All Forum Posts by: Bill Crow

@Patrick Stuckwish

Expanding on what Wayne said... This does not appear to be a good deal for a buyer who has the ability to qualify for conventional loan terms.

The seller has structured a deal that allows them to net more money through a combo of factors, including the price, the above-market rate, and the loan terms. They are also mitigating their risk of a weak buyer (who has limited down payment and likely limited reserves) by setting up a balloon. If buyer is unable to pay off or refi when the balloon comes due, seller gets the house back and starts the process over with the next sucker, I mean buyer.

From the buyer perspective, the teaser is the lower down payment. The corresponding weakness that a weak or inexperienced buyer might underestimate is that less down means a higher loan balance. Higher loan balance + higher rate = crippled cash flow. If buyer is under-reserved or dependent on the cash flow to remain afloat, this could be a real problem.

Hope this helps.

@Josue Vargas

You are correct in that Texas is less restrictive than some other states regarding security deposits. I noticed Cerise is in NY, which is more prescriptive about how security deposits are handled. Wherever you operate, know the rules. :)

@Cerise Goldberg

Yes... and here are a few reasons why:

1. Security deposits. Deposits are typically required to be held in separate accounts from all other funds. Know your state and local laws on this. There may even be rules as to who gets the interest if deposits are held in an interest-bearing account.

2. Taxes. Keeping your rental income and expenses separate will make your tax accounting much more manageable.

3. Your own benefit. You will never be able to tell with certainty whether your rental is profitable or not if the monies are commingled with your personal funds.

I am keeping the comments very basic here, but wanted to give you more than just another “yes”. There should be other threads with greater depth on this subject here at BP.

Keep good records. The time spent is well worth the effort. The more you expand your business, the more important it becomes. Build good habits from day one.

@Dmitry Prosvi

“Keeping it simple” will only work if there are no hiccups for the entire length of the relationship. Protect yourself by doing what others have suggested. Do a clean break between tenants as if they were unrelated. That way there is no argument about his/hers, mine/yours. Just do it right - that’s truly the simplest in the long run.

@Ganessan Paraman

Some of my tenants use Zelle and pay over $1000. There is a limit on the first transaction just to ensure the money goes to the proper party. There may be a $1000 limitation imposed by a certain bank, but it’s not a Zelle limitation.

@Ben Smith

It may be worth the expense to pay a CPA for the expertise in answering your questions. They can tell you about the important tax aspects including depreciation for your situation. Doing it right the first time will save you a lot of grief in future years.

@Amnaya A.

Your agent should stick to showing properties and stay out of the finances.

Cash flow has nothing to do with taxes.

You can have a cash-flowing property that has a loss for tax purposes, primarily due to the effects of depreciation (a non-cash expense).

If you have a negative cash flowing property, then your only financial benefit as an investor is the gamble on property appreciation. Some investors are happy with that, but unless that’s your plan, then you need to be fully aware of he potential cash flow of your investment. Otherwise, you’ll be adding funds out of your pocket each month to offset the negative cash flow.

@Daniel Kucner

First, some quick bankruptcy terminology in very generic layman’s terms...

DISMISSED means the filer (your prospective tenant) failed to meet the terms required by the court. DISCHARGED means they executed their plan or otherwise “completed” their bankruptcy.

If nothing has changed in terms of the income stream, and the debts that drove them to bankruptcy are still active, just say no. Bankruptcy due to a one-time event (divorce, medical issue, etc.) may deserve some consideration, but you don’t want to be the test case to see if they will recover. If they have not re-established themselves as credit-worthy, it would be too high a risk in my book.

@Benjamin Greene

Before giving up the car, I’d recommend talking to the lender. With the debt going away in a few months, it’s not going to have long term effect on her ability to pay the loan. I don’t know what underwriting flexibility there might be in this circumstance, but it wouldn’t hurt to ask.

@Benjamin Greene

I don”t know if this helps at all, but.... if she is 2-3 years into the lease; when does the lease expire? If that payment is going away in the next few months, that would be another point in her favor.