All Forum Posts by: Kurt Gardner

"Priced at" is one thing, but ARV is another.

I'm purchasing a duplex Friday contract price $92k.  Currently 2BR 2BA and a loft.  I'm converting the loft on both sides to a 3rd BR.  I am not hacking it.

Comps for duplexes with 2BR 2BA in that area are $133k.  Rent for a 3BR is $950-1,100 (so $1,900-$2,200).  Adding the 3rd BR is the key in this transaction, otherwise, it would be too close for me to justify from a financial perspective.

I have a pretty high rehab cost bc I want to upgrade several things (cabinets, flooring, appliances) and it needs several things as well (roof, drywall repair, 1 new bathroom = ~$28k).

This deal is good, but it is pushing my limits on what I would normally buy or consider a steal.  I'm mostly pursuing it bc it will be my first duplex and I really like the area (it is directly across the street from a beautiful 15 acre park with sports amenities, lakes, etc...).

PITI will be $1050+/- so I feel fairly confident in the month to month debt service, and once I get the 3rd BR built in each, it should ARV around $160k and my LTV will be in the safe zone.

As mentioned, do not try and play games with an owner occupant mortgage.  It is cheating and carries severe penalties and will, as mentioned, ruin your potential career in this business, plus it could severely hamper your vacation plans for the next few months/years, lol.  I'm pretty sure after a year you can move out, even 6 months in some cases.  In reality, you can move out almost immediately if situations dictated it (ie, you were relocated in your job, or some other unforeseen crisis required you to relocate), but it's not a great idea to go into the transaction looking to sneak through that loophole.  Unscrupulous investors do this with cash and rehab crews in my area all the time, and while they are technically following the law, they are scum (personal opinion).

As long as your property is approaching $400k, I'd say you're potentially getting a decent deal, although, it is pushing it. 

Let us know how it turns out!

Daria,

Instead of signing each page, I have 25 sections with a box to the left hand side of each section that I require an initial. 

I guess the question is, "Is it legal to put this term in the agreement/Would a court support this condition?"

Similar to late fees, I can only demand so much before the courts would say that I'm demanding too much in penalties from my tenant - but that can also fall under the category of usury, so...not really sure that is a relevant argument.

I'm really interested to hear if anybody has ever used this clause as an eviction method.

P.S. is there an easy way to tag a user/link you?

I think it's great that you already have cash flow day one of your ownership, congratulations!!

I only use M2M agreements now.

I agree with the previous comments that it is better for both parties to be able to walk away after 30 days.  I explain to the tenant that it's not that I'm considering evicting them or even have plans to make any changes to our agreement (I am willing to covenant with them a price point for a year if they ask).  I usually rent to aspiring home owners and by renting M2M, this gives them the easy opportunity to move quickly if they find something they need to act upon.

For me, if they can't pay rent and I have to evict them, likely I'm not going to get any satisfaction for the rest of my lease agreement, anyway.  It also makes it one step easier to evict them (if that becomes an issue) than with a standard lease agreement.

Regarding your tenants, just have them sign your new rental agreement the moment you take possession.  Lead with a positive (I'm not increasing your rent, I'm a very approachable landlord, I deliver freshly baked cookies when I come to check your smoke detectors, etc...).  Cover ALL the points to your agreement (we have boxes outside all 25 sections and the tenant must initial that they have read these and sign the bottom). 

The final good thing about M2M, you have a much better exit strategy for the person whom you might sell the unit to in the future if your tenants don't have the leverage of a lease to support their "squatting" on the property.  You can ask them to leave so you have a couple months to freshen up the place, or sell it with the income from the existing tenants as incentive and also that the new owner can remove them within 30 days.

Considering all the options, I'm not sure why I'd ever use a lease unless I was dealing with very high priced residential/commercial property.

Hope it helps, and blessings.

So, I'm hearing a pretty big thumbs up on requiring them to have it (at least strongly suggested and clearly pointed what could happen if they do not).  Thank you for the unanimous support!

Would anybody know a solid answer on the legality of requiring it?

I can see it being a requirement for application, perhaps, but what about if they let it lapse?  If it were written into my contract that I require it, would that be a sufficient condition for eviction if they failed to perform?

Daria, exactly.

Sue, fantastic breakdown and advice.

Thanks, both!

Great thread.

I work with three colleagues who live in PR and they make me jealous of the weather ALL THE TIME!

Perhaps we all should just plan a business venture down there and shop around?  I have been curious about the possibility of buying and holding there, but not near the beach (just couldn't swing the prices).  I think I was seeing housing in the hills (with a view) that looked more affordable.

I would love to hear creative financing options and would also like to know if there are any existing PM that are in use, or companies that would be a good candidate?

...maybe my co-workers would be interested in a little part time job?

I have a "Co-signer's Signature" line for them to sign at the bottom of my contract along with the Resident(s) and the verbiage above the line states:

"25. RECEIPT OF AGREEMENT: The undersigned have read, understand and agree to abide, to the best of their ability, to this Agreement and hereby acknowledge receipt of a copy of this Rental Agreement. "

I have had co-signers on three of my agreements, and only had to rely one time for the co-signer to actually be the responsible party. 

Ahhh, yes Mike S.

Thank you for the correct terms. 

Any additional thoughts on requiring it or not?

Thanks @Daria B.

Yup, same language as the bank has if you cxl insurance on your mortgaged residence...regarding the tenant, it's a notification clause that identifies you as an interested party, but not obligated to pay the insurance or responsible for any of the happenings, just that if they lapse, you get a notification as well as the policy holder. 

Sounds like they teach this in "insurance class!"

I seriously doubt I could kick out a tenant for letting their insurance lapse (and frankly not sure I want to).  I do wonder if the incentive would be attractive enough to convince them to do it.  I guess I don't feel to threatened by this type of liability, but I also feel like any additional layer of protection to my assets is a good thing.

Coincidentally, I never considered RI when I was renting, lol...never had anything I considered worth the trouble.

I will say as long as you're comfortable with the "living with your tenants" thing, you should be ok.  You already know it will be hard work, and you are committed to purchasing something for yourself with a financial plan.  To me, it seems like you've made the right decisions for yourself, AT THIS TIME.  The good news is, you can move out at any time and rent out your "home" and find another. 

I'd also agree with Sue earlier...I have abandoned my "leases" and exclusively do M2M at this time.  I may go back once I can get to what I'd consider high value properties, but at the price point I'm in (~$650-800 per month), I've found that if they get evicted because of a lack of payment, you're likely not going to get the rest of your contract money.  It's just easier for both to agree in 30 days you can part ways.

Have fun with it!