All Forum Posts by: James Mc Ree

Tell your tenant her "guest" needs to sign a lease within {your comfort zone} number of days or move out.  Inform your tenant of her eviction risk if your lease allows it.  You don't need to be involved in whatever actions he takes.  Keep it simple and make it her problem, not yours.

I continue to make investments about every 6 months with no issues.  The expected payments arrive at the start of every month.

@Val J.

Great advice above re: multiple bids.

Be sure you are clear in what you are agreeing to.  There is a mention of framing, sheetrock, insulation and siding in your posts.  Other posters asked about roofing, HVAC, electric and lighting.  I add flooring, trim, painting, incidental supplies (paint, nails, etc), building permits and inspections.  You might also want to ensure your porch is engineered to hold a structure on top of it.  It is probably fine because you aren't putting much weight on it, but the original home might only have had a slab and not designed to hold an addition.

If this is a labor only deal, is it per-hour or complete job?  10 Hours of labor seems very light to me for the full scope of work I listed above.  $260/Hr is a ridiculous rate if it really is a 10 hour job.  Be sure to agree on what happens if more labor is needed.  I prefer a complete job quote when the work is well understood.  This project seems clear if you can clearly state the scope.

Consider also what happens if supplies are unavailable.  Suppose the contractor says you need X sqft of sheetrock and it turns out you need 2X.  Do you have to run for it?  Does Contractor buy it?  Are you paying Contractor an idle labor rate if he can't work because of a supply shortage?

What kind of warranty is Contractor providing?  Be sure to protect yourself from the "The problem happened because you bought inferior materials." situation.  Ask Contractor to specify the materials, quantities and brands if you are doing the buying to avoid this vulnerability.  This will also help protect against insufficient materials risk and you may be able to pin the expense on the Contractor if it exceeds a certain amount.

Good luck!

Turnkey and related advice above is great.  Add into your financial model paying for incidental repairs once you buy the turnkey.  For example, a tenant reports a leaking faucet .  Many landlords might consider that a short trip to the property to do anything from just tighten a screw to replace the faucet: quick and easy.

For me, it is usually a call to my contractor and $50 - $150 for the repair for the same reasons cited above.  I'd love to have time to learn these things, but right now would rather pay the contractor than allocate my time to them for most of them.

Factor this into your budget, especially when the seller says maintenance is cheap and easy and might show you operating costs with a low maintenance allotment.

@Phil G.

SEC regulations cover those penny stocks and other market securities, in addition to the investment brokerage accounts.  A key difference with section 506 investments concerns the products themselves: they are not regulated by the SEC and Investment Company Act of 1940 which governs stocks and mutual funds.  The companies behind the stocks are required to make various disclosures and file reports.

Note funds and section 506 crowdfunding-type investments are largely governed by what is in their PPM.  Consider the level of due diligence done in both scenarios:

1. I bought a stock after I saw Cramer recommended it and I read a little on the internet.  Unfortunately, it tanked!

2. I bought a note fund that came with a 60-page PPM.  I don't have time to read all of that!  They said they paid 12% on PPM page 1.  Who knew I could lose money!?  I want to sell it now, but they won't let me!!  Why??? (Read the PPM?  No time...)

The level of regulation is radically different between these types of products.  Stocks are also very liquid.  Section 506 investments often are not liquid.

It is not completely accurate to equate wealth and income with investment savvy which is what the accreditation rules generally do.  The thinking is wealthier clients tend to be more experienced with a variety of investments and have investment "savvy", can understand risk and absorb losses easier and can understand these complex investments better.  Of course, that doesn't apply to everyone.

My guess is the accreditation rules will open further in the next 5 years as regulators get more experience with the sponsors and investors.  Lawsuits will also inform that process.

Your insurance number looks a little low, especially if it includes flood insurance.

Do you have any local government inspection costs?

Do you plan to use a broker to market for new tenants on turnover?  If yes, that will be a month's rent.

You have no repairs budgeted with your purchase.  Be sure to check the condition of everything and try talking with the tenants to see if there is any maintenance needed.  I feel it is better to catch the Memorial Day sales than wait for appliances to break.  It is also a great way to build a relationship with your tenants, "I don't want to wait until it breaks on you..."

Ask your lender for their requirements regarding use of HELOC funds as a down payment. At a minimum, you will need to have an approved HELOC all setup and ready for use before you make an offer. You will probably need it for prequalification as well.

30-60 Days doesn't seem unusual for approving a HELOC. Payments are usually available quickly once it is setup.

Be sure to check what a fixed up, but otherwise old, home is worth before you dive in.  It might not have a "just like new" price.

@Michael Plaks

Thank you for the explanation.

I plan to use HELOC funds from my personal property to fund construction of an investment property to be sold. It will be a "Build & Flip" instead of a "Fix & Flip". My funding plan was HELOC --> LLC --> Investment property. Traceability is fine as I can take funds directly from the HELOC to the LLC and make payments from the LLC.

Would this scenario also result in deductible HELOC interest? The reason I ask is I noticed you cited use of the funds for a rental property above and this would be a home build/sell scenario.

Thanks!

@Scott L.

https://www.irs.gov/newsroom/interest-on-home-equi...

I believe this IRS advisory says HELOC interest is tax deductible if the HELOC principle is used to buy or improve primary residence real estate, but it is not deductible for any other purpose. The 2nd example they give is buying a vacation home with HELOC principle and they say it is not deductible.

Do others read it differently?