All Forum Posts by: Marc M.

Hello BP,

I found a property I'm interested in: unoccupied house on almost half an acre. It's probably a tear down, and I'm primarily interested in the land. I did some digging, and found that the property is owned by a 90-year old widow. I tracked down some of her adult children who happen to live nearby, and eventually reached one of them who is 'handling' the property. I'm meeting him at the house tomorrow, and will do a walkthrough. He said he is planning to sell in the next few months....he thought about tearing it down first. He told me he had a couple other people interested in the house. (I'm not surprised because it's one of those houses that looks like no one lives there and could be picked up for a song).

Here's the problem: I know I'm the first person who is actually doing a walkthrough. What is the best approach to make an offer? I don't want to give him an offer and then let him use it to negotiate a higher number with the other interested parties....but I also don't want to make a live offer with a short expiration date and put too much pressure on the deal. I thought about saying: "If you have other people interested, decide on a date that you will accept offers and I'll submit mine then." But why ask for competition? I'd rather be the only guy in the room!

I plan to ask the seller a lot of questions to find out more details about his family's situation....but fundamentally, what rule of thumb do other investors use when negotiating an off-market deal? I'd love to hear your tips and suggestions.

Best,

Marc

@Austin Davis, you mentioned you have a boiler system (and I assume either baseboard or radiators). When switching over to a geothermal system this is a conundrum....are you sticking with some type of hydronic system or converting to forced air? (when considering an A/C system, especially in a humid summer environment, trying to cool with hydronic is challenging...think sweating glass of iced tea). If your units are small enough to get by on a window unit for cooling, you may be able to avoid installing additional ductwork to deliver heat and air conditioning. The other important point to remember with geothermal (as fancy as the name sounds) is that it's just a series of water wells. The same guys that come to drill a well for drinking will do your geothermal borings. In a place like Iowa, I'd imagine many properties have basements, and your water supply is coming into the building at least 6' feet below grade. In that sense, you already have a geothermal system....the water entering your building is likely in the 60 degree range +/- 5 degrees seasonally. The geothermal heat pumps are popular with folks that want to put up PV panels because they can heat and cool with electricity. 

To demystify all of the hype around geothermal (and make a more informed decision) the main thing to consider is this: Heating and cooling a house costs money between deltas ie: keeping your house at 72F when it is 0F degrees outside in the winter. Or in the summer, maintaining 72F when it is 90F and humid outside. If you're an investor....go where the money is: Winter! 

To echo what many are saying on here, it's just not worth it (as a landlord) to install a fancy system without gov't subsidy. Your best bet for cost savings and ROI for energy upgrades is to insulate and seal your house from air infiltration, BUT if you really want to install an efficient heat system go for a in-floor hydronic radiant tubes. Here's why: with your current boiler system we're dealing with the delta principal again....you're 'boiling' water to deliver it through a system that will achieve a 72F outcome. That takes a lot of energy! (...taking 60F water, making it 212F degrees, to produce 72F degrees) If you installed 'staple-up' radiant floor tubes under the floors of your units (assuming you have access to them via a basement or crawl space) you would only need to heat your floor tubes to about 80F or 90F to produce that 72F ambient air temperature. There are high-efficiency hot water heaters out there (like Polaris) that are about 95% efficient. So, you can spend $3500 on one of these 'boilers' to replace your old one and another few thousand on pex tubing, and see significant savings on your heating bills. There are also many DIY friendly suppliers out there (most licensed plumbers will charge a lot for this retrofit because they're not familiar with it).

If you still want to deal with the A/C....again, insulation and air sealing will get you the most bang for your buck, BUT for a fancy energy efficient upgrade you're probably better off pairing PV panels with a small cassette unit from Panasonic....skip the geothermal. 

Let us know what you end up doing!

Best,

Marc

Thanks @Account Closed! Have you ever done a land contract with any of your tenants? I'm just curious how you would handle the water bill in that situation. The Water Department still asks for the affidavit because they don't consider 'equitable title' ownership unless it's 'legal title'.....so I'm wondering if I can specify timely payments of the water bill in the LC as part of the performance of the contract (or would you recommend I put the water bill in my name on a Land Contract situation too?)

Best,

Marc

Hey Folks,

I'm looking for some veteran Detroit Landlords to chime in on this one: 

Which route is better to take with the Detroit Water Department on a rental: 

1) Affidavit of Lessee Responsibility For Water and Sewerage Bills Individual Owner Acknowledgment

2) Direct Payment by Tenant Agreement (Tenant (or landlord?) pays $112 deposit)

From what I understand, as the new owner of the property, I'm pretty much on the hook for non-payment of the water bill no matter which form I submit. Both forms require the tenant to go down to the water department unless I get the first form notarized somewhere else in the presence of the tenant. 

Let me know what you think!

Best,

Marc

@Maria Sophia I have also purchased several properties in the Wayne County Tax Auction. While many commenters suggest there is a 6-month redemption period, that is only true for Mortgage Foreclosures NOT Tax Foreclosures. You could have this person out in less than 6 weeks.  

I agree with most of the other comments....Get an attorney! If you want someone that just does evictions try James Abbot. For general real estate stuff (including evictions) I have worked with Harry Kalogerakos, and Raymond DeBates, both are good, reputable attorneys. 

Honestly, your best bet is to approach the previous owner and explain the situation to them and negotiate a move-out deal. I have 4 properties that came with occupants, two of them are previous owners. In one case, I'm selling the property back to the homeowner on land contract. The other person, I have given a grace period to move out (where they pay $200 /mo. in rent and if all payments are made on time, I give them their rent back by an agreed upon move out date...like cash for keys with more accountability). My guess is that your property management company approached the homeowner without much empathy, and the occupant is right to be skeptical as many people don't realize they've lost the home. It took me a letter, two phone calls, an in person meeting, and over an hour of explanation to get one of the previous homeowners up to speed. She couldn't understand why she didn't get notice about the actual auction sale....and I said "You did, you got foreclosure notices, and once they issued a default judgement, the County doesn't care anymore." 

Just remember, this is bad situation for the previous homeowner, they likely have very little money and may not have a place to move to. Tread lightly, and you will be far better off. 

Good Luck!

I second @Percy N.'s recommendation of Kingdom Trust. They have very low fees, especially if you do a SDIRA LLC. I started mine last fall and it's running great. I had Jordan Sheppherd of Checkbook IRA LLC set me up. They're a small family-run trio of advisors and I thought the service was great (and very affordable). I highly recommend going with a SDIRA LLC rather than equity trust....it makes life so much easier than having to deal with your custodian every time you need to make a move. Good luck @Michael Mateja!

@Tim Porsche, if you don't qualify for a Solo 401K (or don't have a ton of cash to put into it) I think you're best bet is to do a Self-directed Roth IRA LLC with checkbook control. There are plenty of SDIRA advisors that can set this up for you, @Dmitriy Fomichenko being one of them. The upfront cost is worth it ($1500 - $2500 setup fee) because you'll burn through fees transacting with the major SDIRA custodians. Just read a few forum posts on the SDIRA's from BP members....and most are complaining about either the fees or the headache of dealing with an unresponsive third-party to handle your transactions. The counter argument is that if the custodian is handling all of your transactions you're less likely to get into hot water with self-dealing, which is actually easy to avoid if you understand the basic rules. 

I use Kingdom Trust as my custodian and pay $100 flat fee annually. Because my SDIRA has its own single-member LLC, which I manage....I essentially operate out of a business checking account (where the bulk of my funds reside). This saves me lots of money. For instance if I want to participate in a tax auction, I transfer the money to the county Treasurer through my business checking account. I actually just did this recently and bought some cheap ($1000) houses, then had a locksmith open the doors and re-key the locks....I paid him using a debit card from my business checking account (credit cards are not allowed).

Because you're starting out small (as I did too), I think it's even more necessary to go the SDIRA LLC route....using my previous example, if I want to liquidate this $1000 house for a profit down the road, I can transact it myself with a quitclaim deed and deposit the check into my IRA's LLC business checking account. Or if I rent it out, I'll collect the tenant's payments into this account and pay out all the expenses as well. Have a look at the fees from other custodians and start imagining all the transactions that will pile up: snow and lawn care, regular maintenance calls, accepting and returning security deposits, etc....

Also, don't be deterred with $6K...you can always start it and add $5500 to it later this year. Maybe @Kris Haskins can share some of his success stories of how he started with $2K !!

Good luck!

@Brian Eastman, thanks for replying! What would you say (or rather what do you think the IRS would say) is a 'regular basis' of dealing an inventory of properties? 5-10 properties per year? or in the 20 or 30 range? My SDIRA advisor thought I'd be in the clear as long as stayed under 30 transactions per year.

Right now I have 6 properties in my SDIRA that may be easier for me to sell than rent out (and more profitable in the short term). I am finally getting my feet wet with SDIRA investing but my SDIRA is only in the 5-figures....and I'd like to grow it more aggressively than the cash-flow and appreciation will from the low-end properties I have now...

Best,

Marc

Context: Detroit, SFH tax-foreclosures...properties ranging in value from $3K to 30K....no mortgage financing, only cash purchases between investors or investor to occupant / tenant.

Questions: Are there any legal issues with quitclaiming a deed from a tax foreclosure property to another person (investor or occupant)? Since this wouldn't require traditional underwriting, ie: no mortgage financing involved, are there any restrictions in cash-purchases of real estate where title is conveyed not by a warranty deed but with a quitclaim deed? And if this is done inside a SDIRA, will it trigger any UBIT if the transfer occurs too quickly after the acquisition of the property and considered wholesaling?

Example: I purchase a house for $1000 in a tax auction using my SDIRA and sell the property for $5000 a few months later and transfer ownership through a quitclaim deed. Proceeds go into my SDRIA, and repeat ;-)...no UBIT triggered because I'm not rehabbing and flipping....just acquiring and selling passively at arms length. My IRA LLC is off the hook legally because title has been transferred to another party. Do this sound right?

Hi Folks,

I recently bought several properties in Wayne County's annual tax auction in the neighborhoods most people stay away from. I did this to test some hypotheses, and get an education one way or another. A recent forum discussion on the merits of trying to make a difference low-income neighborhoods can be found here by @KJMiller. The examples put forward were fixing up distressed properties in rough neighborhoods and renting to section 8 tenants. I want to add another scenario and also ask advice for how to structure some of the deals I am pursuing. First some background on how the annual tax auction works: The first-round of the auction happens in September when all tax-foreclosed property goes up for an opening bid of the back taxes owed. Anything that doesn't sell in the first round goes up again in October for starting bids of $500 + summer taxes. This is where they myth of the $500 Detroit house comes from:

1) I have a duplex that I paid $1350 for and one side is occupied by a renter who wanted to purchase it from the previous owner but she wouldn't cooperate (and good thing he didn't because she owed $8000 in back taxes). I have now wiped that tax bill clean with a $500 purchase and paid $850 to make the taxes current. The tenant was paying $400 / mo. in rent. The upstairs unit needs some light rehab (kitchen and bathroom) and the exterior of the house needs paint and a roof sooner than later. The tenant would happily buy the property from me for $4000 but would need to spread out the payments over a year at least. So my question is how to best structure a deal with one caveat being that I don't necessarily want to formalize a Landlord-Tenant arrangement given the amount of work the house might need if I had a housing inspector walk through, which could quickly kill any profit on the sale or bring the asking price out of reach for the tenant. BUT if I offered a Land Contract for $4k over a 1-year term, am I getting myself into TILA (Truth In Lending Act) issues? Please chime in @BrianGibbons or @BillGulley ! I imagine many investors would send a 30-day eviction and start from scratch....but I want to tread more lightly, and in Detroit a vacant property can spell disaster in terms of scrappers and vandalism (so keeping it occupied is a good thing!) For a primer on the mess of the Foreclosure Crisis in Detroit, watch this video: 

I realize another strategy is to just flip this property (as many do) to another investor by listing it for sale as-is and say 'do not disturb occupant' and kick the can the down the road. This is where the ethical dilemma comes in for me. There are many ways to make money in real estate, but if you have the choice of actually helping someone out who got the short end of the stick, why not do the right thing?