All Forum Posts by: James Mc Ree

@Jason Skinner

Your post didn't say how much seller financing you were looking for, so I asked and assumed it was 100%. The $2,500 payment you proposed is the interest only portion of a 5% loan amortized for 30 years of $600,000 principle. That may have only been amazing coincidence, but that's how I got to the 5%. It is why I asked if you really intended to offer seller financing with a 5% rate.

@Gregory Schwartz has great advice on the approach. Understand Seller's goals and interest first. They may be money in the pocket, getting out of maintenance headaches, no more chasing rent, etc. If money in the pocket is not really the interest, then 100% seller financing may be acceptable to Seller; but maybe not if Seller wants money in the pocket. In that case, maybe 80% or some other % less than 100% would work. 

You will most likely get better offers as you increase the size of your buyer pool. Offering to a couple investors gives you negligible data. Listing it in Zillow or the MLS will give you maximum exposure.

After getting broad exposure, then decide how those investors' offers compare.

Are you looking for a 100% seller financed deal? Your $2,500/month payment would be a 5% interest note if it were interest only if it were for the $600,000 deal. Owner would be stupid to take that, but you never know if Owner is desperate. Even desperate though, this owner would literally walk away empty handed - no cash and no property. I can't see that happening.

Consider what LTV % you are willing to consider if less than 100% and I recommend raising the rate you would pay since you can't get 5% anywhere. You will already be saving substantial closing costs with a private deal. You probably also want to share with Owner your 780+ credit report to show you safe you are as a borrower.

I had a SFR Section 8 annual inspection today. The inspector told me there is a new smoke detector requirement for Section 8 homes coming January 1:

https://www.congress.gov/bill/117th-congress/house-bill/7981...

https://www.us-hc.com/blogs/new-smoke-detector-requirement-f...

Has anyone heard of this? His mention of it was the first I heard of it. The article referenced above says no implementation date has been set, but the inspector said it was January 1, 2025. It's time to buy stock in smoke detector companies if that is true.

I use 10 year lithium radio connected detectors. Some have sealed batteries and some are replaceable. Most of my detectors, maybe all, do not have a visual indicator for the hearing impaired. I think I will be buying a bunch of detectors, but I don't yet know what "tamper resistant" means for a sealed detector.

You may have a more profitable exit if you can build them as 1-4 units versus larger and can subdivide the buildings into separate properties. A 1-4 unit will qualify for residential mortgages while 5+ is a commercial mortgage. The 1-4 unit buildings will have a larger buyer pool and maybe a larger price per unit as a result.

I would charge the tenant as it sounds like more than what might be considered normal holes in the walls. As mentioned, there are 2 major approaches: contractor or DIY to resolve.

Contractor: Get bids and charge the tenant what it costs you.

DIY: Tally your materials and labor cost, then charge your tenant. Your labor cost needs to be defined in your lease and can't be more than a reasonable contractor bill. My lease says I get paid $40/hr to do work tenants are supposed to do or fix their damage.

The job sounds easy, especially if you have leftover paint or the paint formula. Spackle the holes. Sand them. Prime the spackle spots. Paint 1 coat of the same color over the walls. This would probably be about $300 in my area to contract out if the walls are otherwise in good shape and there is no trim work.

Focus on bringing your current debt current. Being delinquent on your mortgage tells lenders you can't handle the debt you have now.

Next, get an income and build savings. Buying land and building anything can be a great thing, but it is expensive and you aren't going to get 100% financing. This approach is probably your most expensive path.

Consider buying existing homes and possibly renovating them if you want to be a landlord. Your investment can be a lot less and you will be much closer to rental income.

Fire the property manager.

A tenant who installs bidets already violated my lease. The plumbing bill is the tenants' to pay. Hopefully, your lease says the tenants cannot modify the property without your permission.

Some of the other items could be ordinary maintenance requests or something you are just stuck with. For example, I had a broken window when someone threw a brick through it. My tenant said they didn't break it and don't know who did. I ended up paying for it.

Some things will just break and you have to deal with it. It is important to understand why it broke. For example, were the disposal blades jammed because someone disposed of something they shouldn't have? That would be a maintenance bill for the tenant if they did not use the disposal properly.

Section 8 is a program focused primarily on tenants and not so much on properties. I recommend focusing on getting a great investment property and disregarding Section 8 in that pursuit because any property can be a Section 8 property, but a lousy investment is lousy regardless of having a Section 8 tenant or not.

Section 8 will perform a basic functional and safety inspection for your units after you have an agreement with a Section 8 tenant and your local housing authority. The inspection is very similar to your local U&O inspections. See the PHA HQS Inspection Resource Guide for all the details. The inspection is a 5-10 minute walkthrough by a vendor who will take pictures of every room and identify any issues for you to address.

If there are issues, you typically have a week or two to get them fixed without there being an impact to you. For example, I have an inspection coming up Oct 1. If there are issues, I have the next couple of weeks to get them resolved and have a re-inspection before the end of the month. The risk is a failed inspection blocks Section 8 payments, so I could miss a month's payment if I don't get the issues resolved by the end of the month. They will add the payment to the next month's payment after the issues are resolved which would be November in my case.

Section 8 tenants are poor. So, your location is likely to be a C area. They have changed to try to offer vouchers in all areas, so it may be possible to have a Section 8 tenant in an A area. I am not familiar with that though.

You can call your local housing authority and request their list of available Section 8 homes. It is probably readily available on their web site. I did that years ago and it was very enlightening. It was a list of pits of despair that were deemed habitable, but little else. Most were in risky neighborhoods, but did offer security provided by the corner drug dealers. I hear the list hasn't changed much from that impression, but haven't looked recently.

I have 13 SFRs and 3 are rented through Section 8. The startup process is a little slow. You will probably lose a month of rent if you choose a Section 8 tenant ready to move in now versus a traditional tenant ready to move in now. Section 8 will need to approve your initial rent based on the property and what the tenant can afford. After that, my experience is I can raise the rent as much as I want and they sometimes say the tenant cannot afford that, but it works out. Worst case is the tenant has to move, but that would happen with a traditional tenant anyway.

Introduce yourself to your tenants and tell the tenants in the unit you want to live in that you intend to live there and will be ending their lease. Check Michigan law for the amount of notice you need to give them. It is probably a month or two. Follow-up with a letter informing them of the same so they have it in writing. You can do a certified letter to prove they received it for completeness.

I recommend going the friendly route and being reasonably flexible. They are probably anxious about the new owner and this will rock their world.