All Forum Posts by: Isaac Passmore

I've only ever used traditional lending but I'm curious... What happens if the seller no longer wishes to sell the property and no-shows at closing? What happens to any short-term lending from hard money lenders or private financing that was put into escrow? Does it just sit there indefinitely until a lawsuit forces a settlement?

Situation:

I am currently under contract for a great deal on a property in Prince George's county Maryland and quickly coming up on the closing date. However, the deal went sideways and I am in need of creative financing. Basically, the seller wishes to back out of the deal due to price reasons and will not let my traditional lender get an appraisal. Furthermore, this same house was appraised by the same appraisal company last year and noted that there was an illegal stove and microwave inside the ADU on the property. This likely prevented the sale last summer and because that stove still exists in the ADU today would prevent sales through traditional financing. I have confirmed this with my lender and they would not be able to lend due to failing the appraisal. There is also no way that the seller would remove the stove as they no longer wish to sell to us due to pricing...

To make this deal work my wife and I are planning to house hack the property and leverage primary residency to obtain more favorable long term financing and support a long term rental.

I spoke with a hard money lender today and was told that most commercial hard money lenders that work with flippers would be unable to support financing a personal residence purchase because regulations are different.

Looking for:

We're looking for a hard money lender or private lender that can help us finance a personal residence purchase for a house hack that closes on April 30th. My wife and I were prepared and approved to put 30% down and had a budget set aside for all our repairs. We just need someone to help us get into the deal so we can remove the stove and microwave ourselves and refinance this into a traditional loan. 

So the seller currently lives in the property and is renting out the ADU.

The ADU was converted from a legally permitted detached 2-car garage. So the structure is allowed to be there. The interior renovations seemed pretty good. They brought electric up to code and made some sizable investments to convert it. There is also a very nice family living inside of it and taking good care of it, so it clearly works as a living space. The issues appear to be purely clerical in nature. I've spend a fair bit of time on the phone with various county officials asking questions and explaining the situation. Under our county laws, we as the owners would be allowed to live there. However, if we wanted to rent it out we would have to make several modifications and ensure it's considered habitable. The strategy is

1) Move into the ADU as our primary residence

2) perform the necessary fixes to the main house and obtain a rental license. (Because we, the owners, would live in the ADU, it is allowed to be out of compliance as the rental license process does not look at the owner occupied space.)

3) slowly work with the county to bring the ADU into code for a habitable unit.

4) remove the stove and apply for a rental license that covers the entire property.

5) Rent out both units and find the next property 

Sorry about that, dyslexia got the better of me. I've updated the post. I am the Buyer in this scenario.

So I was in the middle of writing up a post on "at what point do you consider backing out of a deal because you've cashed out stocks for a down payment and then the market crashes..." But then I receive a call from my very stunned real estate agent. The seller wants to back out after about 6 weeks because they misunderstood the offering price...

For background, I found a deal for a SFH with an illegal ADU that was also being illegally rented in the back. I saw it as a great opportunity to househack based on my local laws. The owner's asking price was about $440k. We submitted an offer of $360k with all the nominal contingencies and a few modifications. First, a 2 week inspection period, provide $5k of earnest money, and an additional contingency that the tenants had to vacate the property by closing or make a $20k concession.

This initial offer was rejected by the seller as there was a competing offer. Both me and my agent sort of expected that, but I told my real estate agent to keep an eye on that property and resubmit the same offer if given the opportunity. This same exact house went up for sale last summer and went under contract. That same week it went under contract, a citation appears in the county records about the illegal ADU. At that same time, the house was taken off-market and not sold.

Flashforward to this year, and the competing offer backs out stating that the "Kitchen cabinets were too high". The seller's agent reaches out and asks if we are still interested. We resubmit the same offer and we go under contract.

During inspections we find about $25k worth of work that would need to be done and propose that to the buyer. They conceded $10k. In total, inspection costs were around $2k. The numbers for househacking still work as we gave ourselves a lot of margin. We still want to pursue the deal and allowed the inspection contingency window to lapse. 

Firmly committed to the deal, I liquidate a number of stocks to fund the %30 down payment and hold the funds in a savings account. As I negotiate with lenders during a falling market, that's when I get the call from my very stunned real estate agent. The seller's agent is just now realizing the agreed upon sale price is $360k and not $460k. The seller intends to cancel the deal and not perform the agreed upon contract. 

Albeit funny and a little baffling, I feel bad but a lot of people have been working really hard to ensure this deal goes through. 

What actions should I be prepared to take?

Thanks I've reached out!

Hello,

At the end of the month I am closing on a primary residence that I intend to house hack. I am looking for insurance quotes for the PG County Maryland area. Can someone help point me to a good location to find home insurance brokers for my situation? 

Thanks,

-Isaac

So I have a bit of a "learning moment" on my hands with my first property. Back in 2020 I pulled the trigger and got a 3 bedroom SFH that I've been house hacking successfully. To get into my first deal I put 3.5% down and got a very nice rate of 3.375%. I also jointly purchased this property with my ex. Both of us are on the deed and both of us are on the mortgage. Fortunately, we are still on very good terms and consider each other to still be close friends. She wants nothing to do with this property and is supportive of me keeping it as a rental property. When the split happened, I bought her out of the property, without use of a lawyer, but both of us agree and understand that the money and ownership of the property is effectively 100% mine. However, nothing has been legally set in stone. So I'm in a bit of an issue and would like some guidance on what I could do to better protect myself and property as right now it is owned under our personal names and not in a trust or LLC.

I know that the property should be held in an LLC to limit my personal liability, however, how would you all recommend I get there given the following:

1) I don't want to refinance and lose my 3.375% mortgage - the numbers will not work for this property as is in the current interest rate environment. There is very little equity in the house and I would strongly like to hold the considerable debt during these inflationary times. 

2) I don't want to sell the property, it's in a great location and will cashflow when I move out to my next deal that I am closing on at the end of the month.

3) I don't want to be hit by the due on sale clause

4) I would strongly prefer that my ex's name no longer be attached to the property in any way.

The best I can think of is setting up an LLC that both me and my ex own and then deeding the property into that LLC. Then have my ex be removed from the LLC. I'm not sure if this would cause issues with the lender...

I also called the lender to ask if my ex could be taken off the mortgage without a refinance as I can now very easily show that I am capable of supporting the property independent of my ex. I was rejected and  it didn't seem like they were willing to work with me to find a solution. 

What recommendations do you have? 

Does anyone have recommendations for a property management company? What are some things I should be on the look out for? I need help filling and managing the property. Thanks

So if I occupy the unit and do the conversion while living there I'd be ok. 

If I were to move out at a later date would I be able to rent it out separately, assuming I isolate it and split the meters?