All Forum Posts by: Kyle J.

Zelle works great. I allow my tenants to pay using it and have never had any issues. Venmo is another good option because, like Zelle, the sender can’t cancel/reverse/dispute the payment once they’ve sent it and you’ve accepted it (important when using the service to collect rent). The same is NOT true for PayPal and the main reason I would not recommend using PayPal. 

Yep, like @Nathan Gesner said, not a good idea. I would not hold the unit while waiting for the back and forth through snail mail. And I would not ever accept a personal check for the initial move-in funds (first months rent & security deposit). 

@Thomas Garza  I also have my tenants initial every page, and then sign the last page.  It's not legally required to do that (at least not in my state), but here's a few reasons why I do it.

First, I actually go over every clause on every page when I'm initially reviewing my lease with a new tenant.  So if I'm already reviewing every page with them, it's super easy for me to just have them write their initials when we get to the bottom of each page.

Second, I don't ever want them to later be able to say they didn't see a term/condition/clause (or a whole page), or allege that I swapped out a page after the signing with a different page that had different terms/conditions/clauses.  They'll never be able to say that because their initials are on every single page.

Lastly, my lease actually has lines for "Tenant initials" at the bottom of each page.  So if I didn't have them put their initials there, it would look like an oversight or like we did not actually review it.  

Ultimately, it takes a few extra seconds per page.  It's not that big of a deal for, what I feel is, a significant benefit.

@Dave R Ludolph If your friends/family would rather have monthly cashflow, why not keep it simple and just have them be your private lenders? They could loan in first position with your LLC as the borrower. I'd argue this is safer for them with less downside risk, and you'd still retain full control of your LLC. It'd also avoid you having to figure out how to incorporate them as members/owners to your already-established LLC (something they probably don't even care about).

Just my opinion.

Why would the new buyer be responsible for this loan?  The current owner chose to finance the purchase, instead of paying cash.  He should be the one to pay it off (just as if he had charged the purchase on his credit card).  I'm assuming it added to the resale value of his home.  Perhaps he can use the proceeds from the sale to pay it off.

@Uri E. The following document explains exactly when the 1099-MISC form is required, and it also lists the numerous exceptions (including payments made by credit card) when a 1099-MISC form is not required:

https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

@Cale Delaney  While we don't know the amount of money at stake, or your relationship to these investors, loaning in second position is generally a risky endeavor (especially for someone brand new at private lending).  However, I realize you may do it anyway, so I'll try to answer the questions that you posed.

- What documentation would you look for?  There's so much more that's needed beyond just a note.  (If truly all you had was a note, you wouldn't even have a second position loan. You'd have an unsecured loan.)  Rather than list everything you do need though, I'll just refer you to this post which has a comprehensive list in the third response down from Jeff:

https://www.biggerpockets.com/forums/49/topics/413352-private-lender---forms-required

- Do the terms seem fair? The terms can be whatever both parties agree to (provided they're legal in the state where you're doing business). So really this is a question for you and the other party. I personally wouldn't do it for less than 15% to account for the added risk on your part of loaning in second position. I would, however, confirm if that's 15% APR or 15% total return over the life of the loan. It wasn't clear to me from the way you wrote it, but it would make a big difference in how much return you ultimately earn.

- Do you get some type of insurance on the note?  You'll want to make sure the borrower gets a lender's title policy.  They should pay for this.  (Speaking of insurance, you'll also want to make sure the borrower has the appropriate dwelling and liability insurance for the property, with you also named on the policy.)

- Who pays for the attorney fees to draw up the note or any other ancillary fees?  You'd use your attorney, but the borrower would pay for the cost of drawing up the loan documents.  

One other thing you didn't ask about, but I feel the need to comment on.  With regard to your reference to this potential loan as being "amortized over 18 months", I just wanted to mention that it is NOT common to do fully amortizing private/hard money loans.  While I suppose it is possible, do you know how to figure out an amortization schedule?  And what if the borrower elected to do the 3 month extension?  Point is, if you do this loan, you should keep it simple and just do an interest-only loan. 

Lastly, my post is not meant to cover everything you'd need to know about private lending.  Mainly, I just wanted to answer the questions you asked.  But one thing I did want to touch on, even though you didn't specifically ask about it, is that you should question these borrowers about what their exit plan is for this loan. 

I noticed that you said this is a rental property, so I'm assuming they're not planning to exit by selling the property (which is a common exit strategy when a flipper borrowers money short term).  So how EXACTLY are these guys going to pay you back in 18 months?  And does what they say sound reasonable to you?  I mean, if the property didn't appraise for what they needed it to now, is it just going magically appraise for some great deal more in 18 months?  Or do they have a solid plan to get it to that higher number?  Or some other plan?  Point is, you need to be satisfied that they have a REAL plan to pay you back when the loan matures.

Hope this helps.

Forget about going after the boss.  Don't make this more complicated than it needs to be.  Your tenant is the one who owes you money for rent.  He's the one you have a contract with, not his boss.  If your tenant gives you a check for rent and it later bounces, than he still owes you rent.  Period. 

P.S. In the future, don't accept checks like this from your tenants.  Have the person who the check is made out to cash it, and then pay you.  

@Ben Eiesland This should be a very easy process and should not require you to hire a lawyer.  I have done this multiple times myself, and - although the process will no doubt vary slightly because I'm in a different state than you - it still shouldn't require spending a $1,000 to figure out.  Perhaps a little bit of your time. 

I've bought several rental properties in cash, but in my own name initially just to save my wife from having to take off work to sign all the mountains of paperwork.  Then I simply later went and added her name to the title, just like you're trying to do.  In my state, it literally takes just filing two forms to do this.  

The first form I had to file is a Grant Deed.  On this form I granted title from John Doe, a married man, to John Doe and Jane Doe, husband and wife.  My cost for filing this form was $14.  It also had to be notarized which cost me $15.

The second form I filed is a Preliminary Change of Ownership Report form.  This form simply attested that this transfer of ownership was solely between spouses.  There was no cost for filing this form and by filing it I was exempted from having to pay additional fees and having my property taxes re-assessed.

So the grand total to add my wife to the title = $29 per property. 

Now, I am no lawyer.  Though I have several that I use for various reasons (taxes, landlord-tenant issues, lending, etc).  So how did I figure out how to do this?  I simply went into my local County Recorder's office and asked them, and they explained the whole process to me since they see (and work with) these documents every single day. 

As I mentioned initially, the process in your state will likely vary slightly.  But I personally would not hire a lawyer for this simple task.  I'm a big proponent of using lawyers when you need to, but this is just not one of those times (in my opinion).  You can do this!

@Willie Marquez Sounds like you learned some valuable lessons, so I’d say it’s a win from that standpoint. 

I did have just one comment on the part where you said “I felt secure going forward with selling because I remember reading articles that highlighted that if you sold an investment property, the profits made are not taxed.” I think it’s possible you may have misunderstood the articles you read because that statement wouldn’t generally be true (unless you’re doing a 1031 exchange or something). Unless I’m misunderstanding what you’re trying to say.