’ve got people here in Indy to help with this as well.

Survey fees- well it’s a good idea to have an exact location of the lot lines/land but this is going to be less than $800

Now I’m not getting into realtor commissions here- and that’s going to be a situational thing (working with a wholesaler for example changes things)

In Indiana for example, you don’t need an attorney to facilitate the sale of real property so unless you choose to work with one, this is one fee you can skip out on as well

You’re going to have transfer tax, title insurance (you’ll want to make sure the title is indeed clear), title search fees, recording fees, and escrow fees.

It probably goes without saying, but closing dates will affect some things (like prorated rent on an active rental for a buyer credit), taxes etc.

You can also possibly save by asking if the title insurance can be reissued if the property has been sold within the last couple of years.

Earnest money deposit (held in escrow) usually 1-3% of the purchase price. Depending on how the purchase agreement is written you may or may not get this abc if the deal falls through (aka, pay attention!)

*not so long ago even $500 down would work for some off market deals as far as earnest money goes, but now with numerous offers being made on a single deal within hours, earnest money (how much ‘good faith’ you’re really investing) amounts have changed some and to be clear this would change your cash to close amount (%)

Earnest money for more of an end user ready(minor cosmetic/updating needed) buy and hold for example would be much closer to 1%

Appraisal - this is going to be up to you as the cash buyer (because you’re not required to get one for a loan remember) $300-$400

Inspection - using a 4 point or 5 point ‘investor’ inspection (especially if you’re not here yourself for due diligence) $200- $800 usually, depending on size of property

Survey- not required to have, but it may be useful to know exactly where you’re lot loans are (may be required for some rehabs) around $800 or less

Title insurance- generally around $1K, but again depends on property value and if it’s transferable that could save you $ (sometimes if two years old or less)

Title search - you’ll want this to make sure you’re getting a clear title and it’s going to run $100- $250

Attorney fees- won’t be required here in Indy for example, but keep in mind these rates if you choose to use one

Escrow fees- this depends on which escrow company you use, but I’m going to include images of a mock sale here in Indy to show you an example of a company for Indiana

closing costs would be just about 1% of the purchase price, up to 3% when you factor in inspection, survey, insurance, etc.

So to answer your question (assuming you're thinking of HML/PML/even conventional and knowing you'll be paying upkeep expenses, reserve for failed rent payments, etc use) it's going to be around $20K+ that it seems like you should have in cash (conservative) which allows you (again based on the deal itself) to have funds to move through even the purchase (closing) portion of the transaction and have some emergency reserve

Hope that helps!

@Alexander Straffin

Hi Alexander! 

So without going the full on legal route, I'm wondering if you could make things a lot easier for yourself maybe with going about it as if it were held as an LLC (even if it's not). So assuming that you and brother are 50-50 spilt on this property, you each hold (currently) a 50% share as joint shareholders/partnership.

To proceed in complete asset division of this and keep it fair as possible (without professional legal involvement)  it seems like it might be best to have the property independently appraised (this would be at your cost it seems, as it's on your end to choose to buy out brother if I have it right) and move forward with this information as an official sale- moving it into a land contract maybe. 

I would keep it as non-verbal as possible and always move towards get it in writing; For sure not naysaying any family dynamic here, but who is to say what happens within a two year period, and nothing verbal will hold in court. This could be anything too from someone getting hurt as the are trespassing on the land, suing and you both trying to claim less ownership over it in damages to be compensated (does not have to be about brother alone is my point!) 

You could draw up land contract yourself, no issues or professional help needed there. This way would possibly be easier in making installments over time- rather than the lump sum? Also executes the 'in writing' portion

Now it might be easier to actually get a loan any buy him outright from the start- unless your Grandmother's estate is taking care of property taxes, insurance (well that's just me assuming agricultural/tillable ground and not accounting for a dwelling at all) 

I say easier with one thing specially in mind, using a HELOC to buy brother out now. If it's not currently tillable ground and it's just sitting land without a plan in mind (apart from apperception, as we all desire!) you've got what most lenders would consider a speculative investment and that might be harder to get behind and back.

If you were able to get a HELOC, those rates should be pretty good (obviously credit, DTI, etc factored in ) and might be affordable enough to manage payments on while you get full and instant ownership of this land.

In a nutshell, 

1. Nothing as a verbal agreement is usually ever a good idea, even with family. 

2. An independent appraisal provides you with true declaration of value - neither brother, nor dependents, nor brother's spouse could ever come back and say they were "shorted" on the deal. Value was determined and paid for, period. 

3. Consider land contract on his appraised portion to make installment payments, and move % of ownership accordingly (again it seems from your post this would likely  never happen, but just in case)  a judge would see you had made "X" amount of payments over however many months IF something did happen to bring ownership into question 

4. Alternative means of purchase; HELOC if possible

Now one thing to consider here that I'd be happy to chat with you about in greater detail if you'd like is alternate ways to have your portion of the land income producing (if this is indeed a 'speculative investment scenario) 

- RV winter storage 

- ATV storage 

- POD storage 

Basically there are endless ways to have some income coming in IF this property isn't already producing for you and isn't tillable, and I can help you figure that out if you'd like. This is just coming from experience- I'm president of a family farming corporation on one of my farms, and part of it has some non-tillable acreage I wanted to still generate income on. 

Anyway, I hope some of this helps! 

@Michael H.

Hi Michael! 

It seems like it would have been ideal to have been provided with a little bit more information on the tenants you were about to inherit, and I'm not sure how that would have worked with verification of current lease status? I'm not sure how you wouldn't know then you're not inheriting tenants at will, those behind on rent etc. if you didn't see the actual lease agreements? 

As far as dragging out these replies go (and I'm sure the agent you're working with has already mentioned this), there are certain deadlines that have to be met for response times etc. or the deal can move forward without the seller being all too pleased. (Let's say there was no seller reply to your buyer response to inspection with the deadline met - seller is 'accepting' your response and that would then include all addendums made in response- which if you asked for a $20K roof etc. I'd be REALLY upset about as seller if my agent dropped the ball on) 

Apart from this it seems maybe there are a couple of ways to go about the dragging response time- will depend on your agent and what they advise is best, but really unless the listing agent is the managing broker, your agent could easily get in touch with the managing broker and simply explain there are some real issues with the response time. 

Now as far as being the current owner not being pleased with you contacting the tenants- the 'reason' for this is that some tenants can be difficult and if you back out of the deal/closing the transaction doesn't transpire, now they would have some disgruntle tenants to deal with.  

You also indicated that you yourself would be managing, no issue there unless current owner has a PM, and they are not informing PM until closing that they are about to be out of one property to manage and again, they are worried about you backing out on this deal OR the PM kind of getting disgruntle about the other properties they manage. 

Truly, there are times that PM's aren't aware that a property(ies) may be for sale/sold until they are out of work for this reason- (especially if "off market") current owners might not want a single day of PM tasks not accounted for (like even one time of rent not collected etc)

Now depending which state you're in, you may be actually legally obligated to let your new tenants know of your contact information (at minimum)- So, in some State's you need to legally give 10 days notice in writing of new ownership to existing tenants, unless it's owner occupied/under 4 units. 

I would be sure to see which laws about informing tenants of transferring ownership apply to you, based on your State because you certainly don't want to break the law here, and just start out on the right foot too (friendly first impression, etc)

Now as far as paying by app- I get that it would be very convenient for you to do so (100% agree!) but keep in mind if these existing leases allow for cash/check payments and are valid with transfer of ownership, you would be in breech of lease agreement by not accepting cash/check payments. (May not apply to you/current leases, just something to be aware of!) 

The other caveat to electronic payment is it truly accessible for all of your tenants? - Again NOT naysaying your desire to collect this way at all! Truly thinking that if my senior citizen mother needed to ever pay rent this way, she would have some true difficulties. Again, I'm certain you've thought of this already- that some tenants may need to still pay the 'old school/snail mail' way. 

So to recap- you may actually be obligated to get in touch with new owners (in some States)- if not you the seller informing at least, and there are ways to go about a sluggish agent response time as well if you really need to. 

I hope that helps some! 

@Kevin Akers

If you've factored in PMI, have it accounted for with 3-5% down for conventional loan, and will retain $550 with seller financing (making sure you're comparing apples to apples basically why I asked) it seems your cash to close now would be cheaper then and standard 1-3% of purchase price using IN investor cash to close avg) than dragging loan initiation date out for seller financing then refi later on. I guess I'm not seeing the benefit for you using the seller financing at that point and it seems like refinancing timeline would be sped up. It seems cash to % based would be more beneficial now then for you

@Kevin Akers

You bet! And I get what you’re saying on this more now.

3-5% on a conventional loan - you've factored in PMI as well then?

That’s exactly the amount down you’d be looking at with a LWO typically - so maybe that weighs in to your decision.

I would personally try to negotiate with seller about the “assignment” on this too and just be upfront about you’re not getting a commission on the deal with the seller but they should be aware moving this deal with seller financing through a wholesaler- there would be an assignment fee (the kept down payment of 3-5% usually)

Ideally that 3-5% should be yours then to retain if you do seller financing as with anyone else they would lose it (pay it out) too it seems like

So maybe that should be leverage for you in an amount knocked off the purchase price - therefore helping over the terms somewhat.

I assume then too you would retain the $550 a month rent? If not, that makes less sense for sure bc even PMI taken into account wouldn't be $550 a month by far.

@Kevin Akers

Hi Kevin! 

It seems like it would help your loan payments as your LTV would be lesser since you would have completed the work while not assuming a new loan in the interim during the rehab phase as you're using seller financing.

Your monthly payments on the front end of the deal may be a little higher, but on the back end of it, maybe you're going to be on the 'right' side of things as far as LTV goes.

So let's assume then (I think) you're basically entering into a lease with option on this deal and you plan on doing all of this rehab during the terms. If you're less than 20% down on the down payment with this seller- you're already ahead it seems there. 

Now over the terms of the deal, you've stated your payments will be higher - to the tune of "X amount" unknown BUT on the back end of the deal you're looking to have a much less LTV for the loan.

I'm thinking that with this (I'm assuming LWO) here (I could be wrong) you've established this contract price for the back end of the deal when the transaction closes and it's got to be on current fair market value (maybe slightly higher as it's assumed/desired seller financing) but nowhere near your projected ARV.

Unless there is an unreasonable amount of 'cost' for you in each month that benefits the seller - it should benefit you to do this with ONE exception that I can see now- you're deferring paying yourself on the deal as a Realtor upfront, but again, here too on the backend of the deal you would make it up at an appreciated % it seems (diff between commission you'd pay yourself on purchase price near fair market value now vs what you'd be paying yourself as agent in the transaction % in relation to ARV)

I might have totally misunderstood your question and have gotten something wrong, but if not I hope that helps!

@Vinh Ly

Hi Vinh! 

Unfortunately it does seem that yes, you would still need to keep paying these utilities as they were part of the original lease agreement and while COVID mortarium practices are still in current placement. 

There is no forbearance on utilities in most cases, and while you are getting the raw end of the deal here as far as your bottom line is concerned, default on payment seems like it would effect you adversely.

  -I'm assuming here that your name is on these utilities as you've been paying them, therefore lack of payments would likely (after in most cases 30-60 days of non payment) affect your personal credit score.

In fact, in most States as part of tenants rights during COVID moratorium, if a landlord shuts off utilities, it is considered illegal and the tenant has the right to call the local police or sheriff's dept. From there, it would proceed to court as part of suit (tenant vs. landlord) in unlawful exclusion.  

Having said this, utility companies in some areas are still not allowed to shut off utilities for lack of payment. 

You may however find some help (assistance in paying) available from https://www.nhlp.org/wp-conten...

and the American Rescue Plan (I've tried attaching the link in this reply for you!)

Hope this helps or at least gives you an idea of how to proceed with help recoup losses/stay on the legal side of things = )

@Rebecca Acer

Hi Rebecca! 

I'm curious about this set up- and your description of it. I totally get what you're saying about it being basically a 'mixed use' property (of sorts) but even accounting for separate entrances, and even a separate dwelling completely- it sounds like one 'parcel' of land with two dwellings. 

Being an agent you're more likely to have access to supplements that would give you the details on this as well- and you know it would be mentioned if these were two separate parcels for property tax purposes then (at least as far as seller knew). 

I would begin with a cross-reference of the parcel in the legal discretion with property tax records to verify, then go from there in the assumption of proceeding with it as the purchase of one property (singular looking on paper, plural in real life as it's been built up).

I would also be curious (just based on the SqFt you mentioned) what the assessed building value was- if it were based on (what I would assume was the original dwelling as the rental) and if the new 10,000SqFt building was an addition not yet assessed)- only mention as if it's not that's a hefty improvement to think of paying taxes on (at least in most areas it would be)

It seems like your most inexpensive loan product would be a conventional mortgage then, if it does indeed adhere to being 'one property' on paper. 

As for the separate entrances- it doesn't seem like this would matter as much.  I personally have an addition of 2100SqFt in a 'Mother-in law's quarters' with a sperate entrance, yet it's attached to the primary residence, and if I were to sell it wouldn't be financed separately at all- technically two 'dwellings' yet one total property. 

It may not have ever been brought to the accessors attention that there were any additions/improvements on the land, or at least in there current state (vast extent) and you could be ahead as far as taxes go, which sounds like me looking for the silver lining here as I can only imagine what insurance would be on a property of this size. 

Without any commercial zoning, it doesn't seem like you would qualify for a mixed use loan. Without having any commercial zoning making up for less than 40% of total income, but having less than five units total on the main (larger) property and the other as a 'singleton' rental, I don't think a multifamily or apartment loan would work either (in terms of qualifying).

I wonder then if there would be any benefit to then speaking with the owner, doing a lease with option (where obviously you could back out but they couldn't), then subleasing to tenants and paying seller at least $2K a month over (what husband's company pays) plus rental income from at least one of the tenants (or both, depending on what you could afford) what they currently pay in mortgage or entices them enough monthly (plus down I would assume)  to let you pay down towards a lump some purchase on the back end of the deal when terms were met (as high income earners, maybe 1 year terms?) yet you would be borrowing less by that point. Just an idea out there, but yes obviously too would affect your yearly agent cap if you needed to use this sale towards it, and you as agent representing yourself wouldn't get 'paid' on this deal on the front end at least. 

Anyway, I hope that helps! 

@Mike Ferguson

Hi Mike! 

It seems like you might have a few things here to consider;

1. Was there a warranty of any kind provided by original septic service company (on grinder itself or labor) that was violated in contractual terms?   

2. PM here seems maybe less aggressive than you would desire them to be, especially after the otherwise inexplicable turnaround once small claims court came into the picture. 

As far as the warranty goes vs shoddy workmanship; this is kind of a two fold scenario where by one token you're almost one full year out from the original repair, but on the other if they warrantied it, it should be covered. 

Odds are if they are willing to make any financial contributions at this point beyond (without a warranty that was broken) it seems like you're ahead. I'll be honest too, they know what they are offering you as it's 1/3 of what you're paying to get it fixed- smaller in terms of $ than those of going to civil court, yet no offers made to come out and re-do the work themselves or pay full price to fix it (ergo, they know how much it seemed you were willing to accept to avoid a mechanic's lien, civil court, or paying you back in full for second repair, so they just want to be finished with this situation totally) 

As far as PM goes- again, suspicious that they only sprung into action after court was mentioned and were otherwise lackadaisical in approach to resolve. This wouldn't sit well with most owners it seems but firing would be whatever you were most comfortable with personally.

This would be less of an issue for you maybe as you indicated it's one solo property, and we aren't maybe then talking about where you could stand to lose a few units of rent, multiplied by however many months until a new PM is found. (Usually would advise not letting current PM go until you've got another PM waiting in the wings to take over as daily PM tasks are often set aside in spite of being fired- including rent collection in  some cases!)

In a nutshell, I would accept the 1/3 in 'rebate' as a consolation prize and move along to avoid mounting/expensive court costs unless a warranty was violated. I would probably also begin to get feelers out for new PM's and interview them accordingly, and see if anyone/group had more of my best interest (bottom line/common sense in handling these situations) in mind. 

Hope that helps! 

@Mark Phillips

You bet! Let me know if any other questions come along and I'll do my best to help answer them = )