All Forum Posts by: Pearce G.

@John Vietmeyer I'm no expert, but I do have some land in Summerville already zoned for multi-family.  I'm wondering the same thing about finding developers/builders who who want to build on it.  Let me know if you want to talk offline or grab a cup of coffee.

I have a couple of acres that I subdivided from a larger property.  Once I sell the main parcel, my cost basis in these two acres will be near $0.  A builder I trust is interested in putting townhomes on it.  To make the math easy, let's say the current value of the land represents 20% of the total cost, and the builder intends to build 10 units.  

If I sold the land to the builder, it would be a bird-in-the-hand and I could move on to the next deal.  But suppose the builder won't or can't do the deal if he has to buy the land upfront.  Would you rather:

--contribute the land to a partnership deal where you end up owning 2 units (20%)?

--contribute the land to a partnership deal where the builder pays back the value of the land plus 20% of his profit?

--owner-finance the land? maybe with a balloon payment due at 24 months?

--Something else?

Obviously, everybody's situation is different, but I'm interested in WHY somebody might choose (or warn against!) any of these scenarios.  Thanks in advance for any guidance or suggestions.

@Alex Chernikow sounds like you're already pretty good with financing calculations.  Estimating costs for a fix & flip, however, is a different skill.  You need a mentor or experience.  I don't know how much of that you can learn in a weekend with your buddy.

Unless your buddy is willing to partner or mentor you through a fix & flip, I would suggest looking at a few SFRs and duplexes, maybe ones that are already rented or don't require too much rehab.  It's not sexy and your cash flow may be thin, but it's good experience about tenants and maintenance costs and whether you want to be your own property manager.

I'm also assuming you plan to continue a day job for now, so trying to manage your first fix & flip in your spare time is likely to drive up your holding cost.

Yesterday, I went to my first delinquent tax auction—Berkeley County, SC—just to see how it works.

I guess most of them a pretty much the same.  Once a property is auctioned, the current owner has up to a year to pay off the delinquent tax and retain ownership.  If the tax is paid within the year, the successful bidder gets their money back plus an attractive interest rate on the delinquent amount (12% in Berkeley Co.).  If the delinquent tax is not paid, the successful bidder gets the property.

Here’s what I couldn’t figure out:

There were properties that appeared to be comparable on paper…i.e. SFRs owned by individuals in established neighborhoods probably worth upwards of 100K and owing $500-$1500 in taxes. Some would get bid up to 2K-5K; others were bid up to 50K!

I can understand the 2K-5K, but in order to bid a property up to 50K, you have to have a pretty good idea that the current owner is not going to pay off the delinquent tax. It doesn’t make sense to tie up 50K in order to earn 12% interest on 1K.

• Are these bidders who have researched the property—perhaps even contacted the owner—such that they know the tax will not get paid?
• Are they lenders trying to minimize losses by bidding on properties for which they still hold a note?
• Or are these corporate investors who bid up a large number of properties knowing that a certain percentage will not get paid off? For example, if you successfully bid 50K on 20 different properties that average over 100K in value, you could get a decent overall return if only 2-3 of them actually convey.
• All of the above?

Just trying to understand why some get bid up so high and others don't.

I don't know how much home equity you have, but reading between the lines, it looks like you intend to use home equity to pay for 100% of an investment property (to get the lowest interest rate) and that this may be your first investment property.  

Be careful. What if that investment property needs a new roof in the first year? Do you have enough excess in your HELOC or do you have other sources of money to cover near-term capital expenses?

A HELOC can be nice, because it enables you to act quickly. However, the convenience can be a slippery slope, and as @John Thedford said, it encumbers your primary residence.  

If you're just starting out as an investor, I would recommend financing your property through conventional means--rates are still pretty low--and if you MUST set up a HELOC, set it up for less than your lender will allow and use the HELOC as your "other" source of money for capital expenses.

And as a practical matter, leverage is still the name of the game in real estate. Using a HELOC to finance 100% of an investment property ties up more of YOUR available capital. That's going to reduce your cash-on-cash return.

Approximately 1.7 acres raw vacant land with over 100ft of road frontage at intersection of W Butternut Road and Central Avenue in Dorchester County SC just outside Summerville city limits.  Currently part of a larger parcel.  Exact acreage and road frontage subject to survey and subdividing.

Zoned Neighborhood Commercial (CN) which allows for retail/convenience, professional offices, utility structures, or up to 8 units per acre multi-family housing.

Excellent visibility to Central Ave (18,000 vehicles per day), but with easy egress onto W Butternut Rd (5,400 VPD).

Retail value $100K-$125K per acre but willing to leave some meat on the bone or entertain leasing or other creative proposals.

The term "re-proration" does not generate any results when you search it on BP, but I just paid $1500 to learn what it means with respect to property taxes.  

I purchased a commercial property in late August from a small business owner-occupant.  At closing, I was credited roughly 2/3 of the prior year property tax amount for Jan-Aug 2016.  But when I got the 2016 tax bill, it was $1500 more than in 2015.  

So I called the closing attorney and told him I was not credited enough for the 2016 property taxes.  He said that's why the seller and I signed a Tax Re-Proration Agreement at closing.  It protects me from exactly this situation.  

Whew!

So the attorney called the seller to explain their obligation to adjust their portion of the tax liability for 2016.  The seller says they are bankrupt.  The business entity from which I bought the property has closed and has no assets.

Looking back at previous closing paperwork, this is not the first time I've signed a Tax Re-proration Agreement, but it's the first time I've been acutely aware of it.  I'm glad my attorney put it in there, and I guess it was explained to me at closing, but it didn't really register.  Nevertheless, I'm still out $1500.  Not worth the legal expense to go after the business owners and probably lose, so it's sort of a toothless document in this situation.  Next time the seller is a business entity, I might ask them to escrow an amount sufficient to cover any changes in the seller's share of property tax or have the owner sign personally for it.

I hope this saves someone else from the same mistake.

Instead of renting it yourself, offer to assume the role of his property manager.  Do the necessary maintenance and repairs, find a tenant, and you BOTH make a little money.

I'm at the re-fi stage of my first BRRRR property. I'd like to hear the community weigh in on something that came up at closing today.

Working with a local bank...56K portfolio loan.  One of the closing documents was an Assignment of Rents.  Basically, it gives the lender the right to step in and take over collecting rent, enter the property, make repairs, etc.  I was aware of the requirement, but assumed it was in the event of a default.  However, the language clearly gives the lender the right to commandeer the property even in the absence of default, purely at their discretion.

My attorney agreed it was an overreach, but said it was highly unlikely that a lender would interfere with a performing loan.  Yes, but...

Would you sign that document?

Hard to provide a lot of specifics, since I'm only shopping at this point, but this helps focus my search.  Looks like starting small (5-10 units) may be too small.  

Thanks everybody!