All Forum Posts by: Rick Albert

Be careful with these posts, this is when the Realtors come out saying their market is best, when really they are just trying to get your business.

Generally speaking, you need to look closer at specific cities. In Alabama it is different in Huntsville vs. Birmingham vs. the Gulf Coast.

You can make it work in any market, you just have to be intentional about it.

Confirm with a lender but here is my understanding:

1. If you switch the townhouse into an LLC, you may run into issues with the lender on the initial loan and they may want you to pay the loan in full.

2. You can buy another property with 3.5% down FHA assuming you do not have any other FHA loans and as long as you live somewhere on the property. You can do 5% conventional down as well as long as you live somewhere on the property.

3. You should do a trust just for the purpose of estate planning. If you die unexpectedly and the property is not in a trust, it goes through probate and becomes a huge mess. Consult an attorney for more information.

Keep in mind you can switch to conventional and be below the LTV limit and just get PMI. I know the goal is to get rid of PMI but at least with conventional it goes away at some point. When I did my last refi our appraisal was short by $10K (ridiculous in my opinion but I'll live). We had a little bit of PMI but in a few months I called and they removed it.

The goal is really to get out of the FHA loan so you can do it again.

Your only realistic option is cash for keys in the tens of thousands of dollars range. According to the City Controller's office, the average is about $24K but I've heard of people paying out $40K-$60K to tenants.

Keep in mind look at it from the tenant's perspective. They are paying grossly below market rate and you are expecting them to move out and pay double. There is no incentive for them to move or they may not actually be able to afford it.

It's also under rent control so you technically have to have a reason (there is a list) or you just pay them out. 

If you don't have experience in this area, then you likely should move on or submit an offer low enough to justify the lower rent.

There is the Ellis Act where you intend to move in, but that may be tough in front of a judge if the tenant claims there is a vacant unit that you can move into. Especially if it is a model match.

The challenge is you don't actually know the cost. If the tenant decides to be difficult, this could take literally years before they get out.

Here is a potential strategy (I have not used it yet):

Make the purchase contingent on the tenant moving out prior to the close of escrow. Once all contingencies are released on your end, have your earnest money deposit released early to the Seller so they can use the money to buy the tenant out. Sometimes the issue is the Seller doesn't have the money. Now they would.

For 99% of my clients, I don't recommend they buy a property with bad tenants in place for this very reason.

What a great start!

What makes your situation interesting is you have the ability to house hack with college students. I have clients who do it in the area. 

There is so much advice it's hard to type it out, but here are a few that stand out:

1. It's all about that bedroom count. Assuming you can afford it, go for the 4+ bedrooms. There are plenty out in that area.

2. Have house rules. What are the quiet hours? Laundry uses? Late fees? Keep in mind with house hacking you are creating a small community. Having expectations upfront is key.

3. Houses are only getting older and we are seeing a tipping point. Every house needs something so don't be surprised if it doesn't inspect well. Good news is most things can be fixed.

Good luck!

It is a great strategy that makes a lot of sense. Especially since you will be directly networking with college students.

Typically what I've seen is students are in the area specific to summer school. So you basically have a 9 month lease and then a 3 month lease structure. That is how you lower vacancy rates.

I agree with @Nathan Gesner, you don't typically get all of the details other than the lease. Why do you care about kids, etc.? You are opening yourself to discrimination.

Plus, and I could be wrong and would like to Nathan's input, but I would imagine that property managers have to treat all applicants the same across all clients (within certain boundaries such as price point or location). So even if you have different requirements, they likely have to follow their own. I would ask for the PM's tenant screening requirements before you sign up to work with them. That way you know what they are looking for.

If you really want to be that involved in the decision making process, then you take the lead on finding a tenant.

You are likely going to have to find one that charges monthly. Otherwise brokerages are only in the business of buying and selling, so you aren't going to be really profitable but still hold all the liability of having an agent affiliated with them.

I would check with one of the discount brokerages and go from there.

Where is the property? What are the laws around Emotional Support Animals?

In California, we can't deny someone for having an ESA. Therefore we don't allow pets knowing they might bring one anyways. If we allow pets, say one dog, then we are opening the door for them to bring one dog plus the ESA.

I would consult an attorney about having guidelines, such as obedience school training, etc.