All Forum Posts by: Account Closed

Good to know. I am planning to negotiate a max 90% CLTV, but not sure I'll be successful. The broker told me he "can probably convince" the buyer to sign a personal guaranty "if he [buys it with his LLC as assignee]". Other than that and attachment of rents, do you have any resources or recommendations?

They're all STR. All 4 are small-ish 1/1's with small closets, proximity to downtown and the freeways, great walkability... very well-suited for STR. They each gross $3k-$4k per month. But San Diego is now regulating STR's and trying to force only 1 unit per owner (or 2 per married couple), if you're lucky enough to get a license at all. The backup strategy for already-furnished rentals with significant investments in transient occupancy is MTR, 1-6 month term, usually with travel nurses. But I'm located in a fairly noisy urban area with original single pane windows, overall inferior sound insulation, and most travel nurses work night shifts. And in California anyone who rents for over 1 month can claim they're a long term tenant and refuse to vacate -- among other political and regulatory risks that are trending in the wrong direction. Plus my housekeeper has demanded higher wages twice in the last 12 months, and already charges 2x-3x for long term turnovers. Plus, as I said, the building is old and has deferred maintenance, so I'd be facing some large expenses in an environment of rising wages. The bigger players who have entire crews can manage this better than I can as a one-off customer of the contractors. If my housekeeper was an hourly employee, for instance, she would make a fraction of what she does now. All the best handymen, electricians, and plumbers get hired onto larger projects so resources are constantly being sucked away. I'm usually left maintaining the property myself -- which was totally fine with me at first, but has become a nuisance now. I got really good at maximizing occupancy, so there was often no window of opportunity to fix things. I became a victim of my own success -- with maintenance items dictating my schedule. Then I got a notice from the city forcing me to repaint the entire house during high season. Had to cancel several bookings and find the one painting contractor in the entire county who could thread the needle for me. That was really the straw that broke the camel's back. And that's not even mentioning how disruptive and disrespectful some STR guests have become, nor the constantly evolving and restrictive rules imposed by the STR platform, nor the fact that we're at a market maximum in terms of valuation, nor the fact that I don't plan to stay in California much longer.

With all that said, if I was a whale planning to stay in California I'd spend the money to fix it up, combine the 2 top floor units to make it a 2/2 master suite, reinforce the roof structure and add easier access from inside because the flat roof has a 180 degree panoramic view of downtown from the Coronado Bridge to Balboa Park.  It would be a baller house hack with 2 units downstairs to pay most of the mortgage.  Just doesn't fit with my plans right now, nor my outlook on the market, nor my ability to execute a 1031 exchange.

Hope that addresses the broader context of your question.

Hard to imagine rents going up again. The job numbers that came out today are showing a softening labor market. Rents have already gone up 20% yoy, which is nuts and not sustainable. Have you done a complete cash flow analysis, taking into account utilities, insurance, vacancy expense, maintenance, property taxes, etc? Are you going to provide internet to your STR guests? Sounds like the math doesn't add up and you will bleed money every month.

As far as rates and a refi are concerned, I wouldn't count on getting anything less than 5.5% any time soon.  Qualifying it as a rental that you don't owner occupy is harder too, especially if you have negative cash flow.

The broker is trying to put together a deal and get paid. He bought the listing. He glossed over the terms & size of the 1st. He still seems to think he's going to pull off 100% CLTV for his buyer (with whom he's done multiple other deals). In my opinion, the broker is not fulfilling his fiduciary duty to the seller (me, the guy who hired him). I've had to enlist the help of an entire community of RE investors just to navigate this.

With that said, mistakes were made.  And you can call it "seller's remorse" if you want to.  Tongue-in-cheek humor is your right as an American.  It's in the Constitution.

UPDATE... Buyer has provided his EMD.

Broker contacted buyer, and apparently his intention is to get a max 70% LTV 1st and he named the lender. Appraisal is tomorrow.

Broker said buyer does not intend to do anything "funky" with the assignment -- just his own trust or LLC may be assignee.

Broker also offered (to "convince" the buyer to provide) a personal guarantee, in case the buyer closes with an LLC or trust as the assignee.

Buyer seems to be planning on ~100% CLTV since I'm at ~30% LTV.

At 100% it is risky, but the overall structure is still more tax-efficient than realizing the gain... Even if I never see a dime from the 2nd, that entire balance would have gone to the IRS and FTB anyway.  And I'll get access to "half" the equity within 3 years rather than 5-10 years with DSTs... The balloon will be taxed, but taxed at a lower rate and can then be deployed wherever makes sense, including internationally (not an option with a 1031 exchange alone). My CPA has confirmed that IRS & FTB will still tax the balloon payment even if I move to the Caymans.

Now if I can dictate 90% CLTV, I'm in much better shape. (Pretty sure 80% would blow up the deal... EMD is $35k, 10% is ~$150k and 20% is ~$300k) I will wait until after the appraisal to gauge how much I need to be the bad guy.

Once that's settled, the next challenge is scraping together the cash to fund the owner carry so it's not considered boot in my 1031 exchange.

Overall feeling a lot more at ease with the deal now. Many, many sincere thanks to the BP community and everyone who contributed to this thread so far!

Interesting... So you're saying I could still perform on the terms of the owner carry ($450k) as agreed, but dictate my own terms for CLTV?

This would totally salvage the deal.  (If it doesn't blow it up)

Thanks Joe, this is great advice. I will be sure to get that release.

WRT the buyer defaulting, note that the offer is also assignable...  and even whales can get over-extended in a downturn.

Thanks for the feedback, Matt.  I really appreciate it.

Apparently this guy is a whale with access to funding sources unavailable to most.  He has no financing contingency in the deal because he's not concerned about getting financing.

With that said, it does give me significant peace of mind knowing a traditional lender is likely to use a max 90% CLTV. Does this change if he gets a HML for the 1st? (Or a Daddy War Bucks loan)

Pretty sure he could close with cash if he needed to, or just get a smaller 1st. (Then I'd be fine.) But if he gets a private lender to write him a 1st at 80% LTV with no conditions, then I'm in bad shape.

Interesting.  The timeline from escrow suggests the buyer has only 17 days to assign the contract. (see above) The terms of the original offer dictate a 45 day escrow with an optional 15 day extension.

I'm assuming the buyer will get a 1st somewhere between 60-80% LTV. Assuming an appraisal at $1.5M, the first could be between $0.9M and $1.2M. My 2nd is at $450k. So total debt of $1.35M to $1.65M