All Forum Posts by: William Anderson

Before you rush off to sell the property, what are owners getting in the area for LTR? I am recommending to incoming investor clients that they buy an existing STR that is in good condition and fully furnished. Owners who are selling should know that the furnishings are not considered in the appraisal so they are essentially worthless. Having said that, they have value in a faster sale. Even people with a house full of furniture may want the decorations and some of the furniture.

What you are offering to a potential buyer who is not an investor is a way for them to sell their furniture and avoid paying high transportation costs.  Moving into the furnished place is a "new" start.  There are lots of ways your real estate agent can market your property to potential investors, second home buyers, or just someone who wants a permanent residence.

If you are one of the few left that is still trying to manage your property from afar or using one of those internet companies on the west coast, contact a local property manager and see what they recommend.  A friend just put his vacation rental on the market for rent.  $2,800 per month.  He has no mortgage but if he had, this would still be very profitable.

The vacation business is so competitive today with a continuing stream of first-time investors still buying with the idea they can have their mortgage fully paid.  Our property management business is picking up several each week who have already bought their properties so we do the best we can to advise them of the prospective income.  We recommend they consider LTR for a while until the market gets into balance.

FYI, It's my belief and I do not have a crystal ball that there will be more foreclosures late in the year.  Some are still holding on because the Summer season (along the coast) seems to them to be generating good income.  When the Fall hits and that income dries up, some of these individuals who bought high will throw in the towel.  Be on the look out for some great buys.  

There are only short-term, under 30 days, and long-term over 30 days.  Most local and state government regulations address these two situations.  There have been a lot of squatters recently and you will want to be sure that you have our business in order.

If you want to allow a stay over 30 days, do not use the STR agreement. Use a lease agreement either month to month or a termination date over 30 days. You can call allowing someone to stay for six months mid-term but the law calls that an LTR.

It's all about your intention.  If you have to defend yourself in court you should have a LTR lease if it's over 30 days.  Also, you need a set of rules for over 30 days that addresses some of the local regulations.  If you allow someone to stay over 30 days there are rules on deposits, cleaning fees, etc. that you must follow.

If the property is in a very liberal area with lots of rent restrictions even rate controls you could be in trouble without checking with the city first.

I have allowed guests to stay for longer than 30 days but not longer than 30 days on the same ABB reservation.  That has to terminate at 30 days and they have to sign a lease agreement for the remainder. 

One of the popular reasons on the Mississippi Gulf Coast where I work is military members attend schools for many months at a time.  They prefer to rent off-base.  You can find a good lease online or after visiting an attorney.  If your property is located in a liberal city or suburb, I recommend you see an attorney before moving forward.

If you are going to be buying more as you stated you were in the same area, you need to find a very talented contractor who can walk the property with you.  A property inspector is great but in the end, what is found may have to be repaired and you will need a return visit with the contractor.

I use an excellent contractor who knows that if I buy it, I will pay him to fix everything that is wrong.  He is fully invented to find everything that is wrong.  He will bring in an AC person or Roofer if he needs another set of eyes.  After the walk, you have an estimate on repairs.  Your real estate agent can use this during the due diligence period to negotiate a better price or have them do repairs.

My contractor was a termite contractor for several years so he looks for wood destroying insects as well.  When the seller has the termite report, my guy can help them with repairs.

It does not hurt to have both inspectors but you must have a contractor.  

Get a real estate license and make it a real thing.  As an agent, you will have repeat business and you can build a career.  Plus the commissions are almost always far higher than you earn by buying a home from a widow and flipping it.

If you are going to hold for 30 years and sell before the property is paid off then you do not need owner's title insurance.  You will be covered by the lender's policy while the mortgage is in place.  

If you intend to pay it off soon and retain the property then it's a gamble if you should have it or not. Years ago, I sold a property with a VA loan guarantee that stayed with the property. A few years later I tried to finance with a VA loan and learned that the guarantee was still in place even when I knew the person I sold it to had resold it.

You can not keep the VA guarantee to a third party or second buyer.

I went to the house and knocked on the door.  The owner opened it and I explained that he was living in my house.  He was shocked.  I explained that he needed to contact his title insurance company and clear it up in two days while I was in town or my Attorney would evict him.

The next day the title insurance company representative met me and gave me a copy of the stamped reconveyance.  Had this not been taken care of, I would have taken the house.  Since I am a nice guy, the buyer was able to keep it.

Had there not been a title policy on the house that the mortgage company ordered, it would have been a problem.  The same problem you could have if the lender is paid off and you are without a policy.  Just FYI.

This is not a good time to start with STRs.  There is still much sorting out to do coming down from the higher income of COVID to lower occupancy rates.  I can tell you from looking at my numbers for the last four years, there is not one year that is the same as the last.  

This is a good time to buy someone's fully furnished STR and rent it as a mid-long-term rental. Long-term rental rates are up in many areas over the last and still climbing. While you are coming to the market with lots of cash, you must reserve some of that cash as the real estate market is not settled yet.

To invest in real estate today you must make an exceptional buy.  There are always good deals, fewer great deals, and even fewer exceptional deals.  Do not be pressured by time on this.  Unfortunately with any real estate endeavor, it takes time to find, buy and rent.  If you are hoping to earn income from your $400k fast, that will be a challenge.

Hopefully, you are earning at least 5% on the cash portion of that money as that is the current rate with many banks and brokers.  Even if you buy equities that pay high dividends e.g. 10% or more, that may not be enough to support your lifestyle.

Also unless you buy with cash, you may have trouble obtaining a loan without employment.  Lenders don't care how much cash you have, they want to be assured that monthly payments will be made.  

So, save some to live on, invest cash at the highest rate, and buy a long-term rental in an area with a good ROI. I live and work on the Mississippi Gulf Coast, you can buy investment property for rental all day for well under $300k. Hire a good property manager and see some income flowing in.

The income will probably not be sufficient to live on so I would recommend you pick up another full-time job.  Successful real estate investing takes time like cooking a good steak.  

Charles Schwab is paying 4.6% on a money fund, $1 buy-in, and no fees.  If you are like some of us who are parking cash until we see how things shake out, this is a good option.  The feds are going to raise the prime rate at least two more times which means this rate will increase.

If you stay with 4 plex units, you fly under the HUD radar. Lots more requirements if you own 5+ units. If you have a good property manager you could be ok. I like 2-3-4 unit buildings. Revenue is always coming in even when there is a vacancy.

Regarding selling now, that is a tough one. If you are cashflowing and hitting your desired ROI you may want to stay there for a while. The reason I say this is that I have noticed a shortage of well-priced multi-family properties. These are hot now because of rising rents.

Check your market, rent is cooling off in some markets after a two-year march upward.  You will need to do a 1031 exchange and it's going to be hard to unload all three at the same time as you are buying one or more new properties.  

Don't rush into this.  Too many multi-family properties have deferred maintenance so you will need to investigate with someone who knows building regs.  Also, check the legal stuff e.g. eviction process.  Do the tenants have contracts?  

I am a real estate broker and when I list a multi-family property it is based on the current income, not forecasted income.  The teaser is that somehow the new buyer is better at raising rents so they would buy and increase their income.  Not always true.

To summarize, you would have a lot of moving parts, do you have the time and can you avoid the stress?  Good luck

It's called a wrap-around mortgage.  Most lenders include a "due-on-sale" clause in your note.  This means if the title transfers you must pay off the mortgage.  Having said that, I bought an apartment building once from someone because the owner did not inform me that the property was actually in foreclosure.  There was no time to obtain a loan even though I had started the process.

I paid some cash to help her find a place to live for a while and the agreement was that when I eventually financed it or sold it, she would earn an additional payment.  I paid her note directly to her bank every month for about one year.  Then she did something dumb.  She received a tax bill, called the mortgage company, and told them to send it to me.

The demand letter was in the mail within minutes.  Fortunately, they gave me 30 days to obtain financing which was no problem.  The moral is that the lender would probably not know unless something happened e.g. an insurance claim.  You or the buyer would need to be ready to pay off the mortgage on short notice.

The purpose of an LLC is to protect assets. You will have three assets in one LLC. If you are sued, they can come after all of your properties.

You should think about having an LLC for each. In my state, it costs about $60 one time to form an LLC. You can duplicate your agreement and change the asset page so no need for another attorney.

The Sub S is problematic. You could have formed an LLC to own LLCs and end up at the same place assuming you have claimed the Sub S as a pass-through. If not you pay taxes twice. I went through this years ago forming a Sub S that I did not need. Just because you have it does not mean you need to use it.

Regarding fees. I pay about $950 per LLC each year to my CPA of over 30 years. I have never been audited. Needless to say, I am paying 5 figures each year and it's worth every penny.