All Forum Posts by: Ronald Perich

@Joseph King, agree with @Brent Coombs... put down the numbers here along with property type. A-D property in A-D neighborhood. And what your investing goals are. Value-add versus completely hands-off. That kind of thing. You'll get a lot more eyes looking it over.

@Kevin McGinnis, I always start with a "Free" application but am very clear that every applicant over 18 will need to complete a credit, criminal, and eviction search and they must pay for it directly to the screening company. I also give them a copy of my criteria. You'll be amazed at how many interested parties will not apply just because they know you'll be doing a search. 

If they fill out the application, I do exactly what you do. An initial search of Madison, Saint Clair, Jersey, and Macoupin counties. Also a quick social media search. Get past that and I'll send them a link to the screening company I use (ISC) where they interact and pay them directly. Comes back clean and I'll call previous landlords for final verification.

2) What is a reasonable interest to pay friends and family for their loan? Whatever they feel is fair and are willing to receive. And what you think is fair and are willing to pay. I would rather give friends and family a 10% rate than a complete stranger.

I've been thinking about private money to help finance more acquisitions and like the concept of preferred equity arrangements. Problem with preferred equity is you now have a long-term partnership instead of a lending relationship. Partnerships are like marriages whereas lending is more like dating.

If I'm doing a preferred equity deal, my offer is 1.5% ownership for every 1% of ARV into the purchase. Rate will be Prime plus 4%. They get paid equity before any cash flow is taken out of the property. Reserves must be built up for maintenance, CapEX, etc before equity return happens. In most of these types of arrangements, I receive nothing until property is refinanced (like a cash-out) or for several years until the partner receives all of their equity plus interest back. But I have very little of my own money into the deal, only my time.

If a strictly lending relationship, I'd offer 2 points up front and 5% over prime. 18 month note with two additional one-year options that adjust the interest rates. Interest only with balloon. They are listed with the county as a lender and everything is handled through a third-party servicing company. I'd still have little of my own money in the deal, but would be able to take cash flow out sooner. The challenge is the balloon payment... You'd likely need a refinance to make it work.

In both of these cases, the lender/partner is protected over my interests and I am providing them with a service first. Even though they may be friends/family who are making these loans out of the goodness of their own hearts, I want to make sure they are receiving a fair benefit for the use of their capital.

My interests are secondary to their interests yet I am still committed to making it work. You really cannot think of your own needs above theirs - they must be made whole and protected - but you also need to be able to see your interests as part of the relationship. 

Call Tiffani at Den-Son out of Brighton. They do work out in GC. 

Currently using ISC.

What would she sue you for? Let her sue... that's why you pay for an attorney. That will also show up in a background screening, making it more challenging for her to rent from a landlord who does screenings. One of the questions I ask on my application is "Your attorney's name". Amazing how many people will answer that.

I like @Scott Trench's thinking, but if I am saving up for the next purchase, I tend to be more conservative with the assets. Look back at history for why I choose that route.

S&P dipped in 1974, housing dipped in 74-76.

S&P dipped in 1982, housing prices dipped 82-86

S&P dipped in 87, housing dipped in 90

S&P dipped in 09...

I want my cash ready for the housing dips. Municipal-based bond funds. I like EILTX. 

Invest at your own risk. Individual results may vary. Consult with... you know the rest.

Filing costs are a maybe. You typically need to have that in your lease. If you do have it in your lease, you should be covered and that can be part of your itemized deductions.

Returning the deposit in Illinois does not need to happen at move out. If there are deductions you are taking out (beyond normal wear and tear which is not deductible), you should provide an itemized list to the tenant within 30 days. Deposits should be returned within 45 days of move out if you have itemized deductions and within 30 days if no deductions are to be made.

On the subject of normal wear and tear, you have to be somewhat reasonable in what you're itemizing. If they don't bother cleaning the place. there is junk all over the place, and you end up calling in cleaners, you can deduct the cost of the cleaners. If they do a reasonable job of cleaning and it just needs a final touch-up, you should probably not try to collect that. Same goes for small nicks in walls where pictures were hung. Holes are a different matter. Handprints all over the walls, stickers left on doors, and filthy toilets do not qualify as normal and can be deducted.

You just have to ask yourself what a judge would deem reasonable. And take pictures/videos of the move-out. Have lots of proof.

I've only heard of a few institutions calling a loan because of the Due on Sale clause. Most won't because they could potentially end up with an asset they really don't want. But if I were a bank looking to score some additional cash, here's what I would do...

I'd look for every loan 7+ years old at an interest rate 2% or less than current rates. I'd then check the title to see if the original owner was transferred or changed in some way. I'd also look at the payment record for those who have consistently made good payments. If so, I'd invoke the Due on Sale. Why?

I might get a new loan which brings the interest rate up higher and therefore gets me more return. I could take that 4.5% interest rate up to 6.5% or higher. Seems like a winner to me.

Even if they get a new loan and pay it off, as the bank, I now have that money available for new loans at a higher rate.

And if you were diligent about making payments, there's probably decent equity built up. They'd take a gamble that you'll do everything you can to keep that equity. If you don't, they have a decent amount of float on your equity to get their cash back even with the costs of foreclosure.

We haven't seen a run up in high interest rates for a long time. But back in the early 80s, it was pretty common practice for banks to call older, lower interest rate loans. Get written approval from your bank. If they won't do it, then refinance and put the property into the LLC at that time.

Is the income you mentioned net income or income before expenses? Critical to know. I am going to assume gross income. Not knowing the expenses, I think this is a very tight deal, especially if you have to have any CapEX.