All Forum Posts by: James Mc Ree

What is your plan?

Your post lists no property, indicates you have no team and doesn't mention any experience. It is not clear what SA or JSE are. My guess is you are far away from forming an investable REIT unless there is a lot more info you can share.

You can't use the advertised Section 8 tables as what they will pay in rent.  Those are the maximums, but not paid just because you ask for it.

Section 8 pays market and affordable rent subsidies.  The local housing authority assesses the area, property configuration (beds, baths, etc) and features (sqft living space & lot size, HVAC, etc) in determining market rent.  They might say market rent for a particular property is $1000 though the max they might pay in the region is $1500 for a house in that configuration.  It is no different than traditional real estate purchasing or leasing.

Affordability is next.  The prospective tenant can only afford to pay so much.  Section 8 won't approve a lease over that amount.  If they say the tenant can afford only up to $900, there's your rent if you want to go with Section 8 and that tenant.

You make your money when you buy.  Try working your way backwards.

What would the property sell for in whatever you imagine is your end state?

Calculate your rehab and holding costs and subtract.  What will that foundation require to fix it or can it even be fixed?  Your rehab plan B might involve a bulldozer.

Subtract however much profit you want to make from this deal.

What is left?  That is the most you can offer.

I think it would be unethical to tell the property owner you are going to buy their property if you really have no intention of doing so and no buyer in sight to assign to.  This is probably a difficult property to sell as is, especially if you have no idea where to value it nor what it would take to repair it.  Think of what your pitch would be.  Would you buy your pitch?

Zillow is not aware of the property and neighborhood condition. It might be useful as a general guide, but it only calculates what 2/1 homes with specs like that one in that area sell for. It is possibly more useful as an indicator of what ARV will be, but will probably be lower than a fully rehabbed or new house.

Such a transfer will probably also trigger a "Due on Sale" clause in your mortgages if you have mortgages.

It is true in my experience.

There is a legal perspective and a practical perspective.  Legally, buyer and seller follow the contract which usually has words to that effect.  Practically, a buyer wants as much as can be had and seller just wants to sell the property at minimal cost without litigation.  It is not at all uncommon for a buyer to present the seller with the home inspection report in its entirety and a simple demand to just "fix it all".  That is where the negotiation begins.

For example, a buyer claims an old HVAC system is a defect.  Seller disagrees it is a defect because it is fully operational and holds buyer to the contract.  Buyer threatens to sue to get out of the contract.

Seller has a choice here.  Engage in months or years-long litigation that tie up the property or just let the buyer out of the agreement and move on with someone else.  Seller often does the latter since the seller's interest is only to sell the property to any qualified buyer.

A much more common outcome of the negotiation is a give-and-take in which both sides get something.

You should decide how much that rent raise is worth to you before deciding to go too far down the eviction route.

Example:

Current rent is $1,200/month.  New rent: $1,300.  Tenant is shorting you $100.

Evicting the tenant will cost you something that you will not likely see come back.  If the eviction were free and you only lost 1 month of rent to get your next tenant, it would take you 12 months to recover the lost month at $100/month if you got a new tenant to pay the higher rent.

Persuasion and influence is a much better way.  Negotiating a move out is the next best way.  Eviction is probably the worst outcome.  sending eviction-type letters can be persuasive enough to scare the tenant into paying the full amount, but try a friendly conversation first.

The home inspection contingency usually only covers material defects.  "Old" is not a material defect so long as the old thing is safe and functional.  You can always raise these as negotiating points, but they might not get you out of the contract if you decide you want out.  You probably have material defects in the chimney and maybe the roof.

Expect a counter of a home warranty if you ask the seller to fix the old stuff.  A home warranty is about $500 - $600 and covers appliances/HVAC depending on the policy for 1 year and is renewable.

Keep in mind the seller would have marketed new stuff features if the old stuff was replaced.  It might be reasonable for the seller to offer to replace the old stuff and charge you most of the difference as you would be buying a property with new stuff.  Cost would probably not be a problem for the seller as funds would be coming back at closing.

Much of the money you appear to be saving in contractor payments is just being paid by yourself, through either material purchases or your own time and labor coordinating the job.  That has value.  You have to decide how much.   Good contractors also know where to go for good value in materials.  I agree with the prior comments.

Licensing can be separate from insurance.  Any good contractor will have their own insurance.  You would be crazy to go with a contractor who is neither licensed nor insured.

Check with your local government on their requirements for your permits.  They may require licensed contractors to do the work.

Think about your exit strategy.  What do you do if your intent is to sell the property and your buyer asks if a licensed contractor implemented the improvements that took your $52k property up to $230k over a few months.  Will you still have a buyer if you say you used the cheapest, uninsured, unlicensed, {no real warranty?} contractor you could find or do you lie.  Bad idea.

Contract with a logging company to harvest your trees while you decide.

You can accrue passive losses for next year's tax return too.  If you reach a limit and the $758 is not deductible this year, you can roll it over to next year.

You can also deduct your maintenance expenses.