All Forum Posts by: Nathan Grabau

Immediately putting a long term tenant into a vacation home would be a violation of the loan agreement most likely. There is generally a seasoning period on new loans where for example you might agree to use the property for a primary for the next 12 months. I would talk to a mortgage broker who works with different companies that give out mortgages to figure out a product that makes sense for you. 

The most likely situation is that you would be fine doing all of this, because you would not get caught, but it is probably worth a "hypothetical/ my friend has ED" style conversation with your LO to see how much risk you are taking on. You probably also want to talk to them about how getting your cash back out of the deal will work, if you intend to refi it after the conversion or are going to try to finance the conversion. 

If you are planning on adding a unit, you also will want to check with the zoning laws where you are doing it. 

The most important thing in situations like this is to have everything in writing. You want to also include things like what each of your responsibilities will be and if then statements. Like "if the project runs over budget, then we will split the additional rehab costs" or "if one of us wants to sell the property, the the other will have the choice to buy them out at 95% of the market value of their share". While this might seem like an untrusting exercise, working through a list of different situations and what you guys will do is a great way to confirm that you and your partner are on the same page and discuss areas where you guys do not see things eye to eye. 

I think things like this don't get discussed because tenants tend to not make decisions about where they will rent based off of ethernet availability. I say that as someone who is picky about my hard wired internet, but it is not something I look for in a property. I do think tho that 5G and other wireless technologies are rendering this discussion obsolete. In my house, I have over 1 gig of internet, that allows me to have 4 wireless 4k cable boxes, along with these cool little wifi range enhancers that allow me to hardwire internet from an outlet. This little box, that is not hard wired, outside of being plugged into a normal outlet lets me get 500mbps in download speeds on my computer. 

I think that this can lead to an important discussion about 2 things. One is understanding the needs of your tenant pool in a given area. If you are in a tech hub, this could be more important. I think the second thing and for me the more important one, is it is important to not take our needs and wants, and apply them to tenants. There are things that I love in my house, like my custom 6in floor trim, that will not drive rent or a rentals value up by a way that justifies the cost. For me, it was worth the 5k I spent replacing it, if I spent the 50k across my portfolio to redo the trim in all my units, I would not expect it to increase rent at all. 

When the numbers get that low on a flip, the risk goes up dramatically. Houses that are that cheap typically are that cheap because no one wants them, which is something you need to exit a flip successfully. The difficulty also increase on a tight margin because if you need to travel to it and pay for a plane ticket and a hotel, or a roof or HVAC system goes out, and it can take a major chunk out of your margin or put you in the red. 

Have you considered doing BRRRR deals in a slightly higher price point? Maybe the low 100s. This gives your some wiggle room, and then your exit is based on the refi and cashflow instead of people buying a 55k home.

I would have your dad owner finance it if that is a finance option. Essentially your dad become the bank and you guys pay him monthly. You guys can change the terms such as making the payback period longer or shorter or increase or decrease the interest rate to make it so he can hit a target amount of money, but you guys can also cashflow the property. On BP Episode 527 Pace Morby talks at length about how creative finance works and how deals can be structured. You probably don't need to negotiate dad down like Pace does, but it will give you a better idea of the mechanics of such a deal.

You should be able to find a 75% LTV loan product that allows your to refi out $37,500. The only thing that will be hard about this is that this is below a lot of lenders minimum loan sizes.

I am not a lawyer and this is not legal advice, but it is pretty normal for people to change there mind without getting in trouble about a property that was going to be a primary that they are now choosing to rent. Your intentions when you took the loan out are important here legally. It is worth trying to find documentation, such as an email the property manager you hired asking them for help until the current tenant moved out.

If I were you I would contact your loan officer and ask them for advice. The 1099 should not impact you as have already told the mortgage company what was going on, and you were not deceitful with them. The 1099 does not invalidate your story of "we could not get the tenant out as fast as we had hoped".  

Your mortgage company's reaction to this though seems weird to me. It really is not in their favor to make the transaction, especially after it has closed, this complicated. 

I would also recommend being very careful in your communications. It sounds like you are okay, but if you did intend to use a personal residence loan for a property you did not intend to every be a personal residence, it is in your interest to lawyer up and be careful as to not incriminate yourself.  

There are property management companies that sometimes will charge a fee to just place a tenant for you. This can range from 1/2 of the first months rent to the full first months rent. This only saves your a few percent though. Are you in a position where you can drop everything you are working on to deal with housing emergencies? The 10% I pay my PM is some of the best money I spend because I do not have to worry about problems with the property. 

I will not invest in areas that have declining industry or population. The only Ohio market I have found that is not in this boat is Columbus. I personally have invested in the Ames, Iowa area because of the properties offer good cashflow, a lot entry point, and the area is not in decline. My realtor in Ames is also an investor and has a property management company. If you are interested in getting on a call with him, send me a message and I can get you two connected! 

If I were in your shoes, I would just see how it goes with a property manager. We should have some other Milwaukee investors on the forums that can share who they like with you! If you are not happy with how it goes, you can always sell them a year or two from now. That being said I do not think that now is a bad time to sell. 

My investment properties are all long distance and it is nice because when something goes wrong my PM takes care of it. It helps too that my property manager does a great job. There are lots out there that suck. 

I would focus on comp data, and emulating high comps in your area. In my area fixtures like solar systems, sheds, or hot tubs have not had any impact, and appraisers have told me it is because these things often have liens on them so they cannot comp them. The way appraisals work is they compare your property to similar properties and then make adjustments based on that. As a result you want to try to make your property as similar to the highest selling properties in your area.