All Forum Posts by: Mary Cronin

Do you have an agreement with the realtor? Does the seller? (Think FSBOs on craigslist that say "i don't need a realtor but will pay 2% if you bring a buyer")

Some realtors will take a 2nd mortgage (or 3rd) for a commission when a property is listed to help a sale go through. I think that certainly would be an option when realtor doesn't even have a listing. 

There is no 6% rule, just a real estate practice that has legs. I see online brokers asking for 2% so I think the common 6% will probably be a lot less common in the future. Does 1% give the realtor fair compensation? Or 0.25%? What if it's a $20M property? 1% would be $200,000. 0.25% would be $50,000. Is that fair if there was no work involved - not listed, no showing, etc? With the average annual income for a realtor in California being $36000/year, even 0.25% of $20M is a windfall.

Don't get hung up on the "rules." Everything is negotiable. We were told in contract law that if the contract is engraved on stone, get a stone chisel.

Maybe the realtor wants a fishing boat for bringing you the deal. (a dory for $250 or a trawler for $50000). You won't know if you don't ask. Certainly don't offer 6%. 

Want a real unhelpful answer? It's all negotiable. 

Down payment from $0 to 100%. If a bank was the lender, probably 30-35%. If this were a contaminated commercial property, think -$50k (yes negative - seller paid buyer $50k to take it off his hands). 

So why is seller selling? Does he/she need cash now? Or need to be rid of the headache? Or are the vacancies so high, there's no profit? 

The loan is as variable as everything else. Often interest only for a short term (5-10 years) with a balloon (or new loan) at the end. Or amortized over 25, 30 or even 40 years to make payments more manageable - some for the full term (not banks) and some for shorter terms with balloons. 

Rehab loans from private money people might have no payments until property is sold or at end of year. (I know of an IRA loan ($100k) that was 10% simple interest payable in 1 year; no payments till end. IRA owner thought he got a great deal so continued to repeat year after year with 10% income every year and principal rolled over to next investment.)

There was an old RE saying - "the first one who mentions a number loses" - don't volunteer anything but see what seller wants. 

And be sure to ask if he has other properties he wants to sell; he may give you a deal $X per door if you take the lot. 

Sure. But what's your need/aim/plan? 

I'm in the same boat plus add that I need a place to live. I've been out of RE for 12+ years and ended up living with a friend as her caregiver. She died in July and I'm scrambling for a place to live as her father is getting rid of the house (which I can't afford and don't need the sf). Add that I'm on social security and a small pension, and that defines my needs ... 

1) an affordable place to live ASAP

2) passive income to increase my monthly income

So I am looking for both. FSBO to make purchases more affordable; preferably properties with some kind of income - so far looking at SFR with a MH or RV pad on acreage; SFR with an orchard & fruit stand on acreage; SFR with an apartment and 2 greenhouses on acreage; a fixer 3 plex (not livable so on my remote radar; a 4 plex expired listing that's in good condition but 50% vacant (due to remote location???); 4 plex with 5 RV pads (not licensed and not likely to be any time soon; realtor advertised it as 4 units and 5 RV spaces so 9 unit became a 4 unit when I checked state licensing for the RV spaces - just a follow-up - she didn't like my 50% offer for 50% vacancy).

Short term rentals are management intensive - make ready on every move out, immediate fixing of problems, need to be in perfect shape (can a bad Yelp review ruin your business?), etc. That said the rents may be higher, but so are the expenses. I would wonder if insurance might be substantially higher than normal landlord insurance (thinking about the tenants who throw big parties and destroy your property). Plus you probably will have occupancy tax (like hotels). 

Vacation rentals are like ST rentals, same types of issues. 

Ditto hostels - full time staff though probably some bartering. 

Ditto Bed and Breakfasts - I hear complaints re never getting a break. 

Sort of ditto on mobile home parks and marinas - but each can have onsite or offsite management and then you'll have to manage the managers. 

Apartments should have a property manager to shield you from tenants. (think 2 am clogged sinks) but benefit from more units under single roof; easier to find property managers for more units; higher income and more income opportunities (vending, laundry & parking & storage income). 

Corporate housing is interesting - usually higher rents, all inclusive (utilities usually included) and everything paid by a company for longer than normal rental terms. (1 I looked at in NM $1800/mo rent included everything - elec, gas, cable, internet - paid by a hospital for a doctor doing elective surgery for 15 to 18 months at a time plus laundry income. Market rent for the 2b1b 700 sf unit would have been maybe $725.) 

Flips - assuming you mean buy, rehab & resell ASAP - gives you ordinary income (highest taxed income) rather than capital gains. And you probably don't get the benefit of depreciation ("phantom income"). Unlike monthly rental income, the profits will come when you sell, so not a way to increase your monthly income. You also don't get equity in the long term.

Buy and hold gives you several returns - if you buy at a discount to market value, you get instant equity; as you pay mortgage; you get equity as the loan goes down; you get monthly income from rents; expenses and depreciation will probably put you at $0 taxes; and eventually you'll get capital gains on sale (assuming CG tax rate remains lower than ordinary income which is no guarantee with a tax happy administration). 

Anything you do, you should plan on succession from the outset. Buy in an LLC or at least a trust (living or land trust) to avoid probate issues and to make the property more sellable (is that a word?).

So what is your plan? 

Chances are that all of them have to consent to the sale. But the attorney will know the rules in PA. In CA, in some instances a public hearing where anyone can bid on the property is required. That could put a kink in your plans to buy. 

You can get an appraisal based on an architech/engineer's drawing of a whole house or apartment house or a new commercial building - so as a guess, be prepared with pictures of the appliances. I would think brand new appliances can only help. My $0.02 worth, though. I'm guessing.

The probate attorney can answer your question. Is she the only heir? Or the heir entitle to the house?

Be sure there is an end date - the neighbor did one for a tenant without one and when he wanted to cancel it after non-payment of rent (and his kids running a car theft ring out the property) a court said no, tenant could buy whenever. 

Also make non-payment or late payment on lease a fault that will cancel the option - like I said research this - there is a lot of info around and make sure your lawyer knows the twists involved (but not so many limitations as to make it non-viable). 

Most weird issues won't apply to you, but a good agreement is necessary. 

10 years is a long time. I usually see 2 to 7 years. I ask for 7, most owners ask for 1.

Try Nolo press for leases appropriate for your area. (At least they have entire books for CA leases.) Or search on Google and see what you find. Colleges & universities usually have "model" leases that you can use as is or use as a guide for your own (since those often allow for room by room rentals which wouldn't apply to you.)

@ Scott Wolf - When a house is inherited, there are procedures in place for these things.

There should be. I worked on a CA estate that had a piece of property in IL. The IL property had 3 or more sequential life estates and about a dozen names all told. We asked about a clear title and were told "this is the way we do it in IL." Go figure. Better them than me, it was a nightmare. 

You pay the manager a percentage - I've recently seen as low as 6% and as high as 10%. They will arrange and pay for repairs from the income and send the net to you. They will of course ask for more if it's a major expense (HVAC roof etc). They'll also handle evictions and move-ins/outs (probably an extra fee). 

Dolf de Roos is converting them to senior living (2 hotel rooms = 1 br apt; kitchen from 2nd bath; 2nd room = living area)