Monday, July 29, 2019

My Renter Midnight Moved? Now what?

In the cover of darkness, my tenants moved out of my Central Minnesota Rental, what are my responsibilities as a landlord?

If you've been a landlord for a few years, and had rental properties for more more than a few cycles of tenants, chances are you've experienced a midnight move.  Typically these tenants are running from something, and they don't tell you they're moving out, they just move out.   We call it midnight-move, but it doesn't have to be in the middle of the night.  Typically as landlords we're not driving by our properties every day, so it's easy to miss someone moving out.   Oftentimes the indication something is wrong is either from the power company calling you to let you know the power has been shut off (or reverted to your name), or a neighbor calls to let you know, or you just don't get rent that month.   It's critical you stay on top of your properties especially when pipes could freeze.  Lots of damage can be done in a short period of time.

What are the responsibilities of the landlord?  It's a good idea to have language in your lease about abandonment so you can get legal-access to the property, otherwise you might have to do an eviction to get access to the propety.  However, this little paragraph would work:
Abandonment: It shall be deemed a reasonable belief by the LANDLORD that an abandonment of the premises has occurred where the, rent has been unpaid for 14  consecutive days and the TENANT has been absent from unit for 24 hours.

So if they're late on rent, and gone for 24 hours, the place is mine. Change the locks and revert the utilities to my name and we can get someone new in there to pay the rent.  Otherwise, you may not have legal access to the property if the occupant is still the rightful occupant (even if they're late on rent).   Everyone deserves their due process. 

Monday, July 1, 2019

How to Buy A Home Using Seller Financing.

Once upon a time....

In 2001, I was relatively new to the real estate business.  I'd bought 5 houses and did it the wrong way.  I had put 10%-20% or 3% down on a few different houses that I bought, and all of a sudden I was property rich, and cash poor.   Sound familiar?    Raise your hand if you've ever been in this position.    Cash flow was nice, and the tax benefits were a bonus, but I was dead in my tracks because I thought the only way to buy was to get a new bank loan.   I was so wrong.   And then I learned the truth behind this quote:

“The mind, once stretched by a new idea, never returns to its original dimensions.” Ralph Waldo Emerson

A powerful method of buying real estate was introduced to me and that is through seller financing.  Seller financing is simply buying something where the seller acts like the bank.  And just like any bank or any transaction, there is a give and take - a negotiation if you will.  What I soon realized is there was absolutely no limit to the creativity of structuring an offer.  For example, the purchase price was no longer the sole and only determining factor in the house buying equation.  The terms became the focus, and the price of the home, the overall purchase price was just one of the terms.  If the seller could wait for some or all of their equity, there was no limit to what could be structured for the purchase.

It became obvious to me that the major terms of the transaction where purchase price and payback terms.  The payback terms were the focus because that is really where the money could be made or lost.  One time I structured a purchase were there were no payments due for the entire duration of the payback term.   The term was 2 years, and in that time, I fixed the house marketed it and sold it, paying off the seller once it was sold.   

Over the years, in meeting with different sellers and talking about objectives for both parties, it seems like there are 4 major terms of the transaction that can be negotiated:
1) purchase price 
2) length of payback (and balloon if any)
3) downpayment (if any)
4) monthly or periodic payment (if any).

The reason I love seller financing so much is because of the flexibility in solving the seller's main objectives.   Since there are 4 major moving parts  Oftentimes, sellers want the most they can for the property - the highest price - and I guarantee I can pay the most of anyone anytime anywhere, using seller financing.

This is pure capitalism, with buyer and seller working out the terms of the sale from a blank slate.  You can negotiate every nuisance of the transaction (usually falling under these 4 categories).  And I've found it to be a superior technique than paying all cash for something.    Incidentally, that's just one of the terms as well - ALL CASH is just one of the terms of a transaction; however, it does limit you with the direction you can go on some of the other aspects of the purchase.  For instance  you can't pay the most or highest price if you're paying all cash.  You'll need to get a discount because cash is expensive. 

Let's step into an example, let's take your proverbial $100,000 house that needs 10,000 in fix up.   Traditional all cash buyers would be trying to buy that for $50,000-55,000.   However, with seller financing, I can pay as much as $150,000 for that property and still make a nice profit.  It's all in those 4 terms above.   What if I paid $10 a day for 15,000 days?  Would that work?  That would $150,000 and my bet is that I could rent it for more than $300 a month, so my payment would be covered, and in 41 years I'd own it free and clear.     Does that work?   How about $1M for the $100,000 house?   Sure, I can pay $1 a day for a million days.  Does that work for you?