All Forum Posts by: Jeff Rabinowitz

Mark you have identified a number of landmines. With such a complicated scenario there may be a few you have overlooked. Is the deal really that good that it is worth trying to navigate the field? Are strong deals that difficult to find in your area? If so, at least get an attorney involved. I would probably walk away (at a brisk pace) and start fresh for the new year but I would never presume to know your situation.

I have funded deals like this on properties that I could easily value which were located in areas I knew well. The borrower had their name on title and they gave me a first position mortgage with an accompanying promissory note. If you have a lender who is willing to do this it should not be difficult to draw up. Record the mortgage to protect the investor. Name them as an additional insured on the hazard insurance policy if the insurance company will allow it. Treat this lender well, meet or exceed all the clauses in your contracts and they may be willing to do several deals with you.

If you are unable to find bank financing you should be in a strong position to structure a deal that would be attractive to a private lender.

It may be a bit more difficult to do this with a multi-family building but have you thought about asking them what they can afford? I have pretty good success with this for my single family homes and my long term tenants. When I feel it is time for a rent increase I call them and tell them the number I'm thinking about and ask if they could handle that right now. I usually pick a number higher than what I am actually looking for and don't usually do this unless there hasn't been a rent increase for at least a year and a half. The responses range from "yes, that would be fine", to "we could handle that in a couple months", to "an $X increase would be a lot easier". It is rare that the figure they offer is not at least what I was looking for. If I accept their lower suggestion or delay the increase they often thank me for it. I get my rent increase and don't alienate my long term tenants.

Joe, most of the private lenders I know will not ever ask for your tax returns. I never have. If you have no experience you are going to have to find a fantastic deal and you are probably going to need to put a significant amount of your personal funds in the deal. Learn to speak the language and start talking to investors. REIA's are good places to both learn and meet people.

If you find a great deal in a location which would complement my portfolio you will probably get me to listen. You will have to convince me that you know enough (you don't mention if you are planning a rehab/flip or are planning a long term hold) that you will not destroy the value in the property should I need to foreclose on it. The more of your own funds you commit to the project the more insurance you provide the lender and the more likely you are to find someone to partner with you.

Chad, most of the time the LLC will be closed but there are instances where the buyer may prefer to keep the LLC. For example, if the buyer where also an investor who planned to use the home as a rental they might be planning on placing their new rental property into an LLC. In that case the buyer may choose to simply purchase the LLC (and the house that is owned by the LLC) from the seller and continue operating the LLC.

A significant step up in sales price for the house may attract a higher tax assessment. A sale of the LLC will probably not. The assessor will not generally see the records for the sale of an LLC and that sale will not trigger a higher assessment.

The occasion may also occur where the buyer (probably an investor) forms an LLC to acquire the seller's LLC for privacy reasons. In such a case the buyer may choose to continue both LLC's or only one of them.

There are usually many answers to real estate questions. The best answer is often "it depends".

Nick, my portfolio has properties with both a garage and a basement, just a garage and just a basement. Different tenants are attracted to different properties. When I look at my rental board I see that I have a couple tenants who moved in 2008 (the homes are near each other, both have basements, only one has a garage). 3 tenants moved in 2009 (all have basements only 2 have garages). Another moved in 2010 (the home has a garage but no basement).

When I add a home I prefer that it have a feature, if not special, then at least something that is quite nice, something that a tenant may truly appreciate. I find those homes tend to attract tenants that stay for longer periods. I have a couple homes that are a little unusual but the tenants who choose to live in them appreciate the special features well enough that they can overlook the unusual features or at least take a chance on moving in and getting used to the unfamiliar feature. (A couple unusual features I am thinking of are a steam boiler heating system in one home and a well and water softener in another. None of the tenants who have rented those homes had ever lived in homes with those features before but I have never had any issues because of that).

Sometimes price alone can be a special enough feature. If you can find a home that you can buy significantly under market and you can subsequently rent it profitably at under market rates you may do quite well. Beware, that these may be particularly hard to find as many investors lock into sales price and compete for these homes. Also, tenants whose main concern is low rent may be considerably more difficult to deal with than those who are choosing your home because they truly like it.

That seems like an onerous clause to me also. A quick talk with a lawyer should clarify if the clause is legal but even if it is a letter from a lawyer may convince the property manager to walk away.

You run the very real risk of running afoul of SEC regs and numerous lending laws if you do this incorrectly. Talk to a lawyer before you set anything up.

Real estate is a very broad asset class. There are plenty of ways to diversify and still stay 100% in real estate if that is your goal. Multi-family buildings have different risk profiles than single family. Different cities or regions have different economic cycles. One can increase short term yield by funding other investors on a short term or long term basis. You can buy already existing notes from other note investors. Tax liens and non-performing notes offer other possibilities. There are many other venues tied to real estate but I think i have made my point.