All Forum Posts by: Rick Santasiere

@Michael Doherty. Congrats on your first purchase. If you are working with a real estate agent/broker and loan officer, they should be able to get a far more accurate amount to use based on your search criteria. For instance, your CC's will be different in each town (taxes are usually paid upfront for a period of time), and could be significantly different (as well as the month you close in). There is a an actual calculation for PMI to use, and I would highly suggest using a licensed (NMLS) loan officer to provide you with the most accurate answer. You attorney could charge you $500 or $700, and you could end up buying an REO property, and some of these pay for your title insurance policy (which can be as much at $1,500-$2,000). There are also usually some type of origination or loan fee to the lender for underwriting the loan, and again, you should not rely on the information unless it comes from your NMLS licensed loan person. Feel free to reach out if you need any recommendations for a loan officer who can provide you with the most accurate information. Again, congrats on your decision to purchase a MFR. Best choice to use your FHA for this first one!! Nice move!!

@Derreck Wells, maybe we misinterpreted one another. Having a "lead certificate" is sellable.  I was trying to convey that having lead present (and the associated report proving it has lead) is public knowledge and creates a stigma.  So, I follow you for sure. In fact, that was my point.  If I were to spend $30k on lead abatement (let's just say that were the case), and I got the house for $35k less, and a great guy like yourself did the abatement, and provided all the necessary documents to prove there was not lead present any more, then yes, house would be worth more, and I would be creating a value add as an investor. How do you "de-lead?" My CE doesn't teach me that:-) If I were a licensed contractor, then I am fairly certain, I would go after that intense lead training!

@James Denon I don't, not personally. However, you are in precisely the right environment to find it!! Go onto the forums and type of syndication, and I am certain you will learn of some ways to find people. I am very interested in doing partnerships with the right people, and in my example above (5 people with $200k) I will be doing that, but just not for a few more years.  I am going to wait until we see the next dip in some of the higher appreciating markets (maybe outside of CT, just not 100% sure about that yet). I know Chris mentioned "hands in the pot," but limiting your areas (and options for that matter) of where you can expand (or who you can align with) because you don't want to share in success, can have a reverse impact on success.  Always remember 20% of "something" WILL ALWAYS BE BETTER THAN 0% of NOTHING. Humility and benevolence will be attributes I will need to continue to sharpen to continue in my investing career. 

The Lead Disclosure is such a simple way to just "inform" a buyer that there "could be " lead paint present, and like we all are aware, anything built prior to 1978, the chances are high that there is LBP somewhere in the house.  The point is that once someone does the actual test, and the company comes back and says "Yes, there's lead, and here are the areas impacted and the levels...  " It is then that the home is almost considered "unsellable." In most cases, a full remediation is the only way to remove the stigma associated to the lead being found. @Rich Baer you hit the nail on my original inquiry, was who, if anyone has gone through this process of a full remediation. I would love to hear more about the process, feel free to PM me if you have any more info that could enlighten me and provide me with more knowledge!!! Thank you. $30K!  Wow! I am a simple guy, and the way I see it, if I could get the property for $35 less (knowing I have a $30k remediation cost) that's all VALUE ADD GRAVY to me :-)

@Kathryn Bowden. I am not sure you mean when you say "where" we use it, but I can give you a high level of a lease option is, but I would caution you on you structure anything like this, as there are some Dodd/Frank Acts that impact how these can be done. I have worked with my attorney on the two L/O's I did in 2016, so please bear with the simplicity I use. My attorney responding to this, would certainly be much more elaborate.

I use the Lease Option when I have a property that is in demand, but might not sell in under 30 days (for the purchase price).  The Lease Option is used for a variety of scenarios, so I will name a few:

- Buyer wants to "test drive the house." This is a great way to sell someone into the house if they are unsure, but need a place to live.  Keep in mind, if you did the rehab and you believe in your product and stand by it, then you should have no concern with holding for a duration longer than expected.

- Buyer is new to the area, and they want the house, but they could have been relocated to the area and want to make sure the place is a fit for their family.

- Seller wants top dollar, and the end game is to sell, but the only buyer(s) willing to pay that top dollar are renters

- Buyer wants to save up some more $$, increase their credit score, or a whole slew of other reasons.

In my area, SFR in Class A areas are in super high demand. So if you end up listing as "for sale" and "for rent," you can determine how serious you renters are (and if there are any buyers out there as well). In one of my two cases, I had no buyers, but three extremely well qualified renters. Believe it or not (in this one situation), I ended up using the L/O to the "least qualified" renters. The only reason they were the least qualified was credit score. I happen to know a loan officer who I trust who can determine if someones credit is repairable or not, and in this case, theirs was, but it would take a minimum of 6 months. Long story short, they bought it in month 13 of my ownership, and you know the deal with that as far as capital gains go.

How there work in terms of structure (I will not use specific $$ that I had in mine, but will use fictitious $$ here just for this example):

Purchase Price of $200,000

Monthly Rent $2,000

Security Deposit $4,000

Purchase Option $5,000 non refundable deposit (they would have this applied to the PP if they exercised their option) Or they would turn over to the seller if they do not (This is the cost the buyer pays the seller to NOT ALLOW ANY OTHER PERSON OTHER THAN THEM TO PURCHASE FOR THAT PERIOD)

Another form of Purchase Option deposit is by increasing the monthly rent by $XX to be held by seller and turned over if option not exercised or applied if exercised.  OR a hybrid of BOTH. For instance, (in this case above) a Purchase Option of $2,500 and an INCREASE in monthly payment of $200 (on a 12 month, that would be close to your $5k non-refunadble in the first example)

Hope this helps, but feel free to PM me if you want more info.  If there are any attorneys that would like to chime in on the legalities and the areas that anyone should be cautious of, that would be helpful. But that's my simple explanation and take on it.

Jay Hinrichs great point about downtrend, and fine print. Helocs typically expire as well, usually 10 years. Re applying would probably not be an issue, unless you have leveraged yourself into a tighter spot years down the road. Great discussion .

@Mike McCarthy Thank you for sharing your thoughts.  1 is not an option because once a house is labeled as having lead and the world knows it, know one will buy it (in CT that is).  2 sounds ok, but I don't think that would work either. Do you know of anyone who has gone through the full abatement process?  3 is the only option that would work in the scenario for one of my agent/clients.  I am a numbers and cents guy:  If it costs $10k to remediate, I would just offer $15k less than I WOULD HAVE to create a small "value add" component to the house..Follow me?

Well..  When you decide to list the property and start the process of staging, marketing, and telling the world about your shiny new home, reach out and I will be happy to share all of my thoughts and how to best position yourself to make the best choice.  Sometimes taking the quick cash (higher taxes) makes sense. There are so many variables to deal with, and until the property is ready to market, its really hard to determine the best course of action. While I understand I know you are trying to be proactive, you might not want to put the cart before the horse (sorry for the cheesy cliche).  A wise man once told me "If you are complaining about paying a lot of taxes, then chances are you made a lot of money in order for that to happen." I have always tried NOT to make too much money..  For 2017, I am adjusting my thought process slightly... Its sort of why I jumped on this thread, and I recognized you, and, of course I wanted to congratulate you on your fix n flip.  PM me sometime, I would love to hear about your project, and/or check it out 1/2 way through if you want. Always enjoy seeing how other investors are doing things. Reach out any time Pat.

@Pat McCandless Congrats on the purchase!  I am not a CPA, but I am a creative real estate investor.  Whenever I purchase a property, I always have a minimum of 4 "options," all of which carry a different level of "tax implications" if you will.

1. Quick flip (minor rehab)

2.  Flip (major rehab)

3.  Rent

4.  Lease Option (My personal favorite)

There is a 5 sometimes, but not listing it as it is not in my "always" an option category..

Great question George, and extremely thought provoking especially coming from a guy located in an area than has seen some pretty intense appreciation over the past 5 years.  CT has NOT seen what TX has seen (and probably won't for a loooong time), so a "turn" could hurt a little more down there.  However, and this is the most important thing you have to drive into your head:  YOU NEVER HAVE TO SELL REAL ESTATE.  What I mean by that is if you own a home (regardless of the leverage), and it cashflows (after all your precise calculations) where is the trouble?  Unless you are an area that share the characteristics of the economics of Detroit 1990-2005 with jobs, I think you are good.  If you listen to any Real Estate mogul (most of them are egomaniacs) that talk about how they had millions, lost millions, etc they all say the same thing: Had they "held," they would have been in a much better position than "getting in trouble."

I really can't speak intelligently enough about TX to share my long term outlook on it's job growth, continued population increase, and all that, but it is my understanding that the recent upswing in TX is NOT just OIL, like it used to be.. I would love to hear more on your thoughts with TX as I have been intrigued by that market for years, but never had the stones to invest out of state... Yet...