All Forum Posts by: Michael Doherty

Hi all,

I am closing on the sale of a MF I purchased earlier this year. When I originally purchased it, the seller only credited me 1 of units security deposit and used the other units deposit to cover back pay rent. I am faced with a similar situation as I go to sell the house. One of the tenants has a $1100 security deposit which was disclosed to the seller's. 

Since executing the purchase agreement, my tenant still owes $875. I contacted my lawyer and he said legally I could take from the $1100 security deposit. Other colleagues and friends advised against this because it could jeopardize the deal and isn't worth the $875 (I would agree).

So there's a few options here:

1. take from security and let the sellers know why at closing

2. Forget the $875 and chalk it up as a closing cost.

3. Work out an arrangement with the tenant to pay me as much before the closing date (1 week) and collect the remaining cash post closing. 

Obviously I would be moving towards eviction if I were keeping the property but it is not worth it at this time. 

Thank you for the advice. 

@Aamir Syed Welcome to BP. I am a local investor and have property in both New Britain and Middletown. Both are great areas to invest in. In terms of cash flow- New Britain is probably your best bet (make sure you buy on the right street). You can find cash flowing property in Middletown as well but if your looking for faster appreciation- Middletown is probably a safer bet. 

However, with that said-  New Britain has the largest fuel cell plant being constructed which will bring 1,000's of jobs and great opportunity here in the near future. Hope this helps- reach out with any questions! 

@Carrie Link depending on what your family situation is like, you should seriously consider house hacking. If you can find a 2-4 family where you are comfortable living, you can use a low down payment to purchase the property. This will not only be an investment for you for years to come, but also be your primary residence. Depending on your market, you could 'live for free' ie... have your tenants pay your mortgage, taxes insurance or at the very least,only have to come out of pocket a few hundred dollars. This will really escalate your savings (not having to pay rent) and you can use your salary, which I am sure is decent for someone with a doctorate in education to pay off your loans and get your DTI down significantly.

Also if you live there for 2 of the last 5 years I believe you would not have to pay taxes if you decide to sell down the road. 

I have a few tenants who use and like Cozy. Others use and prefer venmo (my preference too). The only downside I have with Cozy is that:

1. it takes 5-7 days to deposit into your account and you have to pay extra if you want an immediate transfer. Venmo is 1 day and is free.

2. Cozy will only notify you if the funds are insufficient when it actually deposits into your account (after waiting 5 days).

- Ex. Tenant paid me via cozy on the 5th. I waited until the 10th for the monies to be deposited. I was then notified on the 10th that the funds were insufficient. I wish i could be notified immediately so I could contact my tenant and resolve this rather than having to find out 5 days later... then waiting another 5 days because they have to make a new payment. 

@Cody Godfrey I can surely empathize with you on this one. My gf and I just bought and moved into a tri-plex as well and have 1 trouble tenant who we are evicting.... it has been a hell of a ride to say the least, living with someone you are also evicting. Our only saving grace is that she is on a month to month lease so we are evicting for lapse of time. She continues to pay every month which is honestly mind boggling however, you may have a more difficult time evicting if they are on a year lease. You could offer cash for key's and say you need to renovate or family members are moving in. 

@Tim McKinnon depending on the age of your house, the only proper way to completely update it would be do a complete gut job, anything else would just be a band aide. With that said, it's not the end of the world to have K&T wiring given it is inactive. Personally, I would update it to the point where it is safe and livable for an affordable cost. 

@Bryan Grooms you could also ask for an estoppel agreement. Basically the renter signs off on the fact that 'yes I Joe Smith am paying x amount' per month'. I would ask your attorney to have the seller's attorney obtain this and bring to closing. 

I really like the idea of using 'other people's money' or leverage as a way to financially free yourself. 

@William Wright my understanding and I could also be wrong is your equity would go from 25% to 46% before the cashout on a new appraised value of 700k. 

500k-125k (down-payment)= 375k debt payment or 25% equity

375k/ 700k (new value)= .53 debt owed which means your equity would be 1-.53= .46%

Hope that helps. 

@Daisy Ferreiras I am currently in the refinance part of my first BRRR. A couple things I've learned.

1. An easy and quick way to see if the numbers work before going to the calculator is take the ARV X .75 - rehab costs.

Ex. $200k ARV X.75= $150k. Then take $150k and subtract what you think will be your renovations... say $30k. So $150-$30= $120k. That is the magic number you DONT want to pay over for the house. Again there is a thousand other factors to consider but this is a good rule of thumb to go by before diving into the numbers.

2. If you plan on doing a BRRRR- keep this in mind. When you go to finance the property the original appraisal the bank will conduct will most likely be the same price you are under contract for. This is because they want your business and from my experience (4 Multi's now) there's no incentive to come in or below that contract price. However.... when you do a cash out refi- expect a much lower appraisal than your anticipating. This is because the bank has 0 incentive to appraise it any higher than it needs to be. Most likely will come in below as to make you have more skin in the game. Point being- be very conservative with your ARV.

A good example is my current cash out refi. I had an original appraisal done in April of this year before renovations but it was done with the consideration that the rehab was complete going off a rehab budget list i provided. That appraisal came back at 218k in April. I just received a new appraisal after the work has been complete for 201,600. Not sure where the 17k disconnect is from April but as you can see... be conservative in your ARV. For the record I am currently disputing the most current appraisal.

Hope this helps.