All Forum Posts by: Ralph Hunter

First, the $7,000 back rent stay owed to the original owner. That is their problem, not yours.

Second, you will get their security deposit given to you at closing (make sure that is on your closing statement). That way if there is damage, you handle it and you get paid for the damage.

Third, I agree that you will most likely have to start eviction again. But I would still head down to the Sheriff's Office and see if they will handle it for you. That is the easiest.

Fourth option is to offer cash for keys. Tell the tenants you'll pay them $X cash if they are out before closing if not, then you will serve then a 7 day eviction notice on the day of the closing and they get nothing. Bet they'll be gone before you know it. 

Because the lender has the most equity in the property, they are in a primary position for repossession. Recording an option will not stop foreclosure. It will only put a blip on the title.

The only way to secure title to the property is to either reinstate the loan or pay off the mortgage. If a property owner has missed multiple payments, it will be very unlikely that a lender will allow reinstatement if the foreclosure process has begun. 

Access the county records and see if a Notice of Default has been recorded on the property. That is the first indication that the lender will foreclose.

Unless you have clear title to the house, I would NOT do any remodeling. That leaves a wholesale deal. But if there is no equity, there is nothing to wholesale. This could be a dead horse unless you can pay off all back payments, penalties and interest to reinstate the loan on a subject-to sale hoping that the lender doesn't pull a due on sale. Then hurry to do a fix and flip while making the mortgage payments and then pay off the loan. You keep the difference. 

I would recommend getting quotes from two or three separate HVAC companies that have been in the business for a while and have good reputations. There is no sense spending money if you do not have to, but if your system is not properly balanced, you will reduce the life expectancy of the new boiler and it will run inefficiently. 

If you decide to increase the rent $100 and your tenant leaves, in just one month you will have lost $1000 and it will take you nearly 11 months to recoup that one month loss. IMO, a good tenant is better than finding a new tenant at a higher rate.

My recommendation is a one year lease at the same rate with a second and third year option. Typically I write leases to increase based on the CPI index produced by the Bureau of Labor Statistics. For example, the September report states that the rent of a primary residence increased from September 2014 3.7%. So that is what I would use to justify an annual rent increase. If they are a good tenant, I tell them about the increase and then freeze the rent. It keeps good tenants. 

In reality, LLCs do not offer the protection that everyone hopes that the do. First, a smart attorney can quickly track the LLC back to its single member - you. Second, there are fewer tax advantages with a LLC than a S Corp, for example. Plus, if you have a well written lease agreement and sufficient liability insurance coverage with a sizable balloon then your liability is greatly reduced.

On the other hand, if you are planning on getting into real estate investments permanently and intend to own multiple rentals, then looking for a corporate shelter is wise. But for just one rental, I doubt the benefits will outlay the costs. 

As to the insurance, yes, you need to convert to basic landlord insurance and include a sizable balloon coverage. Require your tenants to get renter's insurance in your lease agreement as well. 

IMO, this is not a viable income property. I ran your numbers through a basic spreadsheet. Your property insurance and taxes on their own account for 34% of your gross income. In total, your expenses not including the mortgage amount to 68% of your gross income which includes 5% for Capital Reserves which are not mentioned.

I ran your mortgage at 30 years, 4.25%, 25% down, financing only the purchase price, your mortgage payment should only be $774.81. 

Even using these figures, you have a negative cash flow of $141 PER MONTH. Even with a 10% increase in rents, you are looking at a NEGATIVE cash flow. Your cap rate is only 4.1% when you factor in the repairs. 

If a property cannot cash flow from the start, I do not advise a purchase. Even if you build on the additional lot, usually new construction does not create a good rental cash flow.

Another option is to see if the city would be interested in annexing the street into their system. This will put the burden of maintenance on the city rather than you. Honestly, even with the street needing major attention, it is going to be a long time before you will recoup that investment from your rentals. 

I reputable online site that provides lease agreements specialized to your state should be enough legal coverage. Another method is to head on down to a local REIT meeting and scout around for landlords. You could ask them what they use and see if they would be willing to share a copy of their lease agreement.

When purchasing an investment property, you can expect most lenders to require a 20% deposit. So that is a good place to focus your efforts prior to getting pre-approved. 

In addition, lenders will use your income (including 70% of the rental income) to assess how much you will qualify for. Generally they want the debt to income ratio to not exceed 33% of your monthly income. This will help you to gauge what price range you may be able to afford. 

No, the seller should not refund the renter. It should be credited to you at closing. My advice is to make sure you handle this closing through a title agency or real estate attorney to make sure that you get all the proper credits.

If the tenant has a signed lease, you are going to be bound to the terms of the lease agreement until it expires.