All Forum Posts by: Jude Campbell

Seems a bit suspect.  My first answer to all of your questions is and always will be simple: wait to hear back from your attorney. 

That said: 

1.1. Make sure your DD is 100% concrete; don't let a seller rush you through this process.  Conduct your pre-offer due diligence before putting an offer in writing.  It sounds like the seller won't agree to any sort of flexible terms.  Make your offer conditional on due diligence and contingency clauses which fit your needs.  Be prepared to walk away if the seller doesn't agree. 30 days is more than enough to do this entire process but you might benefit from some support from a few fronts: your attorney, agent/broker if you're using one and a consultant/advisor.  

1.2. Just make sure the terms in the JV are clear: responsibilities, terms for profit taking, exit strategy if applicable, etc. Let your attorney write this up.

2. The quitclaim deed itself isn't the problem, although it can cause a bit of turbulence; it's the fact that the seller isn't disclosing it.  They're usually used if a property has been gifted.  It's likely illegal not to disclose if there is a quitclaim deed before sale but I think this varies by state.  It won't hinder your progress but if you run into this problem, you should either protect yourself of back away.  Buy title insurance if you're unsure.  

3.1. Figure out what the property is worth and make that your absolute best offer.  My formula is as follows: if it meets your intrinsic value criteria, your offer should not be more than relative value.  After which, an offer price less than either of those two values is your consumer surplus.  This is a win.  Your agent/broker can do a relative valuation; your advisor/consultant can do both.  

3.2. I'm never too bothered by how firm an asking price is; the seller could just be blowing smoke for all you know.  If the seller's price is legitimately firm and it's a good deal, who cares?  If it's not a good deal, figure out your offer (above) and make that your proposal.  Worst thing the seller can say is no. 

Hope this helps.  Send me a message if you want to chat. 

Jude

@Henry Clark - couldn't agree more.  What's they worst they can say?  No?

Hi Peter.  

Agree that renting is probably a better idea.  What I'd recommend would be to park the money in a cash-flowing asset elsewhere while using income from that asset to pay your rent, rather than sinking your money into mortgage payments in California.  

Not to say that purchasing a home in California is an inherently poor idea; you'd just be rolling the dice on appreciation, while likely trying to scrape by on payments.  

Reach out if you have any questions. 

Jude

Hi Junior.  

You have some risk here with leases expiring.  

You also have some potential upside on a few fronts: 

1. If the landlord is currently paying expenses, it's structured more like a residential lease, which is odd. Most commercial leases are structured as net leases: with multi-tenants, the only thing you should be on the hook for is property tax, maybe maintenance for common areas or external spaces. CAPEX is generally up to the tenant, again, except for shared spaces and units should be individually metered, so you aren't on the hook for utilities.

2. The other upside is that you have control over rental rates, obviously subject to market but you could get a kick on both new rates and increases throughout the lease term.

In short, the current landlord looks like he/she might be selling this a bit short on current leases but baking in upside on the offering price, though I'd need more details. 

I'll send a connection request if you want to discuss. 

J

Hey Chris.  You have a few options here.  Off the top of my head:

1. JV partnership with the seller so that the property is held together, with a separate financing agreement. A lender would prefer this on your end but might not be something you want to get into, depending on your relationship, circumstances, etc.

2. Have the seller transfer the asset to you, irrespective to the seller financing agreement.  Crank up the terms such that he must lend you more money upfront, so that you don't have to bring in third-party lending.

3. Escrow account: these can be structured in a few ways but might be both his and your best option.  There will be some costs associated with this strategy but could be effective.

Feel reach to message me if you have any further questions. 

Jude

Hey Chris.  First of all, congratulations!

Here's how I do it: in a spreadsheet, with respective dates, give a rundown of 1. purchase price 2. renovations costs and 3. your exit price or fair market value post-renovation.  Use the XIRR function and plug in numbers and dates.  It will spit out an annual rate of return on your property.  

Let me know if you have any questions.

Jude

Variable rate mortgages on second properties are the first to go in high-interest rate environments.  Definitely a contributing factor as to why inventory is significantly higher.  Markets like these are always the most susceptible to turbulence and are always hardest hit in a downturn.  Is it still red hot?  I'd say no.  It has slowed down.  Does anyone have an answer as to what's coming next?  The answer is simple: even the greatest macroeconomist can only give their best guesses. 

Hi Jeremy.  Will preempt this by saying I'm not a CPA, though I have a general idea of how the IRS looks at these.

The only expenses you can write down under an exemption or tax deduction are expenses incurred solely from the one STR unit. You generally need to keep a separate log of expenses and in case of audit, they'll ask for something like this. You might also be able to list your time spent self-managing as an expense.

Jude

Hey Joseph! 

Yes, these numbers can vary pretty drastically.  

Put simply, the income approach doesn't care about the value of your neighbour's home.  It's a strict financial calculation.  On the flip side, the relative valuation only considers the price of comps. 

Happy to discuss further if you're interested. 

Jude

Hey Eric.  Section 8 comes with its challenges, no doubt.  However, since the contract is guaranteed by the federal government, it provides some of the most consistent cash flow you can find in real estate; arguably even better than commercial lease agreements.  There's a lot to like about section 8!

Happy to discuss further. 

Jude