I’ve got 3 possible houses that I’m going to look at probably in the next week. I’ve been trying to find my next ‘project’ house. My SOP is to pick up a house in need of some work. Work on it, and then sell it (and with any luck, maybe it was worth my time..maybe not).
One of the houses I’m going to be looking at has been sub-divided into two apartments by the current owner. I believe both units are currently rented.
I’ve never done a rental. Does anyone have advice? Should I consider it, or just stick with the fix&sell houses?
jt8
The two most abundant things in the universe are hydrogen and stupidity. — Harlan Ellison
Replies
I've done some of both (fix to sell and fix to rent) and things really seem to vary on your area. Here, renting anything is hell- you have a hard time finding someone that will pay or that won't tear the place to shreds. I have a thousand horrible stories about renters and the crap you go through to get them out.
If you do decide to get into it, you'll have to spend a good deal of time learning the laws in your area and the best ways to deal with problems. My area (very small town) has a rental association that meets every few months- you could attend a similar meeting in your area and learn a few things.
But even if you get past all of that, decide if you would rather have the lump of profit, or a small amount every month. Many times, in the long run renting has the potential to make more, if you have the time.
I would look in the archives for a few discussions on this issue.
That said, my thoughts are that rentals are for some but not for others. No investment in my opinion is for everyone. I like real estate because I am pretty good at managing people and enjoy renovating things. 10 months of the year I love them, 2 months of the year you are dealing with renting vacant units or people problems and at that time I would sell them all cheap.
I do believe that rental property is one of the last true blue collar vehicals to wealth. It is one of the last areas where sweat is more valuable than money and you can get started cheap if not free. And it is very flexible in how you choose to approach it. Tim Mooney and I both have rentals. Both are successful in that area. ( though I am much, much more so :-)) And yet we have taken entirely different routes and operate quite differently but agree on most if not all principles of how to do it.
Good management practices are the rule of success. Background checks on every tennant. Get a deposit and first months rent up front. Always get a signed rental agreement whether you choose to go month to month or an extended term lease.
Local laws and codes make a difference as well as State laws governing tennant rights as they are different state to state and sometimes even local laws are passed to protect one faction or the other. Anyway those are my immediate thoughts. You could always buy one, rehab it and rent it out. If things don't go well or you don't care for it you simply sell it later. DanT
What Dan said is absolutely correct. I've had great success with duplexes and I bought my first rental 25 years ago.
Read this next sentence slowly and carefully.
A duplex that I bought in 1986 is putting my daughter through college.
End of story.
Greg
Good to hear from you, Dan. I was hoping you and Tim would sound off about it. I've skimmed some of the archive and both of you seem to have a good store of knowledge in that department.
I had been thinking that down the road I'd like to get into rentals.. this is a little early, but I'm not going to spook away from it if the deal is reasonable. I certainly do have a considerable learning curve.
In addition to the learning curve, is also a style adjustment. With my fix&sells, I can go work on it whenever I feel like it. Nights, weekends, whatever. With a rental, I'd probably need to notify the tenants and try to work around their schedules a bit.
One question I do have... how do you handle 'inherited' tenants? I would assume you have them sign a new contract, but do you force a 1-yr contract down their throats? And what do you do about the deposit they paid the previous owner?
Where did you and Tim dig up your tenant agreements? Standard off the shelf ones, or custom?
The current project house status:
House #1 was supposed to see it Saturday, but the owner's relative (owner is in a nursing home) had something crop up, so they pushed it back to possibly Monday, otherwise Tuesday. That's OK as long as they don't turn it over to a realtor.
House #2 the rental property. Property has dual meters. 1900sqft house that has been converted into two apartments (lower level and upper level). Currently both units are rented.
House #3 has an accepted offer in on it, so I probably will take it off the list for now (won't waste my time going to look at it).
None of these are 'perfect', but I've been sitting around too long with my thumbs up my backside waiting for a perfect one (and watching the bank account getting slowly worn down). Looks like I need to find some 'how to rent' books.
jt8
The two most abundant things in the universe are hydrogen and stupidity. -- Harlan Ellison
".. this is a little early, but I'm not going to spook away from it if the deal is reasonable. "
Really ? Outstanding ! This business doesnt work as well for old guys just starting it . The younger the better. " a little early " , is outstanding . Buying and selling is an awsome place to be too and very exciting. Breathing, eating and sleeping realestate as your daily life is rewarding . Its like fishing to days a week. Always trolling and making advances. The more you work , the quicker it happens. The earliar you start the better the rewards.
"One question I do have... how do you handle 'inherited' tenants? I would assume you have them sign a new contract, but do you force a 1-yr contract down their throats? And what do you do about the deposit they paid the previous owner?"
How ever you want to . Its your business. It will depend on the renter you inherit . If you get a renter thats been there three years or more , tread lightly. Those are hard to come by. On the other hand if theyve been there a while its probably really reasonable. Mebbe to reasonable for you. I missed a deal one time because the cash flow wasnt good enough and I didnt look further becuse of it . Another investor bought the property and raised rents and got it . It had some extra land I had missed and he built another duplex on it on what I figgure was a free building lot. . Taught this boy a wood shed lesson.
The tennats may not be desireable,...... if that is true then your clause to buy should reflect that renter shall be gone at closing. Let the seller deal with it if ya want.
"Where did you and Tim dig up your tenant agreements? Standard off the shelf ones, or custom?"
It took me a while to come up with the one I have now but its the best Ive seen. It probably needs a little redrafting however to suit my exact needs. Its a standard lease or it sounds like one. I had a lawyer sign one last month for her kid. She was pleased with it and its a strict lease. Email me your address and Ill mail it to you.
"None of these are 'perfect', but I've been sitting around too long with my thumbs up my backside waiting for a perfect one (and watching the bank account getting slowly worn down). Looks like I need to find some 'how to rent' books."
We are all guilty of that and all of us will amen to reading books. What Blue said about buying all the rental books you can get your hands on, outstanding advice. All the gurus tell us to read a book a month on something benificial. There are tons of money and investing books out there too. I think Blue mentioned an author by the name of Mc millin . Its one of the best . One thing I love to do is read in a book store. <G>
As I mentioned , investing is like a life of fishing . Most days I go are unprofitable. I keep going out though and trying . Then one morning unexpecting , I hook a big one! Be patient as its more a way of life to be always looking . Be content with that and not disapointed. If it were easy , every body would be doing it .
Now Ill tell one of my own . . A few years ago Blue was always working on a deal of some kind. I came on and found him every night talking about something he was working on . Well, ... it didnt matter what it was really, cause the exciting part was watching him live it . He was the best program on here for a while to me. He also made others feel good . I missed him when he left here and that lasted the time he was gone. Hes back now , but hes talkin about framin and I dont do that . Hes been some enjoyment for others that do though . Theres a lot of folks enjoyed boogering with Blue. Boogering aint always an easy thing to do , but its always entertaining . Investing is like that .
Used to enjoy listening to Sonny Lycos on here years ago about makin money. Hes good and stands apart from most . He`s still around but hes not talking about that anymore. The point being is that people like that were daily shots in the arm for me for a while and they need that credit. Good books are like that . Reading keeps ya entertained on a subject for a while and gives ya needed shots in the arm.
Tim Mooney
Now Ill tell one of my own . . A few years ago Blue was always working on a deal of some kind. I came on and found him every night talking about something he was working on . Well, ... it didnt matter what it was really, cause the exciting part was watching him live it . He was the best program on here for a while to me. He also made others feel good . I missed him when he left here and that lasted the time he was gone. Hes back now , but hes talkin about framin and I dont do that . Hes been some enjoyment for others that do though . Theres a lot of folks enjoyed boogering with Blue. Boogering aint always an easy thing to do , but its always entertaining . Investing is like that
Tim, thanks for mentioning my past excitements and calling them encouraging. In many ways, at that time, I was encouraging myself to do many things that I wasn't entirely comfortable with, by talking about them as I was learning about them. I followed through in many ways with my endeavors, had some success and had some failures and had a few washouts. Today, I'm significantly farther ahead, financially speaking because of my efforts. The most amazing thing hasn't been the increase in my financial strength, but instead has been my expansion of my financial knowledge base, which in turn opens doors that I previously thought had been locked, but were always open to me....if I only knew the code...which was always in my grasp!
I've spent the last year resurrecting the carpentry contracting business and attempting to right the ship. Its funny, I know in my heart that it's not a worthwhile business, but it's so hard to walk away from your core love. I'm one of those guys that firmly believes that anything is possible and I know it's possible to profitably build a carpentry business, but alas, I'm also keenly aware that I'm passing up MILLIONS to finish a goal that will pay me thousands! I am a stubborn old mule though and my determination to get this thing right has cost me dearly!
The most ironic thing is that when I was touching base with an old business friend to update his phone numbers, to include in our current carpentry advertising campaign, I was able to LEASE OTION, with nothing out of my pocket, his current residence in our five minute conversation! The residence is a very nice modern (he built it a few years ago) house in the suburbs in the 300k range. I'll be expecting to make a conservative 10% with nothing at risk and it will be a win, win, win deal (he wins, I win and the incoming buyer wins). That type of return is not possible in carpentry because the carpentry business is loaded with risks on every front!
I will admit that I made some very bad real estate decisions as I ventured into the real estate investment world and because I have a much better idea of the path that I want to walk, I wouldn't do it the same again. But...having said that, I'll also say that I made some lousy choices and I was still able to profit much more hansomly and enjoyably...much better than carpentry contracting and the "poor decisions" that I made venturing into real estate are still great decisions that are now giving my some very lucrative choices. Real estate is by far the best investments that I've ever done and my first deals are the worst mistakes that everyone should avoid.
Tim, you mentioned Mc millan as an author and attributed that suggestion to me. I think someone else should be credited. I did an Amazon search and only found a few books dealing with stock options. I'm not particularly interested in the stock market right now, but am interested in authors. You speak highly of this Mc millan fellow...can you give me some more info...I need another booklist...I'm chewing everything up so fast right now...
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
Mike,
You are right that it is impossible to figure what the market will do. In the early 80's when the rest of the nation went through econcomic recover under Reaganomics we didn't. Everyone around us did but our little community did not. No rhyme or reason, just didn't happen.
When the 90's surge came along we prospered but a couple of years later than those around us. I have never planned based on economy, I just buy when I think it is a doable good deal. I am not much of a strategist I guess. DanT
For shame. Passing up a cheap property. I guess we will have to work some more together.
Now, repeat after me.........I will never pass on a good deal again.......good, now say it again. DanT
It took me a while to come up with the one I have now but its the best Ive seen. It probably needs a little redrafting however to suit my exact needs. Its a standard lease or it sounds like one. I had a lawyer sign one last month for her kid. She was pleased with it and its a strict lease. Email me your address and Ill mail it to you.
Tim, my cleanest email address is:
[email protected]
I'd love to see what your contract looks like. I'm not planning on becoming the "evil slumlord" or anything along those lines, but I sure want to make sure my backside isn't hanging in the breeze.
jt8
The two most abundant things in the universe are hydrogen and stupidity. -- Harlan Ellison
Edited 1/30/2005 9:36 pm ET by JohnT8
John,
Good advice from Tim as always. It took me years of council to get him to this point but damn he's finally got it! :-)
I handle inherited tennnants in this manner. I don't rehab occupied houses so if it's getting a full blown rehab vs a few repairs I do as Tim advised and ask they be gone upon me taking possesion. If its just repair a few things and they seem like ok tennant I just go with the agreement that they currently have. I inherited one 17 years ago, she is still there. House will be paid off this year. Amazing.
I bought a "canned" rental agreement and over the years have got some from other landlords and created my own. Basiclly you can say anything reasonable in one and the courts will back it if the tennant signed it. I have a portion that says if the grass is higher than 8" then I mow it and you have to pay me a large fee for doing so. Another one in mine is all cars owned by the tennant located on or near the property must be licensed and must start and drive on demand. Stuff like that.
I don't like the use one agreement all the time although my base agreement is always the same I like to tailor it to specific properties. I don't allow pets in multi unit buildings because if one unit gets fleas then they all get fleas and now I have 2 uncomfortable tennants. But in my single family homes I allow pets with a pet deposit. (extra non refundable $)
One thing when buying, negotiate tough. When buying it is the easiest time to pick up equity profit. My personal theory is that if my first offer doesn't make you mad it wasn't low enough. I like to buy property at prices I can brag about. I have two that I bought in the last 10 years for 10k. I realize that is not possible everywhere but you get the point.
Tim's point on starting young is correct in every way. You can make money in real estate in many ways but the most profitable way is time. The longer you have them the more rents increase, equity increases, tax benefits are in place for years. Time. Your friend in this business. DanT
dan.. good post..
<<<<I have two that I bought in the last 10 years for 10k. I realize that is not possible everywhere but you get the point.>>>
if there is a buildable lot in this town, it will fetch a minimum of $100K
a lot of the old bungalows from the '20's... with no improvements , on 50x100 town lots ( town water & sewer), will get a bidding war if they list at $250K..
and it was only as late as '95 that you still could have bought any of them for $100K..
i think the thing to look out for is .. look around you... your area may be heading in the same direction... and the only ones who recognize it are people who come from out of your area who consider your local prices to be give-aways..
or... you can be in one of those locales where prices will not even keep up with the consumer price index..
it sure is a mystery to me...Mike Smith Rhode Island : Design / Build / Repair / Restore
Before I quit me job , a house was offered to me for a sale price of ,10,000 dollars cash. The house in my opinion wasnt worth remodeling but a lot of people would have done it. It was on a very big lot that was zonned R2 commercial which means I could have built apartments on it . The lot had all utilities on site so there wasnt a charge from the city for sewer or water. I thought I was too busy and advised the man to build his house on it and tear the old one down. I sold him a building permit.
I messed up as it would have been a great project right now.
I sent snail mail to you Friday.
Tim Mooney
thanks , tim.. i'll use it to cover duane...
seems like that old saying about " all politics is local" also applies to real estate..
my message is .. it's hard to see the forest for the trees..
i've lived in this town since '54.. been involved in building, real estate, and politics since '73... never saw it comming.. too busy taking care of the day-to-dayMike Smith Rhode Island : Design / Build / Repair / Restore
House #1 was supposed to see it Saturday, but the owner's relative (owner is in a nursing home) had something crop up, so they pushed it back to possibly Monday, otherwise Tuesday. That's OK as long as they don't turn it over to a realtor.
John, I would be very interested in this one for several reasons. First and foremost, you have a motivated seller. If it's in need of maintenance and repairs, then it's a "problem" too.
This one has the possiblities of fitting very well into your business plan (fix and sell) and you probably can get into it with nothing or very little down. There are many, many ways to create a win, win, win (the seller wins, the buyer wins and you win too), with this one.
What are the numbers?
blueJust because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
This one has the possiblities of fitting very well into your business plan (fix and sell) and you probably can get into it with nothing or very little down. There are many, many ways to create a win, win, win (the seller wins, the buyer wins and you win too), with this one.<!----><!---->
What are the numbers?<!---->
There ARE no numbers on this one yet. I keep my ears open, and Mom keeps her ears open, and sister and her family keep their ears open. This is a case where the 'ears open' heard something.<!---->
Apparently elderly lady moved into a nursing home some time ago, and just recently has been made to realize that she won't be returning to her house. The local relatives (cousin or nephew) have been slowly trying to get the house cleaned out (apparently one of Hercules tasks). This has been aggravated by the distant relatives who are handling the estate..they turned the heat off. Both groups of relatives are worried that the house might be hard to unload since the old lady hadn't done anything to the house in the last 10-20-30 years or so that she'd lived in it. <!---->
Also on the 'hard to sell' list is that at some point in its past, the front of the house had been converted into a beauty shop (or barbershop). So it REALLY makes for an odd looking house. The front of the house looks like the side... the side of the house looks like the side.. the back of the house looks like the back (i.e. no front to this house!).<!---->
Like the rental, this property isn't 'perfect' (when I say perfect, I mean a perfect project house for me, NOT that its in perfect condition). WAG, this house is probably around 80yo. 900-1k-ish sqft small bungalow on an equally small lot.<!---->
It is really smaller than I'd like to deal with, but the situation might make it worth my time.<!---->
You can't argue with it if the price is right. Although I will admit all you rental property advocates have certainly got me fired up for that topic. Just have to see if one of them works out.<!---->
jt8
The two most abundant things in the universe are hydrogen and stupidity. -- Harlan Ellison
Hi John,
Since two posts deal with renting , Ill stab your main question whether to invest in a rental to "sell".
Investing in rental houseing is one of the soundest investments. In fact , its the way I play ball. Whether buying or building I always build or buy a house for sale that will rent for the price of the principle , interrest , taxes , insurance , maintence kitty, and a management fee per month. In other words in the worst case senario you can rent it and pocket money. I look at that as no risk. I will however give my work away to fix it if not over a full time month , and 5 thousand dollars out of pocket expense in materials to bring it up to the figgures above. Since interrest went down and property went up , this is necesary for me. I lock it in on a long term note at 6 percent and thats worth the difference. When interrest was 9 , I would not spend any money because I was buying or building cheaper than today but paying higher interrest. If you buy a rental this must be figgured as your plan B approach to secure the note if your intention is to sell. Folks buy rentals just like their residences. Of course they dont buy as many but there isnt as near as many for sale. All types of people that make money or have it invest in rentals . The very best month to sell a rental is December because of tax deferred investments. The best time to sell a home is generally April by national average. When ever building or buying, to be able to sell at these choice times are keeping the sun at your back as an edge. Their are several good times to rent , but during August and Febuary are the best by national average and have been the best proven times for me. Tax refunds are mostly all in by Feb 1, and kids start to school by Sept 1. There is home selling activity at those times also. The month of June is a good closing month for a home after the kids get out of school and the family can move. If you miss getting the project ready to sell by these times you might have the sun in your eyes.
You`ve missed the top month for selling a rental, but the spring is still the strongest season figguring tax returns and people like getting out and looking after the winter.
When I was "thinking" about getting into rentals I asked a lot of people what they thought. I heard a lot of stories like the first poster. I was very leary , but I did it any way because I needed a retirement in the future. Fact is I didnt figgure I had a choice . I had to invest in the future and this was the best damn thing on paper I could find. I pulled the triggure and spurred onward. I didnt take any excuses in leiu of rent money . I was to the point and very strong in my statements what ever they were and I gave exact times to exact promises. They expected me at their door if they werent at mine with the money immediately the nest morning or that night is was due. "5.00 pm is shut off time" . Sentences like that carry weight and have unwanted action in them." If rents are not collected on time , there`s severe penalties that are costly". " If you dont have enough money to pay all your bills , you are better off to pay me because its more expensive not to and I will evict. " Letters carry a lot of weight because the whole family may read them. At least man and wife . If both read the letter youve got twice the chance of being successfull. " I stopped by your "home" on 1/28/05 and noticed trash scattered on the premise grounds. As you know this violates our agreement and it carries described penalties as mentioned with in said lease executed on on the third day of August . two thousand and four, between Tim Mooney and [renter with a problem]. Ill be back to inspect, 2/1/05 at 5pm . I can also recieve rent at that time if you choose and make an in house inspection. If the rent has been paid and I pass the inspection there will be no need for a meeting on my part. If theres any questions I may answer , please dont hesitate to call. " Letters that are definate and too the point with exact times and dates are "warrant serving" in their mind. It is unpleasant to receive such a letter , but its my way or the next rental for them. That also makes a statement about me and their relationship with me. If they conform to the lease , Im as nice as they are . All the bad stories have not been true for me, but I have heard them just the same and realize they can come true.
As Dan said [ which Ive taught him pretty well <G>] is that rentals are not for everyone . If you think you could be an example to renters in some way like above or in your own way get it across , then you may be richer at retirement.
Greg will probably be here also and hes had a lot of experience.
Tim Mooney
Edited 1/28/2005 5:29 pm ET by TIMMOONEY52
Edited 1/28/2005 5:29 pm ET by TIMMOONEY52
I have been too chicken ship to play that game. I have friends that do and have nightmares, especially with getting deadbeats out .
When I went independent I did a lot of repair work, and a lot of it was on fixing rentals that got trashed. In some defence or devils advocate, I had landlords in the past that were true aspholes, and while I never did anything wrong, I bet some of those landlords had karma hit them smack in the face
However, that said, I know several people who are doing real well with rentals. Buys fixer uppers, fix and then rent.
My mechanic buys at least one house a year for the past 5 years. He has only had one problem and that was a single mom that got laid off.
My electricain plays the game, but mostly wiht comercial rentals, same fix it up and rent it out. No problems. He says the collateral of the other buildings, and the rental income is what now buys the next buildings.
My backhoe sub has recently gotten into rentals and is doing well. However he has a management company handle it all. He says that is how to do it.
My brother in a different state rents houses, and after several years of battles, now has a management firm handle it.
I think , if it was me and I was new to the game, I would get a management firm in.
But me, Im too chicken and too broke to play
Oh yeah, and everyone of those examples operate as an LLC or other type of corporation to protect their own assets
just my 2 cents worth
good luck
Good topic John.
You've already received a ton of good responses. I'd pay particular attention to Tims buying strategy...positive cash flow after all expenses and reserves.
Don't be in a rush to pay more than you should. Understand that your offer to the present landlord is based on the rent income, not on the house itself.
Don't make the mistake of using two rents on that duplex, if it's not a legal duplex. If the conversion was not inspected, I'd be leery.
I wouldn't buy any duplex that didn't have seperate utilities.
If you're planning to fix it up and sell it, you should be basing your all cash (or conventional financing) on 60 to 70% of FMV and deduct the fixup costs from there. The FMV on rental property is derived from the market rent income.
If you don't understand all of this, go to the bookstore and buy at least ten different real estate books. Some of the good authors I recommend are Robert G Allen, Robert Shemin, Tyler Hicks, Peter Conti, William Bronchick.
Check out creonline.com too.
When you make an offer, make sure you make it as JohnT, or assigns, then use your due diligence time to figure out how you want to title that property. Dont take title in your own name as a sole proprietor.
Lots of fun...
blue
Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"Dont take title in your own name as a sole proprietor."
Why not? All mine are simply in my wife and my name and I have a couple in my brothers and my name.
Is this the "protect yourself from the evil lawsuit thing"? If so let me be the first to say that anyone can take anything from you with a good enough attourney if they spend enough to do so. As long as they can find the ownership trail back to you, you are volnurable.
Frankly unless you have deep pockets with cash or a credit history and net worth that is close to Trump a bank won't allow you to borrow money on a property that isn't in your name although you can quick claim it later. But based on the loan agreement that often constitutes bank fraud and makes the loan collectable on demand.
I think if you have a large number of units breaking them into a few companies, corps or trusts isn't a bad idea. But when starting out I think this is poor advice and a waste of time, money and effort. In my mind it comes under the heading of "the sky is falling, the sky is falling!".
I realize that many gurus preach this and teach it but I fail to see the logic for a beginning investor that may end up hating the business anyway and if not adjustment can be made later. Worry about the management skill and condition of the property and you will have a lot less to worry about in terms of a suit. DanT
"Dont take title in your own name as a sole proprietor."
Why not? All mine are simply in my wife and my name and I have a couple in my brothers and my name.
One slip and fall from a tenant, or a visitor to the tenant could financially wipe out everything that you own. Lets face it, there are a lot of predator lawyers out there. It's financially wise to segregate assets, thus limiting the loss incurred to a lawsuit to whatever amount you choose to risk. In your case, you are choosing to allow all your assets to be at risk, simply to avoid a $750 professional fee that could set up trust, some llcs and make it much more difficult to collect from you.
At the very least, if you insist on keeping all your assets in your own name, which is plainly visible to the entire world, at least go down the courthouse and record some mortgages against the property to show that the property is 110% financed. That alone will discourage most lawyers.
Is this the "protect yourself from the evil lawsuit thing"? If so let me be the first to say that anyone can take anything from you with a good enough attourney if they spend enough to do so. As long as they can find the ownership trail back to you, you are volnurable.
Since you understand that good attorneys are capable of "legally extorting" a lot from you, I find it puzzeling that you don't make the attempt to muddy up the ownership trail.
Frankly unless you have deep pockets with cash or a credit history and net worth that is close to Trump a bank won't allow you to borrow money on a property that isn't in your name although you can quick claim it later. But based on the loan agreement that often constitutes bank fraud and makes the loan collectable on demand.
You are correct when you say that the bank won't lend to you unless you are titled on the property. You are also correct that you can easily quit claim the property from an entity back and forth. It is one simple document that I myself have created on my computer and used to accomplish exactly what you are saying.
However, you are totally mistaken when you say that quit claiming it back later constitutes bank fraud and it makes the loan collectable on demand. That idea is nothing more than an old wives tale that is believed without question because it's repeated by uninformed "advisors" that don't fully understand the principles involved.
The use of the word bank fraud is especially harsh, and wrong, since the alarm you are trying to sound is that of the due on sale clause that is written into almost every conventional loan since the early 80's. This often misunderstood clause is the consternation of many, yet the instances and circumstances surrounding it's use is rare. First, it should be understood that the courts have already determined that it is ILLEGAL for the banks to demand payment in full under that clause if the mortagors are changing ownership for estate planning reasons. Secondly, it is not illegal, nor bank fraud to change ownership...it simply gives the bank the right to call in the loan, but understand that no laws are broken, it's simply a financial tool for the banks to write new loans during periods of high interest rates, instead of seeing all their business dry up when everyone is assuming existing loans instead of seeking new financing. This occurred during the high interest periods of the Reagan years when mortgage rates soared to 18% in an effort to stem inflation.
In general, the due on sale clause is not going to be a factor unless two things happen: interest rates are significantly higher than the existing loan and someone alerts the bank that new owners have taken over the mortgage. Think about it, would a bank call in a performing loan at 8% and then want to give a new mortgage at 6% or less?
In any event, no fraud is occurring.
I think if you have a large number of units breaking them into a few companies, corps or trusts isn't a bad idea. But when starting out I think this is poor advice and a waste of time, money and effort. In my mind it comes under the heading of "the sky is falling, the sky is falling!".
It is easier to start out right, then it is to go back and redo things. There are many, many advantages to hiding ownership and limiting liability and it is such an easy thing to do from the start, that I think it's wise to consider it. I will agree that you shouldn't allow this to stall your entry into the real estate field, especially if you don't have anything to lose, but I firmly believe that establishing a trust or LLC is the right way to start out.
I realize that many gurus preach this and teach it but I fail to see the logic for a beginning investor that may end up hating the business anyway and if not adjustment can be made later. Worry about the management skill and condition of the property and you will have a lot less to worry about in terms of a suit. DanT
The reasons the gurus preach this is because it makes sense. On a personal level I can explain why I would prefer to start out right. I owned a property in my own name and later titled it into an LLC after it was developed. If you check the chain of title today, you would not see my name on the asset. But, if you checked the county records for my name, you'd see that I owned that property previously. Any semi-competent attorney could put 2 +2 together and deduct what occurred, thus a lot of my defensive posturing is negated. The far more effective way at hiding ownership is to never have owned it a way that the public ever knew.
That's my story and I'm sticking to it.
blue
ps I would run to a financial planner today if I were you. Your assets are subject to some very serious taxation and totally exposed to nuisance lawsuits. Just because you can, doesn't mean you should!
Warning! Be cautious when taking any framing advice from me. There are some in here who think I'm a hackmeister...they might be right! Of course, they might be wrong too!
"ps I would run to a financial planner today if I were you. Your assets are subject to some very serious taxation and totally exposed to nuisance lawsuits."
Thanks but I will pass. And I can't disagree with you more. So we will agree to disagree I guess.
I have been sued 6 times that I can remember. Worked in a prison and was in charge of maintenance. That was good for 4 times and then twice by tennants. Never lost a law suit. Never paid a dime. That is what insurance is for.
Could it happen? Sure could. I also can end up with cancer, leukemia, and a host of other maladies that I can't or won't cover with seperate actions/insurances. I will continue to bank the money saved and invest it. DanT
john ... my biggest regret in this business is not owning rental properties..
here it has turned into a no-brainer... no matter what you bought ... within 5 years it turned from a negative cash flow to a positive one..
even back in the '70's.. it only took about 10 years to turn positive... and i'm talking about buying houses and renting them for below your return on investment..
in other words none of the old rules about rental property were true in this area..
you could literally buy anything and it would become positive..
if you are into buy, fix & sell..... you could just be postponing the deal.. turning it into buy, fix, hold & sell..
now ... if you are in some backwater where the old rules apply and will for the distant future.. then proceed with caution..
i know i really missed the boat
Mike Smith Rhode Island : Design / Build / Repair / Restore
30 years ago my dad tried to get me into property, and I, like a fool, didn't do it.
I got into rentals last year. I'll tell you in 10 years if it's going to be OK.
I have a 3 suite house, and I've spent time fixing and working on it. It shows positive cash flow almost every month. If I can get another 2 like it over the next 5 years, I'll look at retirement.Quality repairs for your home.
Aaron the HandymanVancouver, Canada
Can you rent it for no less than 1% of the value per month? Better at 1.5%.
If so, buy it.
If not, pass.
Unless, the appreciation is expected to be fantastic.
Or, you just want it 'because'.
"I was glad that when everything finally hit the fan I was holed up in a little beer joint in Robstown, Texas called the El Gato Negro."