I called my loan officer's office yesterday and spoke to the lady handling my loan. I specifically asked her if she had any idea how much $$$ I would need to bring to closing and when the closing would take place. She said that closing should take place next Thursday, but she had no figures yet for the amount. She said she hoped to have the paperwork from the title company in the next couple of days. She also mentioned something about once thte title work is complete, I have 7 days to close. The main reason for wanting to know the time and amount is that I will have to break a piggy bank or two to get the money. At first, I was thinking of pulling the money from my 401(k), but it has some stipulations that I don;t agree with too much. For instance, I am required to pay a $50 admin fee and I have to make at least three payments before I can pay a lump sum. My thinking is get the money, close, sell and/or refinance, and repay all my loans for this deal. Having to wait three months and spend three months of interest isn't something I fancy doing. Instead, I ordered some checks from my low-interest credit card, which should arrive early next week. I'll use these checks for cash to get a cashier's check for closing. This way I can repay the loan with, hopefully, no finance charge (if I can sell/refinance quickly). Even if I have to pay a finance charge on it, it's still a low enough rate that I don't have to worry too much.
On another front, I had brief talk with my wife last night regarding the deal. I told her that for short term profitibility, closing and then selling retail would be best. However, for long term realization, closing and holding the property as a rental or L/O would be better. I tried to show her how buying-and-holding is better for long-term profitibility, but she is dead-set on getting rid of this property ASAP. I am going to tweek my spreadsheet for this deal and make a presentation out of it to show her over the weekend. I don't think it will sway her much, but it's worth a shot. She also said she really doesn't want to use my current agent to sell the property. Needless to say, I have already made some verbal agreements with my agent in the past that I need to stick to, and this was one of them. I'm thinking it's going to be an interesting weekend. :-/
Also, not sure if I mentioned this here yet, but I sent an email to a local property management company earlier this week, asking if they provided services to the area where my property is located and if they could work with me as far as doing lease/options. A day later, I received an email from another company saying they got my original email forwarded to them because the company in question didn't service my area. The email was from a real estate agent who says they also handle property management. Hmmmmm, I thought. The email then went on to paint L/O as something I shouldn't do, etc. No where did the person answer my question, although, I kind of summized that they probably wouldn't entertain the idea. Judging by the company's web site, though, they do seem to have a lot of great services for their management package.
I guess this is just all a part of the "learning" phase that a good many REI's have to go through. If it were a hands-off venture and a venture that required no hard decisions, everyone would be doing it. :-)
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11 comments:
Steve,
It seems to me that the Property Management office would not be interested in L/O deals because they would run the risk of managing something that could be purchased at any time while they are "managing" it. If the tenant decides to exercise the option on month 7th. The property manager has to kiss this deal good by since the tenant will become the new owner at this point. I have my reservations against hiring a property manager (read my blog to know part of that story http://anibal-rei.blogspot.com)
If you'd like we can talk about the pros/cons of using a property manager and our experience with it. I feel I owe this to you since I have learned so much by reading your posted comments.
Have a great weekend. Good luck with closing property #6!
BINGO! I never even thought about the fact the T/B can exercise their option earlier. You are absolutely correct, and that is probably why I'll never get anywhere with asking property management companies to help me. Thanks!
I haven't read your blog yet, but I definately will. This is why I like blogging so much - an exchange of worthwhile ideas. True, you can get the same on message boards, but blogging helps focus on issues specifically to your own. This is a learning process for me, and I enjoy ALL the input I get from readers here - whether good or bad.
Thanks again, Anibal, and thanks to everyone who reads and provides input!!!
All I was going to say is that you should talk to your bank about the feasibility of using a credit card check to get certified funds. Those checks can come back fairly easily and so most banks like to wait until they clear to release funds, AND that can take a long time with those things. I think credit card checks dont fall under the same guidelines as regular checks either, which can usually only be hled for a max of 10 days. Either way, call your bank - better yet go into the branch you plan on making the transaction, and talk with the branch manager about it. The last thing you want is to have to be scrambling for cash at the last second.
Good points, Ryan. I was going to wait until Monday, but I'm calling them as soon as I finish this post. Thanks!
Regarding property managers: if your L/O is two separate agreements, a lease and a sales contract, there is no reason the management company needs to know about the sales contract. Just give them the lease. If the tenant buys the place, how is that any different that a tenant moving out and the owner selling the house or changing management companies? Bottom line is the management company needs to earn your business every day. If they handle your L/O well, even for only 3 months before the place is sold, you'll bring other properties to them.
On another note, you may not need a management company. With my L/O, I used the account servicing department of an escrow company. The tenant paid them, they paid my mortgage and sent me what was left. They get to be the bad guy if rent isn't paid. I think they charged $25/month, which my tenant paid. They won't handle repairs or anything like that, but with my L/O, the tenant was responsible for minor repairs anyway. Then, if the sale did happen, the escrow company handled the sale. Something to look into.
Hmmm. This brings up an interesting scenario ,which I need to investigate more, Shaun. Since the two agreements are seperate, I would think there would be a clause in the lease contract that protects both the owner and the renter such that if the renter exercises the option part, the lease part becomes void (a 30 or 60-day notice of sorts). Likewise, if the renter does NOT exercise the option but DOES skip out, the owner is protected just like any normal rental-only agreement.
You may not need a property manager for a L/O. Just make sure to include a clause in your contract with your tenant-owner that says they will cover the first $50 (some have said as much as $200) of any repair. That will cut down tremendously on the number of calls you receive. Why pay a management company 10% for doing nothing but collecting rent? I do recommend, if you haven't done so already, that you set up a PO Box before you start receiving rent checks. You don't want your tenants knowing where you live and what a nice neighborhood you're in....
Now, on the credit card check thing, take it from someone who knows--banks typically like to hold credit card checks (or out-of-state banks, as they're considered) for 7-10 days. They'll usually do this with anything larger than $5K. But, your bank may be different--they may hold an even smaller check. Better to be safe than sorry. I recommend you write the check out to YOURSELF or your biz NOW, however you're set up, and deposit the check to let it age.
Ryan - Thanks for the heads-up. I called my credit union, and they said there is indeed a 5-day hold on those types of checks for amounts over $1,000. I can, however, get a "quick cash" loan from them within 24 hours for up to $20k. The rate is about 2% higher, but then if I refinance, I shouldn't have to pay any finance charge (or, worse, only one month's worth).
Thanks Trisha. The more I hear from you guys and gals, the more I'm leaning towards doing the PM myself. The place was built in 2002, so nothing big should need replacing for another 3-4 years. I can have the T/B pay for the minor stuff, so I'm not called in to replace a light bulb, filter, or smoke alarm battery.
I also like your idea about a PO box, however, if I plan to form an LLC (which I am), the great state of Texas requires the address to NOT be a PO box. More thinking.
Well, actually, Oklahoma is the same way regarding the PO Box address. So, I listed my home address for the LLC when I registered it, but I give tenants the PO Box address to send in their rent. And, they make the checks out to the LLC. I have a seperate account for the LLC, as well--that's a must if you want to do as much as possible to avoid an audit. Otherwise, the IRS can make an easy connection between your company's profits and yourself come audit time--it's called aliasing.
Well, I may be fretting over nothing. I got the settlement costs from my loan officer - the OFFICIAL costs - and, if I don't pay my agent with cash, I will have enough funds (barely). I still ahve to run hard numbers, but I think I can get by without anymore loans. Now, I just have to talk with my agent about paying her. If she can take a credit card - (now that sounds funny) - I'll be okay. :-|
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