All Forum Posts by: Derek Scott

The experienced landlords in the Greenville-Spartanburg, SC area tell me that there was a time when two months’ rent could pay property taxes and insurance for a SFH. I am now seeing 2.5 to 3.5. If you have SFHs, what ratios are you seeing?

Originally posted by @Kim Meredith Hampton:

Derek,

Those companies don’t “pick up” cash from
Your tenants, but so allow them to pay cash at their facilities. If they can’t or won’t pay online, maybe they could go to amascot or go and deposit into your account

Yes.  Sorry that I wasn't clear.  I am looking for something like that where they can walk in and pay at a store (in South Carolina).  In our area, as an example, Duke Energy has a deal where people can pay their power bills in gas stations, hardware stores, etc.  I'm looking for something like that.  And I appreciate the tip about Amscot.  I had to Google it.  It looks unique to Florida, but that's the general line of thinking.  I could take Western Union, but then I'd have to go get it at the story myself.  I did something like that just once when one of my tenants had a bank issue.  It's weird to be in the grocery store collecting $1450 in small bills.

I've seen some old posts on Paynearme and PayLease, but I can't find anything recent and definitive.  I think Paynearme has stopped enrolling landlords.  And I am not sure about PayLease.  I filled out their web form and hope for a reply.  

One of the two properties that I'm purchasing has a tenant who pays her rent in cash at the property manager's office.  I will not be using a property manager for this property, so I'm looking for alternatives to picking up the cash in person.  I may be able to get her on bank draft or some other method.  But if that is problematic, I'm trying to have a backup plan.

Originally posted by @Account Closed:

@Derek Scott you may want to contact your lender and discuss the due on sale clause directly. I've spoken with mine and and there is no due on sale clause for a rental property. Seemed to be a non issue. One of our larger banks in the US as well.

For the tools and equipment, one method is to tally up receipts, and reimburse yourself from the LLC so you have a deduction for these assets (assuming business use will be greater than 50% going forward). Then going forward use your LLC account for further business purchases.

Lastly, I advise to keep it simple with LLCs. Create one LLC for all rentals and if you expand into flipping, create another LLC (possibly convert to an S Corp).

Definitely start a conversation with your attorney and CPA.

Thanks Josh. I just went back to the mortgage docs from our 2016 refi. The clause is in there, but it implies that it's possible to transfer to an LLC with permission from the lender. We have a HELOC on that property with the same bank and it definitely has the due of sale clause. My attorney has suggested that the transfer would be legal and that acceleration of the loans would not necessarily happen. I agree with him, but I'm too risk averse at the moment. The interest rate is 3.25% and I can imagine a bank calling the loan when rates go to 6%.

We have an established LLC in South Carolina. For tax purposes, we intend it to be disregarded entity. We will be purchasing at least two SFHs in the LLC soon. We're going to BRRRR the two houses and keep them for rentals. We will do a good bit of the work ourselves.

Up until now, we've had one SFH that we maintain and lease ourselves.

We have a number of tools and some equipment that we use to maintain and repair the current property and will be used to rehab the two new properties. Does it make any sense to put these into the LLC? Is this done with a bill of sale?

Also, does it make any sense to have the LLC manage the property that we own in our own names? I realize that we could put the property into the LLC but there is a mortgage with a due on sale clause (which is a topic with about 2 gazillion threads devoted to it).

For properties in the LLC, do you have the LLC on the lease? I would assume so sense rent should be collected into the LLC's bank account.

And yes, I have an attorney.  But I'm DIY to a fault.  I don't meet with professionals without coming with my own ideas.  I'm an engineer so I'm like that.

Thanks for your input!!

We have one SFH that we've rented out since 2010. It cashflows nicely, even after we refinanced is to a 10 year term at 3.875% just to accelerate paydown (from 5.875%). We have a $35k HELOC there that has 2 years left on the draw period. Not planning on using it for the new deal unless we have to.

We've been looking for smaller SFH deals just to get ramped up.  Ultimately, we might 1031 into some bigger stuff.  Just need to build more equity.

I'd appreciate opinions on the following.

I have a friend from church who is selling off his SFH portfolio. He's got a bunch of lower end stuff. It's not his main thing. He makes his money in much bigger stuff. He's a great guy and a wealth of knowledge. He figured this stuff out years ago. But he's "ignored" these because they aren't that important to him. He's maybe 60 and just doesn't want to leave his wife with any of this. That being said, he has a property manager that only charges 7%.

He's given me a menu of all of his stuff.  We drove around and looked at it.  I narrowed it down to four that I think could work.

Here's the strategy:

He may be willing to finance the deals for me at 100%.  He's done that kind of thing before.  I'm thinking of asking him to hold the mortgage while I rehab them.  I'm thinking something like 20 year am with 5 year balloon.  The properties will cashflow (say $100/month) while I rehab them.  One example is a property that will sell for maybe $40k now and be worth maybe $105k when I'm done.  I estimate rehab at $30k.  So I'm in for $70k and come up with $105k.  These numbers are based on very similar comps on the same street where this thing is happening.  In fact, the whole neighborhood is getting renovated, it seems. 

To pay for the renovation, I'll use an interest only HELOC on our primary residence. In talking to the guy at the bank, I can probably get $90k which should give me some wiggle room for contingency/vacancy. To get that set up will cost maybe $1000 in closing costs (appraisal, attorney, origination) which I don't mind anyway. Variable rate is prime plus nothing. 10 year draw period then 10 year am on whatever balance is a 10 year mark.

Once the rehab is complete, I have a savings and loan that will do cash-out refinance loans (20/80) at 6.3% fixed for 20-year terms. There are a portfolio lender. I consider this worst case as I could maybe do better with the HELOC lender (mentioned above) for 30-year terms. They will do up to 4 Fannie/Freddie because they sell them. May have to put 25% down there. My pro forma calculates cashflow of about $500 after refi.

Shoot holes in the this strategy.  Does this make sense?  What could I be missing?  If you were the seller, what would you make of the deal?  What is a good interest rate?  Is five years for the balloon too long?  If I can do four in a year's time, would that be quick enough for a guy who wants to unload them?

I'm hoping some of your numbers people are up and reading tonight.  Thanks for your time.

This was the most concise and helpful podcast I’ve heard on BP to date. And I have liked many of them.

I don’t check credit. They all have bad credit. I verify income=4x rent and put them on bank draft. I also look inside their cars to see if they are messy or smoke cigarettes.

Thanks guys. I'll explore with some BP members.

Thanks guys. I'll explore with some BP members.