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REAL ESTATE Any thoughts on how to get around this?

yveskleinsky

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So I am interested in these cabins. I would like to do DD for 12 months and during this time get the numbers up so I can qualify for a loan on them as well as make sure I am not getting a dud. Problem is, the RE commission says I have to have my Broker's license to manage them-as I wanted to manage them until I own them. They said I can manage them if I had a partial ownership- so I was thinking that maybe my earnest money could go as partial ownership- or the sellers and I could draft something up to show that I am a partial owner with rights that expire (if we didn't exercise the option to purchase). I don't know...just brainstorming here. Any thoughts?

Also, it seems like what do they care if there are two willing parties involved?! How would they even have jurisdiction over me if I 'm not a Realtor?
 

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nomadjanet

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In Texas you can property manage for one company if you are an employee of that company. You cannot property manage for multiple owners unless you are a broker. So if you have an employment contract with this person you would be exempt from the requirement that you be a broker. It is common practise here for smaller apartment complexes to hire a live in manager that gets free rent in exchange for some property managment type duties and none of these people are brokers.
Janet
 

Bilgefisher

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I guess these leaves me a bit confused. You can only property manage if you are a broker even if you are part owner?
 

JesseO

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Nomadjanet, correct me if I am wrong, but you are allowed to manage a single property in Texas even if you have no official (written down) ownership, correct?
 

nomadjanet

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Yes if you are considered an employee of the owner and do not manage for any other owners.
 

andviv

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Yves, I assume your property management company does not have a license as RE agent and you can do it because you own the properties you are currently managing, correct?

What if your property management company hires a Realtor as a 1099 that 'oversees' the property management activities that are actually performed by you, another employee of the same PM company? Would that work? That way you pay that realtor a fixed monthly fee while you work on getting your license (you will need it if you want to continue expanding your PM company).

I would try to stay away from being partial owner at this point. Remember Steve's advice of having two contracts in place... I will go to the other thread to answer that one over there.
 
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yveskleinsky

yveskleinsky

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:rolleyes:I own 2 of the properties I manage, and we manage 1 for another lady.

I would need to get my Qualifying Broker's license in order to have a property mgmt company that manages property for other people, however, I could work for a QB and manage properties that way. ...I just think the whole thing is stupid and it pisses me off. I don't see how an organization that I am not a part of can hold me accountable for their rules and regulation when I am not a member! It's not like I am misrepresenting myself to owners. Grrr. ...My employer doesn't want me to have my RE license QB or otherwise out here as they consider it a conflict of interest- they pay me to sell their homes only. ...How do they get around the RE commission? They are acting as the owner, but have the sale of their home contracted out to me. In my situation the seller is contracting me to get their home rented. Similiar principal right? ....It chaps me because I am more qualified than most brokers and just because I don't have a stinkin license out here doesn't mean that I am unqualified and somehow swindling people into letting me run their property.. ...If it did that would be another story. The whole thing is such a racket. I'm sure that the waitress at the IHOP who got her RE license so she could sell part-time is more qualified than me. :mad: It seriously makes me want to file a court case against them for forming a monopoly. I just don't see how when you have 2 willing parties, who agree on terms and conditions and enter into an agreement together how that isn't legal! It's like (maybe it isn't, but bear with me) if I wanted to play hockey and I rented an ice rink and formed a team and then lined up games and then the NFL fines me for not following tournament rules. :mad::mad::mad:
:rant:
I am trying to think outside of the box on this and use this challenge as an opportunity. ...I wonder if I funneled the cabins through my agents broker and split the fee with them if I could then manage the properties through them!? :rolleyes: hmmm. I don't know how that would work as far as the website goes. ...I suppose I could get my QB license and bring my boss an apple pie (seems to work well!) and see if I promise to only use my powers for cabin rentals and not for evil if he would be ok with the whole thing. ...Getting my QB license would take about 6 months as I have to have my Associates license for 2 years and then take the QB test. I had a RE license in CA and let it lapse due to my new job.
 
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yveskleinsky

yveskleinsky

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Yes if you are considered an employee of the owner and do not manage for any other owners.
What is the definition of "considered" in this context?

...I have decided to reinstate my CA license- which isn't a conflict of interest with my current job, that way I can rack up time, (need 2 years to get my Broker's license) and then I will get my NM Broker's license and open my own property mgmt company.

...My offer on the 7 cabins was rejected. They didn't understand what I was trying to do. So now I need to go back and spell things out more clearly. They just want to sell them- and I just want to buy them- but I don't want to stress about floating the place since there are no renters lined up!
 

nomadjanet

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do the current owners own out right?
can they carry the note?
If so would they do an interest only note for the first year with 10% down.
Interest only note would be about 1300-1400 month for the first year. this would give you time to get the rents in order.

would that work for you or for them?

if they don't own outright is there any leverage that they could carry back that would help you carry the burdent till you get the cabins paying their own way?

Janet


Asking price: $335k for 7 cabins (2 duplexes, 1 triplex)
 
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yveskleinsky

yveskleinsky

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Janet-

No, the owners have only owned the property for 2 years. They bought it for (if I remember correctly) around $265k. ...The other cabin complex that I am looking at the guy owns free and clear- so there is room there to get a little creative.

I am having trouble coming up with what would be a good price on a place with no numbers. I have some projections, but I'm not sure if they are even close to being on the mark.

I have numbers figured ranging from 45-80% vacancy. We would CF great at a 65% or less vacancy rate. ...These numbers are also based on 10% down, over 20 years at 8.5%.

Should I be trying to crunch numbers based on a certain percentage down?...Such as 25%?
 

nomadjanet

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How level is the property tax appraisal in your area? I know that here it's usualy about 78% of the FMV unless the property is newly built. Are you going to put cash for the down or try to do something with a second? If they have 265 in debt and want 335 perhaps they could take the down in a second. If you did not have upfront cash out it might help you get the rents going & keep your money to carry it until it starts cashing for your. On the other hand if you have another property that is more attractive why don't you go for it instead? what is it about this property that makes it more special? Just wondering, if the rent potential is better or the sell price is a better value just what is it? Sometimes I have an unreasonable attraction to a property and I have to catch myself, my DH is real good at pointing out this situation. :)
Janet
 

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yveskleinsky

yveskleinsky

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How level is the property tax appraisal in your area? I know that here it's usualy about 78% of the FMV unless the property is newly built. Are you going to put cash for the down or try to do something with a second? If they have 265 in debt and want 335 perhaps they could take the down in a second. If you did not have upfront cash out it might help you get the rents going & keep your money to carry it until it starts cashing for your. On the other hand if you have another property that is more attractive why don't you go for it instead? what is it about this property that makes it more special? Just wondering, if the rent potential is better or the sell price is a better value just what is it? Sometimes I have an unreasonable attraction to a property and I have to catch myself, my DH is real good at pointing out this situation. :)
Janet
Our property taxes are based on 1/3rd of the assesssed value x $17.16. So, for one of cabins, the assessed value is $150k, taxed value is $50k, and taes are $858/year. Both multi-family properties that we are looking at would come in around $2000/year in taxes.

I can put cash down if need be, but I would rather come in with as little out of pocket as possible.

As for the down payment- I am trying to get the owner to carry all or part of it. ...When they rejected our offer, they said that they didn't understand it. I'm thinking about rewriting in and insisting that our agent present it. There is nothing worse than when Realtors who know nothing are in the mix. :mad:

As for the "other property that is more attractive" I don't know about that. See, the property that we wrote the offer on is vacant and has no numbers, but is in a more visable area and would need a lot less in fixing up. 5 out of the 7 are just what people are looking for. (The other 2 are just like hotel rooms.) The other property with numbers, would be less of an initial risk...we wouldn't be jumping into dark water- but I'm unsure of the long-term potential.

How do I determine the value of the vacant property? Do I just go based on a blend of worst-case and average case scenerio to determine a number and go with that?
 

andviv

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I too found your offer kind of complicated, in excess.

SteveO suggested two contracts, and I agree.

For the empty one, what is the owners' problem you are trying to solve?
What is yours?

If I understand the situation correctly, the owners do not have any income, have monthly payments to cover, and don't know how to make this property cash flow.
Your problem is the added risk of buying a property with no cash flow and no clue if/how much it would provide.

The solution could be the middle point you already know.

But follow the expert's advice. Have two contracts.


Another idea... do NOT buy this property. Not yet. Make a simple offer to the seller, for a really low price, and let them come back to talk to you if they want. Distance yourself from the deal. They rejected your first offer because they found it too complicated. What language did they use? Were they inquisitive about your offer and wanted to have more details? or just rejected it? This would be an indicator of motivation. How motivated are they? Don't be the 'motivated buyer', you will be in a weaker negotiation position. Do not show them your hand right away... you did the right thing by making an offer that worked for you, but it did not work for them. Time to walk away from the deal, IMHO.

PS: Aren't we discussing this in the wrong thread????
 
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yveskleinsky

yveskleinsky

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lol. I think we are discussing this in the wrong thread. Just to tie up loose ends here, I'll respond to your questions Andviv.
1. I agree that the offer was too complicated. Two contracts would be the best way to go.

2. I am okay with walking away.

3. I like the idea of giving them a low offer with nothing attached and seeing what happens. ...You are right though- they are sitting on a vacant property with no prospects of income.

4. You are also right that by buying a property with no income my personal risk goes up.

5.The letter that they responded with said that they didn't respond with a counter offer because they didn't understand what we were asking- that our offer seemed more like an offer to manage and not buy.
 

andviv

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I received this in my email... it is a newsletter from the National Council of Exchangors (NCE). In each edition they provide the "real estate formula of the week". I want to post the one I just got as I think it relates to the situation that yveskleinsky was facing with this property. Here it is:

REAL ESTATE FORMULA OF THE WEEK
"Tired Landlord/Sandwich Lease"

Situation - Our exchangor, Able, is a new investor who does not have a
large amount of investment capital. However, Able is very energetic and
willing to take on property management headaches in exchange for future
economic benefits. Baker is the owner of Blackacre Gardens a 26 unit
apartment building. Baker is growing weary of the management demands of
Blackacre Gardens which has been owned by Baker for many years. Blackacre
Gardens is starting to show the signs of Baker's fatigue. It is currently
rented below market and Baker is starting to think about getting rid of
Blackacre Gardens.

Solution - Able offers to lease all of Blackacre Gardens from Baker on a
net basis. The lease amount will be something less than Baker would expect
to receive if Baker continued to manage Blackacre Gardens himself. As part
of the agreement Able agrees to improve the condition of Blackacre Gardens.
On the other hand, Baker must agree to a long term on the lease at a fixed
price. Additionally, Able will get an option to purchase Blackacre,
provided Able has performed on the lease agreement.

Discussion - Able will put in some cash and lots of "sweat" to optimize the
rents at Blackacre Gardens. Able will make a profit above his lease costs.
This is called a "sandwich lease" because of the layer of profit for Able.

Benefits for Able - Able can leverage his limited cash into both a
profitable cash flow and an opportunity for appreciation/equity.

Benefits to Baker - Baker retains the tax benefits of ownership, gets out
of management fatigue, and gets Blackacre Gardens spruced up.
PS: If I am not mistaken, something very similar to this was done by SteveO in one of the properties he dealt with in the past.
 
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yveskleinsky

yveskleinsky

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Thanks for digging that up Andviv! ...I have a couple of questions for clarification.

1. Is Able an employee of Baker?

2. Would anyone need to be notified if a sandwich lease is created? (banks, etc.)

...I am currently in a holding pattern on this property. I just reinstated my RE license from another state in order to ride the clock (need 2 years of RE time in order to qualify for a broker's license- need a broker's license to open up shop). I am about 5 months away from getting this done- just gotta be patient. Who knows, maybe something else will pan out in the next 5 months.
 

andviv

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1. No.

2. I don't know. I assume not, but I have no idea.
 

triple J

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Yves,

I seem to be running into the same problem as you. I recently had 5 different property owners approach me to manage their properties or at the very least rent them as needed. It seems NY requires a brokerage license as well to own a management company- it's only takes a year here though. However, there is an exception that if you have relavent experience, you can get a brokerage license w/out being an agent first (I'm not an agent but I do have experience). Is that something you can look into in NM? Also, I spoke w/a RE teacher that said as long as you aren't charging a commision, you can manage legally. Not sure what that means but I'm looking into this more.
 
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yveskleinsky

yveskleinsky

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Interesting idea. I wonder if my experience can help me bypass regular rules. ...I also wonder what alternative compensation could be paid if it isn't commission. Flat fee? Hmmm.
 
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yveskleinsky

yveskleinsky

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So the owners of the 7 cabins came up (out of the clear blue) with a "counteroffer" (the contract was cancelled about a month ago as they didn't understand it and I figured that since I can't legally manage them under thier ownership- there was no need to continue talking until about April, when I could and would be willing to buy them). Their counteroffer is for $335k (full price- which I agreed to originally) but with me coming up with $50k down and the interest to be 10% amort. over 15, with a ballon in 10. These terms would not work for me- but they are close.

I was thinking:
$335k, $50k down, 5% interest, amort. over 30, balloon in 10, with no payments for 6 months...and still closing in April. Does this sounds reasonable, or should I add a % of net rents to the offer?
 

SteveO

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5% simple interest. Take the ammortization out for simplicity.
 

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yveskleinsky

yveskleinsky

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When you say simple interest, how is this calculated differently from compounding interest? ...When a loan amount is amort. is it compounding? Thanks, kinda basic question I know. :blush:

Does the rest of the offer sound "cleaner" and more straightforward than my last offer? If no, is there any ways for me to make it cleaner?

:thankyousign:
 

SteveO

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Okay... I said it wrong. Interest only is what I meant to say. You pay the interest only and then the entire balance at the end of the term.
 

andviv

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wait a minute... yes, it is simpler than the original offer.... however.... how is this better for you? you still have the risk that you were trying to transfer/mitigate by managing it during the first year to make sure it would generate what you were expecting. Is it me or you are going for it because the owners came knocking at your door? Is the 'new' purchase price going to make the numbers work or you are still taking all the risk at once? (yeah, I know, here I am making things difficult :D)
 
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yveskleinsky

yveskleinsky

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wait a minute... yes, it is simpler than the original offer.... however.... how is this better for you? you still have the risk that you were trying to transfer/mitigate by managing it during the first year to make sure it would generate what you were expecting. Is it me or you are going for it because the owners came knocking at your door? Is the 'new' purchase price going to make the numbers work or you are still taking all the risk at once? (yeah, I know, here I am making things difficult :D)
Good questions! Well- if I can't manage these properties ahead of time to get them up to par, I figure the next best thing is closing in April (start of the busy season) with a low interest rate and no payments for 6 months. That's about as safe as I figure I can get. I know, (based on our other cabins' performance) that we can get these up and running. ...I am basing my CF projections on a 70% vacancy rate, (which would give me a ROI of 4.05%...which accounts for a 10% property mgmt fee- which goes back to us) - which is really low (we've been averaging about 50% or higher during the 7 month busy season- and we are eagerly awaiting Jan-April to see what it brings).
 

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