All Forum Posts by: Tim Winter

The question I have is regarding doing a 1031 for a property that I've done a Contract for Deed on. The title company is telling me that now that the resident of the CFD is refinancing, that it might not be possible to do a 1031 exchange, that I should have done it when I did the seller carryback/wrap, though I did not receive any funds except their downpayment at that time.

Since title is still in my name, and the resident is technically a renter, wouldn't that be false, as the transfer of ownership has not happened yet, as well as the bulk of funds?

I reached out to 1031 exchanger and they referred me to talk to my tax person. They seem overwhelmed atm so thought I'd ask on here.

If you're not having any luck with attorneys, you might try Legal Smart. They're my go to when can't find the answers I'm looking for in the legal realm. They should be able to help you out, and possibly help the family sort out the documentation as well on clearing the two clouds on title. azlegalsmart.com

I was actually referring to buying a property and making it a short-term rental, not one that is setup that way currently. Finding a SFH or small MF and converting it over, or there are some builders that are doing builds with this in mind in hot locations or on demand. Then you AirBnB/Homeaway it with a company that can manage it for you. When you want to utilize your STR, you just block out those dates with the manager and they block those on the calendars. It's actually easier than a long-term rental to do, if you find the right company. My brokerage has a STR division that does it for in and out of state investors, and they are pulling in 3x the rents of traditional long term here in AZ.

If you're not finding good deals locally, have you thought about where you might like to travel to? Dave Van Horn's article was a good eye opener for me; find a few good tourist attractive areas that you'd like to travel to once a year or more, then check out the short-term rental market there. Purchase a property that has no or favorable HOA, then you have a place to stay for your vacation trip yourself, and since it's advisable to stay at your own vacation rental at least once a year, this gives you a chance to update and improve it while there (or failing that have your friends or family stay at a discount and post review of what they find.)

If this is something you might be interested in and want someone to manage it, there are companies that specialize in that now. 

As Colleen suggested, I would get estoppel from each tenant as to their full understanding of the lease terms and monies involved, as an agreement for your contract before you close or even get out of inspection period. If all tenants are M2M and you want to keep them, then that increases your out of pocket and lowers the value of the asset. 

As mentioned previously, in AZ if their leases have ended, then by law they transition to M2M unless the previous lease stipulated otherwise. 

For me as an investor in Phoenix, and you know the current tenants are below market rents, and that Phoenix area is such a hot rental market right now this would actually be a positive for me from an investor stand point. If you don't want all of the tenants to leave immediately or all at once, I think your Realtor's advise should be brought up and challenged. 

As for damage, that is what the security deposit should be covering. Verifying with the current owner how much each tenant has secured against the property. If it's in the low rent areas, and the damages go beyond the security deposit, you most likely won't have much luck collecting on the balance and have to write it off as a business expense. 

I believe given we are just coming out of winter season here in Phoenix, if you have tenants in all 4 units I would treat the current tenants with kid gloves.. all except the worst one. The worst one would be the one with the lowest rent per size, and target that one for immediate notice that rents will be increasing, due to cost of insurance, taxes and on going renovation efforts (etc...) and upon turning that one and re-renting it, target the next lowest, rinse and repeat until you get full turn over. 

Best of luck with your deal, and let me know if you need any more advice! 

Considering most PRs that have this duty thrust on to them, depending on their ability to deal with the emotional issues and also the assets in the estate, it can take anywhere from 2-12 months before they're ready to even talk about it. As most investors give up on probate leads after the first 3-4 months, if your systems are superior you could potentially pick up those leads. Every market is different, so might take some experimenting with yours to find the sweat spot. 

Why do you need an attorney? 

I talk with families all the time about probate, and they're shocked to hear that there are companies out there that will do all the documentation for them, that aren't attorneys and don't charge high retainers. Here in AZ there is Legal Smart, and I'm sure in your market, if there is enough demand which with the coming silver tsunami I think that's most major markets, there should be similar. If you know how to fill out documentation and are not contesting the will, I think you'll find their prices much more competitive.

Have you tried your local REIA? I'd start there looking for a agent that does small MF or rentals and ask them for where the good buys are.

Failing that, have you tried your local title company? Let them know you're an investor, looking to get hold over policies on properties (fi you might do some wholesaling or flipping) but also let them know you're a buy and hold investor and want to start building relationships with your title rep. They should be able to get you in touch with their marketing department to get lists if you want to do your own off market marketing.

Have you investigated taking the property subject to? If you've seen the note and payment schedule, and the terms and interest are favorable, that would be the best way, to take over the payments and give the son something for his equity. If they are wanting monthly payments instead of a lump sum, you could talk to them about carrying a 2nd and the rest in cash to satisfy any immediate cash needs.  

If the note isn't good, then the next best thing would be to get a private lender to buy them out, or failing that a traditional loan. All depends on the condition of the property currently. 

Another option would be to wrap the existing loan. Find a good title company and loan servicer that will do this, and if its conventional it should be easy to find. FHA is more difficult but can be done but also more risky. The upside of doing this is that servicer will take your payment, pay out the underlying mortgage, and then pay the son any remaining balance every month. You can get an MLO to underwrite it so give them peace of mind that you're qualified and will make the payments, and this gives your note more worth if they someday down the road want to cash out or sell their interest, or partial interest. The servicer is not necessary if you are good at tracking the payments and the son trusts you enough to do as you say, but most savvy sellers want some guarantee.

One other things to be aware of is that title companies view the Quit Claim Deed to unrelated parties the weakest of title transactions. It does not guarantee, warranty or verify if there is clear title nor clear of any liens or encumbrances. I would recommend getting a Warranty or Special Warranty Deed if you can to protect your interests in the asset so you can keep it. If it later comes out that the son does not have legal title to the property, you can sue for a breach of the warranty.

Many options available, I'd say find the best one that suits your needs and those of the sellers.  

I believe David summed it up with "Have proper cash reserves and budget for repairs/cap-ex, and you don't need an expensive home warranty product."

I do this for my properties, and lenders will make you do it eventually anyway if you want to grow your portfolio with traditional financing. 

For investors that I used to property manage, if they didn't put $3k into a reserve account, we would make them buy a home warranty product. Otherwise when we'd come to call on a Friday in mid July when the AC breaks, they say they have no money, and we have to break the news that's not sufficient; you either have to repair/replace it or get sued, those are your options. There's really no middle ground, so get the zero percent financing and we'll schedule the replacement. But I digress.

A home warranty only makes sense if you don't have the reserves for a large repair bill, or you are doing a traditional purchase and the seller will pay for one for you (you can't beat free!) For that first year build up your reserves so you don't have to renew. During the home warranty period, if ever a major component breaks, ask your rep to "cash you out" meaning they give you the money to do the work, and you find your own vendor and do the repairs. Your vendor list of plumbing, electric, roofing and HVAC can almost always get something done better and sometimes cheaper than their bottom dollar contracted services. If not, it's time to update your vendors.