Jay Chekansky
Charlotte, NC Active 2 weeks, 1 day agoForum Replies Created
-
Posts
-
Hey Larry,
In this case, we are no longer the owner of the property but the lender. Holding an HOI policy is not possible. In this case, it was simply a breakdown in my processes where I overlooked an important detail.
In my early days, I’d do a Contract for Deed arrangement and remain on title/insurance. This came to be a massive headache when the buyer/borrower (tenant) had a legitimate HOI claim to do storm damage. It’s just not worth it, when you can create a Note/Deed of Trust and move all that liability to the borrower.
Hey Bill,
Thank you for the reply.
Yes, it was an oversight on my part. I have all buyer/borrowers pre-pay the 1st year of HOI prior to closing. The EOI looked like it had been paid in full, but he only paid for the first month.We let him know that foreclosure was to start. He acquired a new policy prior pretty quickly.
Thank you for the reply Bill. We ended up closing on the “wrap of a wrap” this week. It took us going through 3 attorneys, adding proper verbiage to the Notes and DOT’s, and setting up a loan servicing structure, but it’s done.
I got my price – the Buyer got cash flowing terms – and 17 septic systems are off my balance sheet.My best deals have always resulted from using knowledge as leverage over anything else. Thanks for you help and feedback.
Nope – sellers won’t answer or return my phone calls.
They wanted a savior to swoop in to buy the house and rent it back to them at a rate they could afford…which was $400 per month less than market rent.
I wasn’t going to jump into bed with that deal….or any deal involving renting back to sellers that are in this position because they weren’t making payments on time.
I’ve been fortunate that the few rental I have have been paying. But after reading your post, I got to thinking – what would a “What Box?” answer to this look like? Since we can’t legally force them out through the court system, can we persuade them to make a decision to leave on their own?
I haven’t read anything on the eviction moratorium or what a breach of lease (outside of Covid/income hardship) looks like. Maybe this is way out in left field.
But if tenants are not paying, they are in breach of the lease/breach of contract. Doesn’t that break the contract between landlord and tenant? Have you given them proper notice and adequate time to cure this? Is there verbiage in the lease that terminates the agreement due to this? Does the eviction moratorium simply prevent the use of eviction in the instance of non payment due to Covid hardship or does it say that you can’t enforce the terms of the lease?
So where I’m going with this – my outside the box idea. It’s your house – The tenant is living there in breach of the lease. Why not use “your” house for whatever “you” want.
What if you sold off “your” appliances?
What if you started storing really big furniture in “your” living room and kitchen. Why spend thousands on cash for keys when you can spend a few hundred on 10 used bedroom sets to store in the kitchen.
It’s “your circuit breakers” – what if you took the big one that says “200” and used it for another project you are working on?I don’t know if these ideas are the solution, but maybe using your negative cash flowing property for bulk storage influences your squatters from finding an easier target
I’ll take a crack at this one as well.
Discussion with the owners –
1. 30 years of owning the park – wow – have you guys enjoyed it all these years?
2. Why would they be wanting to sell the park?
3. What are their plans after selling the park?
4. How much cash would they need today to accomplish or start with the answer to 3.
5. How are they planning to fund their retirement and what income sources will they have
6. Are they open to the idea of taking payments for their equity?Obtain park financials to understand NOI, expenses, leases, who is paying and who isn’t.
What could the rents be at current occupancy?
If park owned homes, do the owners have the titles?Additional Due Diligence Items to consider
1. Check with local municipalities. I have looked into parks that have had vacant pads inside them. If the pads were vacant for over a year and in some cases, if no power/electric bill for over a year, then the city/county would not allow another home to be brought into the park.
2. City sewer or septic systems – what is condition? If septic, this can be tough
3. Be able to get titles for MH’s in park.
4. Can the vacant sites be used for converted to RV slots with electric and sewer hook upEntrance and Exit Strategy – I would not be taking title to this one. I don’t have experience with park management/rehab and don’t have time to do so. I’d rather create a great deal with terms and wholesale / sell an option to another investor. I’d be making my assignment fee in the different between the down payment paid and the down payment due to the sellers
1. Negotiate terms with existing owners.
2. Negotiate Park price based on a cap rate of greater than 10%
3. Assignment Fee in the range of 3 to 5% depending on how low I was able to negotiate the down payment, brining the end buyers down payment.I think another creative way would be to contract/close a good seller finance deal in the 10-12% cap rate and resell on terms with an AITD Wrap at an 8-10% cap rate and a balloon payment due from end buyer in 3 to 5 years.
That way, you can make money at closing, make money in the middle, and make money at the Refi.I’d limit my cash outlay, option my involvement, and stay off title –
1. Negotiate a master lease with owner at existing PITI of $1361 per house then sub-lease to new tenant at $1700 market rent
2. Negotiate an Option to purchase house any time in the next 10 years with a strike price of the UPB + $2500 per house. Option consideration would be $2500 per house and credited to purchase price, but the owner agrees that $2,000 of the consideration will be used as “cash for keys” to entice existing tenants to vacate house.
3. None of this goes down unless existing tenants vacate house.This is beneficial to the owner because it alleviates his current headache, protects his credit, and prevents foreclosure.
Jackie – what a great idea. Thank you.
Prentiss – great recommendation to tie this up with an Option on the front end. How would you set the terms? A 30/60/90 day ROFR?
Here is my take with the info available:
1. Entrance – If it is live-able but not updated, secure an option to purchase with strike price at 80% of fair market value with a 30 day renewal for $100 every 30 days. List it flat fee MLS at 10% above the Zestimate. If the market it is in is anything like the market I am in, it’s gone on Day 1.
2. If seller wants to be cashed out, she’d be getting a wholesale level cash offer and a quick close. This way I’d have the opportunity to wholesale, good margin on a fix/flip, and likelihood of being able to BRRR with none of my cash left in deal.
The exercise really points out how important it is to ask the seller questions, understand motivations, and see how open they are to creative finance.
Thanks Jackie – I’m trying to recondition my brain to stop only thinking in terms of debt-leverage!
I have been listening and studying Jack’s Options seminar. I’m grasping the concepts but I still struggle with the mechanics. I get the concept, but would love to find/read/listen to something with a few more details
I read the article you posted and it confused me- did your daughter take title to the property and wrap the seller financed 2nd around the initial seller’s 1st?
I’m brainstorming here and would like your feedback –
If we were to wipe the slate clean on the deal I have going, what could have been done different?1. Negotiate a pure option with a lower strike price. Sell my option to another investor.
My interpretation of this is exactly like wholesaling a contract.2. Obtain an option on the property for X price subject to the existing $80k loan, like you mentioned. There is verbiage in the option containing that the seller gets the first X dollars over the existing loan UPB, and I keep everything after that.
3. Structure the deal as I have, but without the 12 month balloon. Minimum 3 years and a best case of no recorded documentation on when the first lien would be paid off. (Seller was adamant about a timeframe for pay off). Would an all inclusive trust deed to the seller be a better way to wrap the 1st lien in this case or just a note/DOT for his remaining equity?
4. The seller wants to back out of the deal. I have offered him 2 choices. Pay me $1000 and I’ll void the contract or pay me nothing and grant me an option for 1st right of refusal to buy the house for the next 15 years.
Thanks so much for the fast replies and detailed responses. I’m learning a lot in this.
The $35k profit mentioned was after accounting for all expenses – Cost of capital, Repairs, Taxes/Insurance during hold period, holding costs, Broker commission on the sale end, Legal/Closing costs, and an 8% fudge factor for unforeseen and market moves. There is also an adjacent lot that I have planned to split off and sell on terms and this is outside the $35k/Numbers I have mentioned. My thinking was a $35k profit for a $46k investment was a pretty good return, but again, that is using debt as leverage and not thinking in terms of Options/Minimal Risk.
Thanks!
JayHey Jackie – thank you for the detailed response. This is exactly why I posted this one – to get feedback at this level.
The contract has the buyer taking over payments of $652/mo on the $80k loan.
The seller will receive $16k down at closing, and another $17k on the back end when the balloon is due. There is no interest due on the $17k.The wording in my contract is a mix of taking over subject to and providing the seller with an AITD. I need to improve my understanding of both scenarios.
My goal with the deal structure and balloon was to create a low dollar entry into the property with low holding costs because I knew the rehab was going to be expensive. The owner wanted the underlying loan pay off time frame spelled out in the contract and did not want to leave it open ended.
The exit strategy is A. Wholesale the deal to another investor. B. Take title and list on the MLS as-is or C. take title and complete the rehab/resell at market value. There is approximately $35k to be made net before income taxes when I complete a the rehab calculations.
Jay
