All Forum Posts by: Jesse Valencia

Johnny,

I agree with Michael, the management fee seems low as well as the CAP rate. I am unfamiliar with the Oregon market; thus, if I was in your shoes, I would call around to property management companies and ask about pricing as well as call local brokers and ask about current CAP rates (apply cap rate to NI to come up with current value - NI/CAP rate). Also, adjust your tax expense as the property will more than likely be re-assesed to the sale price causing that expense to increase.

Remember:  pay for what the property is worth (or less if possible); do not pay for an anticipated improvement that has not yet been made.  Any improvement in rents or decrease in expenses that you make will give you the benefit in increase value.

Good Luck,

Jesse

Eliot,

I agree with most on this post.  You have to reevaluate your goals (buy and hold vs appreciation play) as well as the market where your property is.  If you are adamant in keeping the property, I would refinance to bring myself to positive cash flow.  If that is not possible, I would sell and reinvest.  

Good luck!

Sanjeev,

Thank you for the warm welcome.  Looking forward to meeting you as well.

Jesse Valencia

Welcome Preacher!  I use Buildium; however, there are some good posts on bigger pockets regarding property management software.

Thank you Chad.  I will make to check those out as well.

Fred,

Congrats on your success!  

@John Chapman is correct in saying "that's just the nature of commercial financing."  You should only bundle properties that you plan on holding for a long period of time.  If something does occur and you want to sell/refinance one, I would recommend that you have your lender put in release prices upfront for each property just in case.  This will save you considerable time and money as compared to having to redo/modify the loan every time you want to move one of the properties out.  Please note that lenders will have to re-order appraisals on the remaining collateral if release prices are not set at the beginning of the loan.

Also, all properties should be in the same state and must be all owned by the same entity.  This makes it easier for the banker/bank to complete his/her due diligence and document the loan.

You are correct - you still have risk over a future rising interest rate environment with these types of loans; however, all businesses (not just commercial RE investors) have to deal with this and manage for it.  Hopefully, in seven years or 10 years, your loan has been paid down where an increase in interest rate at refinance does not affect cash flow much.  Also, I would recommend that you increase your reserves as well which can be used to pay-off some homes if you need to.

Some business owners tend to like these loans because, as you have probably already found out, fixed interest rate business loans come with prepayment penalties.  Five, seven or 10 year fixed rate loans give the borrower flexibility in selling or pulling cash out at time that the term loan comes.

Hope this helps and good luck.

Jesse Valencia 

Jason,

Surbordination Agreements are usually for the benefit of the lender and are more appropriate for commercial properties and/or longer term leased properties.  The only reason why there would be one in the lease is to avoid having to sign the Bank's surbordination agreements every time you refinance the property.  Your tenant is actually adding a "non-disturbance" clause which is reasonable; however, it does change a legal document from its original form.  Personally, I would consider the following:

- Compare my lease to an updated lease agreement, for my specific state, obtained from the local REA office.

- Have attorney review change (would do this if I could apply to several future leases).

- Consider how bad I want this tenant is and how long the lease is.  If I was a great tenant and had to sign a long term lease, I would also want some assurances.

- Not accept the change and look for another tenant

Hope this helps,

Jesse Valencia

Kristin,

I am siding with @Nathan Miller on this one.  You could do better reinvesting that money elsewhere.  Also, since this is a primary residence that you have been living in, there won't be taxes on the gains once you sell.

By the way, everything you mentioned above regarding why it would be a good rental is also good factors on why it would be a good sale.

Good luck!

Jesse

Either way would work. If you are looking to continue to accumulate properties, I would refinance due to the current low interest rate environment and lock in now. HELOC's work well too; however, you will be open to a future rising interest rate environment.

Congrats Nick!

If your are purchasing SFR's, I would recommend that you refinance your first purchase with any legitimate lender and pull the cash out of that home. Then, use that cash to purchase your next property. Once the second home is purchased, repaired and leased up, refinance that home and use the cash to purchase a third. Rinse and repeat.

Please note that you should only cash out what the NOI of the property can support.

Good Luck,

Jesse