All Forum Posts by: Scott R.

I doubt the state is going to sieze your duplex because somebody did drugs there. That would be absolute madness. Most drug users are renters, and most of them do drugs at home. If the government was siezing landlord's houses over this, it would happen all the time, and it would be well publicized.

Don't let people scare you into overreacting. Especially since we're talking about an untested white powder here. What if it was really Phenibut or some other legal suppliment you can buy straight off the internet that comes in white powder form? People snort the darndest things. All this drama could be for nothing, and then you have a pissed off tenant to deal with.

It sounds like this guy might be going through personal problems anyway. You really want to evict a paying tenant because he's making bad life choices? He is a human being, you even met his daughter.

Talk to your lawyer. Double check to make sure the state of Texas isn't siezing rental properties over tenant drug use. If they aren't then his actions shouldn't bother you.

Don't call the cops if your lawyer cannot produce a compelling reason why you should. The police will not make things easier on you. If they are siezing houses you'd just be turning yourself in! If they aren't you're just alienating yourself from a paying tenant.

Since your credit is super good, you could try checking out lendingclub.com since they offer personal loans up to $35k and business loans up to $300k. They have 3 year and 5 year loans. Interest rates vary greatly. From 5-25% depending on the risk level of the borrower.

The loans are unsecured so it works basically like a credit card. If you default it goes into collections and harms your credit. Since the loan wouldn't be tied to the property you might be able to get away with it without the bank even realizing. Or caring, since it won't affect your LTV. It will just increase your debt service. This might not be a great strategy for cashflow though. 3-5 year loans tend to have high monthly payments.

If I were to be sued or charged with a crime, I wouldn't go to court without a lawyer (unless it's traffic court). Sure it would save me money not to hire one, but some things are more important than the money I'd save by not hiring a professional.

If you fail to disclose something, or fill out an important form incorrectly, and a transaction falls through due to your negligence, you could be liable. If you have an agent, and they fill something out incorrectly, both of you could be sued. But you can turn around and sue the agent for whatever you were sued for. This system basically makes the agent your legal scapegoat. Because of this we are required to have errors and ommissions insurance, which is basically malpractice insurance for agents.

Real estate agents used to spend a lot of time finding and marketing properties. Both of those things are a lot easier to do now. So dodging red tape, and navigating the everchanging legal landscape of real estate has become the most important part of the game.

There are two ways to approach the issue of terrible cap rates due to living in a desireable area. You can avoid investing in rentals and multi fams entirely, and stick to flips. Or you can ignore the naysayers on BP who brag about their cap rates in the midwest, and invest in New York rentals anyway. Low cap rates do not necessarily imply that you can't have cash flow.

You can cash flow by renting out a newly purchased one bedroom condo in LA, no problem (as long as you don't use too much leverage). If you couldn't, then there wouldn't be so many people renting out condos.

It is true that if you lived in Pittsburgh, your cap rates would dwarf the cap rates in LA and New York. But it doesn't have to be a pissing contest with everybody saying, "My cap rate is bigger than yours, bro!"

If you can cash flow enough to live in a multi fam for free, then you've successfully house hacked. Don't let our little cap rates bring you down. Be proud to live in an area that is so expensive. Clearly everyone who isn't an investor prefers New York and LA. :) Because of that we have some of the lowest vacancy rates in the country, and by far the highest rental demand.

Also you live in one of the best parts of America to become a real estate agent.

Thank you for your input I hadn't considered those issues. Wouldn't the senior lien also have to worry about the back taxes and HOA dues? If the HOA forecloses on the property I'd imagine it wouldn't be fun for the senior lien holder either. Should I always expect the senior lien holder not to contribute to taxes and HOA in the event of a default? Or does it only happen sometimes? Either way, I can see your point about me being last in line to be repaid if something goes wrong. That is the main risk of second liens.

If the buyer gets a loan for 80% of the value of the property, and I carry back 5-15% of the purchase price, the buyer will start out with 5-15% equity, regardless of the purchase price. I don't see how it being a condo would have much to do with the amount of equity in the deal.

I suppose you could argue that the relatively higher value of a house vs. a condo would make each percent of equity worth a higher dollar amount. 5% of the value of a house is a bigger number than 5% of the value of a condo in the same area. If a condo is worth $100,000, and a house in the same area is worth $200,000, then the owner of a condo would have $5000 in equity, whereas the owner of a house would have $10,000. Therefore the owner of the house is the one with the most padding in terms of dollar amount. A valid argument I'd say.

However, I am looking at condos with ARVs between $250,000 and $300,000. I'd imagine there are seasoned investors on BP who have gone their whole REI careers without buying a single family residence for more than that. 5-15% of $250,000-$300,000 is between $12,500 and $45,000. Though I think I am going to take your advice to heart and not carry more than 10%, if I do still pursue this strategy. The more equity the buyer starts out with the safer I am.

I'm ecstatic about it only being 8 months. I thought it would take bare minimum 1 year to foreclose on an owner occupant in California. Unfortunately, owner occupants are the only demographic I could sell a rehabbed property to in Southern California. It is hard to sell an investor on the idea of buying a rental here, especially a condo or SFR. The cap rates are about as atrocious as my handwriting.

Thanks guys! Btw Brian, I'm looking for an RMLO to help me with this strategy. Also a servicer. Any RMLOs or servicers you would recommend that work in LA/OC?

I used to live in Redondo near the Galleria. I am in OC now but I find myself in the South Bay quite often. I went to high school in Palos Verdes, so I still have a lot of friends in the area. I would love to connect with anyone in this thread.

Thank you for all your responses. I'm glad to hear carry backs are popular amongst buyers. I'd like to hear from more people who have sold properties with a seller carry, if anyone would like to share their stories. Cash flowing rental properties exist in California, but the cap rates aren't as impressive as other states, especially in SoCal. I've been exploring the idea of flipping properties and carrying 5-15% of the purchase price for the cash flow. I was considering focusing on condo complexes that aren't FHA or VA approved. Retail buyers looking in those complexes might be happy to hear I'd carry some of their downpayment, since the major downpayment assistance programs wouldn't be available to them.

I was reading Dodd Frank last night and I believe it said that anyone who originates a residential mortgage on a property they recently constructed/rehabbed, needs to be a licensed MLO. I have heard of people hiring an MLO to do it for them. Anyone have any professional advice on this? I can read a bill myself, but I'm not licensed to legally claim I know what it means. :)

For those of you who have sold properties with seller financing or a seller carry, what was the interest rate you charged? Anyone sell a fix and flip with a carry back?

I double checked and the property I'm looking at right now was built in 1954. The roof needs replacement. Not certain about the condition of the foundation yet. A full gut out rehab might work, and it would certainly save enough money to make it a viable deal. The numbers won't work with a full teardown I'm afraid.