All Forum Posts by: James Galla

I'd suggest contacting an attorney before you even do anything more - you are offering the seller terms that you don't even know the consequences of. 

The concept of a lease-option is that the premises are leased out to a tenant and that tenant, at some point in the future, has the opportunity to purchase it. It doesn't necessarily mean it will go through. Seller-finance involves a transfer of the property to the prospective purchaser in exchange for a note and mortgage.

Entering into these arrangements when there is a mortgage on the property can trigger the due on sale clause. Those are the general ideas behind the concepts. You ought to consult a lawyer to get it all drafted and reviewed so you have more than just a generalized explanation.

Always check out your local REIA (Real Estate Investors Association). I'd then check out BiggerPockets meetups and then Facebook groups for investors in your area.

@Sean Stanard

Sounds like you just bought non-cash flowing units. I reckon a refi would help you out, depending on how low you can get that monthly payment. A 1031 may lead you into another non-cash flowing unit.

I don't think the taxes are the primary issue right now. You've got a $200/m margin between your rent and mortgage. I reckon when you pay for lawn care and new doorknobs (or whatever basic expense), you'll be negative cash-flowing. Or, imagine the repairs during turnover time or capital expenditures.

I'm a little hazy on your mortgage interest deduction limit. The $10k figure jives more with SALT deductions.

Personally, I wouldn't spend $350k to make $2,400/year margins that just get eaten up by regular expenses anyway.

@Nathan G.

I think Nathan is absolutely correct in all aspects here.

When I screen someone, I place a premium on honesty and candor. The whole sob story about the government shutdown reads as a "blame someone else" explanation. The last thing I want from any applicant is some dodging of responsibility. It leads me to think there is something more, and the facts you shared here today read similarly.

@Mark Miles

The agent I sometimes use (sometimes I go without an agent) doesn't talk down large issues. They have gone out of their way to negotiate in a home warranty and other sprinkles on the deal in addition to repairs I demanded.

I'm not out there trying to kill a deal over some light bulbs or 50¢ outlets.

@Kevin Hoff

The easier way to do it is to grab a partner local to the investment. This avoids the entire fishing around for a trustworthy agent that probably doesn't care in the first place (after all, if you're a thousand miles away, there's nothing to stop them from saying the property is in a great area).

The localized partner can also ward off issues with a property management company - they can drive by the property easily to make sure everything is in working order and provide easy access to the PM, whereas, you'll be a thousand miles away and unable to control things - you'd be reliant on other folks that don't have skin in the game. And, frankly, sometimes your loss is their gain. For instance, more issues at the property generates more service fees for a property manager, and thus, more charges to you.

@Zach D.

Having a day job where you can see crappy properties doesn't really connect you with them. You probably want something more, such as time spent in the area. Plenty of folks live in A class neighborhoods and invest in the crappy ones, and they get burnt extra hard when they realize they aren't personally compatible with that class of area. If you want exposure, do some volunteer work down by the area on a regular basis.

Second, city investments traditionally don't do anything to magically increase the prosperity of the ghetto. It's the ghetto for a reason.

Regarding screening, you're going to bump into folks with a 300 credit score - I'm not kidding. So, when you take applications, you'll be sorting through people in the 300-550 range. You can ask yourself whether credit scores matter at that point.

So, I suggest taking on additional information such as bank statements and meetings/interviews. Whether they provide you with this information shows their character in that it shows they have initiative and honesty.

You better have a good sense of when folks lie to you as well. Dishonesty is a great pastime for some folks. I once had some lady tell me she was going to rent my place by herself. Meanwhile, she literally had 6 kids and a boyfriend she didn't disclose that she was bragging about to other folks about living with them (check their Facebook/social media accounts). I've seen a couple dozen other folks actively lie about who would occupy the unit - this is likely because they think that other person wouldn't make it past the screening.

If you hand this off to a property manager, prepare to get random folks dumped into your unit and you'll face those consequences. In sum, you generally don't want to invest in the ghetto.

@Robert Duffer

I think you ought to first assess whether any local markets are worth looking into. After that, then you should move farther out. The reason being - you'll incur greater risk when your investments are not in close proximity to you.

@Steve Yi

How about get a lawyer? Seems like solid advice. Frankly, what you're doing here seems like some more workaround stuff - hence you had the property manager prosecute the case. It should have been a lawyer from the start.

@Matt Tallent

I'd check your local Legal Aid. I doubt there would be something claiming that you are "certified" in landlord-tenant law, but from my experience, the Legal Aid does training sessions on landlord-tenant law, fair housing, etc.