All Forum Posts by: Justin B.

I think the biggest reason people are hesitant is because they look at it the wrong way.  I tend to look in monthly terms.  For example, some people might freak out when they look at $70k as a number (that's a lot of money!).  But let's be honest, it's really ~10-15k (or less) up front and $600/month (note, expenses, etc).  I'm a BIG proponent of making sure you can handle the worst case when you start out.  I mentioned $70k because that's what my first property cost.  Because I have a pretty solid financial education, I looked at it as $600/month.  I could float that property 100% without it hurting me at all.  Also, I had cash to where if something went out, I wouldn't be stuck not being able to replace it.  If you look at it in those terms, it becomes easier to digest and "less scary".  If you are in a place where your life would be dramatically affected if you had to float a property or you'd be bankrupt if you had to replace a roof or heating unit, then you probably aren't ready to invest yet (just my personal opinion, I'm sure some will disagree there).  This is where a mix of the "guru's" out there come into play.  I think you should make sure your personal situation is taken care of before you start investing (Reserves in case you loose your job, etc).

It gets much easier when you are able to prove to your spouse (and yourself as well) that it works (they see more cash coming in than out) and you can actually make money doing it. Then the scary starts to go away. There are things you can do to help ease that. Buy a place that already has a renter or renters, is more turnkey (no big maintenance needed), etc. I started out with SFR's and now am buying 10+ units and it doesn't even phase me from the scary perspective because I'm confident in what I'm doing but it takes time to get there. Sure, people have bought a 50-unit as there first property, but let's be honest, the VAST majority started out slow and comfortably and once they got into it, starting building up more. I bought 13 SFR's before I bought my first multi-unit and that was only a 5-plex. Get your toe wet, keep your risk low, prove to your spouse that it can work and they will come around. Not everyone will and if you are in that position, that's a whole different conversation and a different thread :). If your spouse can't get on board no matter what you do, then you have different issues and need to get those figured out. Real Estate Investing is 10x harder when your spouse hates it and is constantly worried about it. Nothing is worth ruining a relationship with your spouse over.

Good luck!

I don't think they are less desirable, but I think there is some truth in that they have a little more to them. In a lot of cases, they are a little more involved because typically they aren't "turnkey" type of properties. From someone who has purchased REO properties in the past, I've seen easy ones to ones that take a lot of work.

The short answer is REO properties can be great investments, you just typically have to have a little more knowledge and comfort with what you're doing. The answer to "are they the scrap heap of the investment world?", absolutely not!

My first REO property was #6 I think, so I got my feet wet outside of the REO world first and I probably wouldn't recommend it being #1 unless you feel comfortable and maybe have had someone with experience help you out. But don't let that scare you, they truly aren't difficult.

I'm sure the common answer is to buy more real estate, but for the purposes of the post, I'll assume that you are asking based on having to "blow it".  I'd see how long it could get me for a vacation in the Maldives and go there until the money ran out!

 I don't work in the MD area so I can't help you there.

Yes.

What I'm seeing in my area is 5-6.5%, 20-year Amm, 5-7 year balloon, and you still need to personally guarantee.  It all depends on where you go.  My experience is with a smaller bank.  I think there are some folks out there doing longer amm (maybe with higher interest), but that range is a good starting point.  If you fall within that, you can be sure you aren't being gouged.

In my experience so far, before the balloon is due, enough of the loan is paid off and appreciation occurred that I've been able to pull money out and keep the payment the same.

I think you approach it from the safety issue.  It's a line spread across a common area.  It's possible a kid could get tangled up in it.  I'm sure there is verbiage in the lease around maintaining a safe environment.  Also having clothes out in a public space, that can be a hazard as well.  If it's on their private property it's ok because the expectation is that people don't come onto your private property, but that's not the case here.  A 5-year-old could get into clothing and potentially wrap it around themselves as well.  That may be seen as a stretch, but it's true.

If you approach it from a safety perspective, you have a good case for eviction.  I'd start the eviction process and even if they promise not to do it again, you have a standard that this tenant has set that he doesn't listen to your notices and the damage has been done.

All this quit claim stuff is probably more trouble than it's worth and regardless of what people say (regardless of how rare it is), the bank "could" call the loan.

If it's already in an LLC, refinance should be simple. You just refinance :). I've done this at least 5 times. Just call the bank and say you want to refinance and what can you get. It was that simple when I did it. Don't overthink it.

If you own them free and clear the process it the same, an appraisal will just be required. Terms you can expect under an LLC are this:

~6% interest
70-80% LTV
20 year Amm
5 or 7-year balloon (which you just refinance again after that term)
You will have to personally guarantee the loan

The reason for that is the bank can't have them backed by Fannie/Freddie or anyone else.  It's an in-house loan (there are lots of names for it, my bank calls them "business loans").

You really have to look at the situation and make the decision that is best.  You "could" hold her to the entire lease but let's be honest, I think that's more hassle than it's worth and would take more time than it's worth.

My personal opinion is this.  Modify the lease agreement for 3 months.  I'd up the rent to normal month to month standards.  You will need to do a thorough cleaning after she leaves.  I think a normal one month's deposit is fine, I don't think you need to go crazy there.  Maybe offer a 10% uplift on rent if she pays all 3 months in advance or a 20% uplift if she needs to pay by month.  I'd charge a ~$300 non-refundable fee for cleaning when she leaves and you can tell her that's what it's for.  I'd also get her to agree that during the last 45 days of her lease with 48 hours notice, you can have the place be shown to prospective renters if you choose.

This way you're not gouging her and she can't really argue too much because it's all fair.  She won't find anything better anywhere else.

The truth is, things don't always go your way, and sometimes you have to compromise and roll with the punches.  If you try and stick to your guns, it's just going to get messy.  Work with her, get 3 months of rent and move on.  It's not the end of the world :).