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Hello, my friends. Welcome to another episode of Ask Marco, where I do my best to answer your questions about real estate investing and finance. We have some good questions today. And before I jump into those questions, I just want to read a couple of sentences from an email I received from a person named Clint, who is actively speaking with one of our investment counselors here, but he also is an upcoming client. And I feel that that’s going to happen pretty soon, but there’s a reason why I wanted to read this to you real quick. He said, Marco, I’m a huge fan of your podcast. I have Nate waiting on me to pull the trigger. I have vowed my first property to be through your company solely because of the information you have provided. I may never be able to work directly with you personally, but I look forward to working with Norada.

Well, I just want people to know that when you’re working with anyone on my team, you’re working with a whole team and we work together. We collaborate we’re on the same page. We buy the same properties that you see when we send them to you. Now keep in mind. I’ve said this many times, we don’t put all the properties on the website it’s practically and physically impossible. Probably what you see on there represents 10% of what’s available or in the pipeline. It’s just impossible. But when you see properties that are sent to you and you have conversations with our investment counselors, understand that you’re working with a team and I’m part of that team. So you may not be speaking to me directly, but that’s okay. I mean, I’m there in the background and if you know, it need be, we need to jump on a quick call.

I can do that from time to time. Although, you know, I’m stretched and traveling a lot. I have a bunch of projects on my plate and I’m out there looking for more inventory for you guys to invest in and, you know, build your portfolio, build your wealth. But, you know, I appreciate Clint writing in and sharing his thoughts and feelings about it. And I just wanted everybody to know that, you know, we work together. We’re a team here. And so the best thing to do is just look at Norada Real Estate Investments. And you know, my team here as the hub of a wheel and everything that you need is one of those spokes from the properties to the property management, to the financing, to the asset protection attorneys, to the tax strategists and advisors, if, and when you need them all that and more is part of that entire wheel.

So look at us as the hub of that wheel, where your quote-unquote one-stop-shop and, you know, we just are there to help bring the people to the table that you need to work with to be successful. And then, you know, what you do from there is up to you. You make the final decisions, but we can just certainly share our resources and refer you to people that we know like, and trust.

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All right, with that said, let’s move on to the first question, which comes from Steve. I’m going to read this out. It’s not that long, but there’s a lot in here as Steve writes and he says, hi, Marco. I know that historically it is not financially adventitious to renew a tenant’s lease to get a potential rent increase or to have attendance lease, not be renewed when they are causing a relative amount of inconveniences for you, such as large amounts of small maintenance requests.

For example, I’ve always heard that in the long run, it is more adventitious to keep them versus the cost of making a unit rent ready. And the time it takes to find a new tenant. That being said, I have a semi long term tenant since December of 2018, who pays $1,100 a month. On top of that, she is consistently or constantly making numerous maintenance requests that have added up significantly since she occupied the home. Her lease is over in November of this year. And the property management company thinks that due to the significant increase in rent in her area, they can now get $1,500 a month for that single family home they have yet to let me down. When they say that they think they can get a certain amount of rent for a home, with the potential significant amount in increased rent and the high demand for single-family home rentals in the area, which happens to be Memphis, it would seem like an educated move to not renew her lease and find a new tenant.

However, that goes against the most advice I’ve heard before. I was curious about your thoughts and if you’ve ever had any repercussions from a tenant electing not to renew their lease. Okay, well, this is a good question. And I would say with, or without the large amount of small maintenance requests that are there on the surface, I would just say, let the term expire, let the property manager freshen up the unit. In other words, turn it over, put it on the market as soon as possible, whatever the right timeframe is before the tenant moves out and have them lease it at 1500 a month or more, if they can. The thing is, is you’re talking about a jump from 1100 a month to 1500 a month, which is pretty significant. In fact, that it works out to be what almost a 26% increase in rent.

I mean, that’s significant. So that will add to your top line and add to your bottom line. And I think from a financial perspective, the decision is pretty obvious. It’s just let the lease expire. Maybe they’ll move out sooner and then lease it up. And if you want, you could even potentially ask them if they wanted to leave earlier, your property manager would do this for you, of course, but you can make them the offer. Just say, look, I’ll give you a $500 bonus for leaving earlier. The condition there is that you leave the property, it broom swept clean. So you’re basically putting a financial incentive there for them to move out earlier, which gives you more months at $1,500 a month. So it’s actually to your advantage to have them move out earlier. And also you give them a little bit of a financial incentive to leave in a very peaceful manner where they just leave the place in good condition without a bunch of trash left behind.

So that lowers your turnover costs. So what you’re trying to do is minimize the turnover cost to get them out earlier, rather than later. And in the process of doing that, you’re buying yourself some more time in the sense of more months at $1,500 a month, that’s probably what I would do and keep in mind that that would be probably with, or without these, you know, supposedly large amount of small maintenance requests. Now, the thing with maintenance requests, you need to lean on your property manager for some advice on this, but I kind of categorize requests, including things that I find on inspections. When I do a home inspection as must be done, should be done, could be done. You have to ask yourself every time there’s a request or something, you know, needs to be repaired in the purchase of a property or home or whatever, whether those items are important and serious.

So those are must be done. Items, things that should be done are things that obviously have common sense in it and they should be done. And then there’s the things that could be done. They don’t need to be done. They’re not critical. They’re more of a personal preference or request or do it as a favor or, um, it would be nice to have that color paint on the wall, whatever it might be done, those are could be done things. So you have to use some common sense and just ask yourself the question, how critical or important is it? Is it urgent? Is it important? And I like to break those down as must be done, should be done, could be done. But if you put that aside, I think financially speaking, it probably makes sense to turn the property over sooner than later, bumped around up to 1500 or more, if you can, and just take the rental increase.

And I’m not opposed to the idea of offering 300 bucks, 500 bucks, whatever it is to ask them to leave a month earlier. And it would be upon them to make that request, give you a 30 day notice to leave earlier. And of course you would just say, of course, anyway, I hope that helps Steve. And if you have a follow-up question, just email me.

All right, next question. Okay. The next question came in from William and he writes in, in bulleted form. So there’s actually no sentences here. They’re just bullet points, but I think I get the gist of the question. So he has a California property with an estimated value of $850,000, a loan amount of 623,000. It is a VA loan at a very low 2.375% interest. So this is a very cheap, cheap interest rate, his mortgage payment. I don’t know if this is principal interest tax insurance, or just your PCI payment, but it’s 32 75.

And I’ll go over these numbers here in a second, just reading out what he has here. The rent is 4,300 a month. So this is telling me that he doesn’t live there. I’m making that assumption. So he’s leased it out 4,300 a month. His mortgage payments about 3,300 a month. And I’m guessing that by the time you factor in property taxes and insurance, you’re probably at breakeven or slightly below. So I’m going to assume you have a negative cashflow on this, and I’m not even factoring in potential HOA fees, which in California can be pretty expensive. So when you look at principal interest tax insurance, the possibility of homeowner’s association dues or fees, and who knows what else there might be. They’re not even talking about maintenance and repairs or at least budgeting for maintenance and repairs. I’m probably guessing that you have a negative cashflow here, but let’s put that aside because here are your three questions you’re essentially asking for the pros and cons of the following three items.

One is to refinance to a conventional loan to free up your VA loan. Well, assuming that you live elsewhere, and this is a rental that has a VA loan on it, then it might be to your benefit to refinance this as a conventional, to free up the VA loan. If you need the VA loan because of the low down payment to purchase another principal residence. In other words, a home that you’re going to live in that would be the motivating factor is the low down number one and the low interest rate. Number two, however, if you’re fine where you are and you don’t need to move, or it’s not something that is important to you, then the refinance to a conventional doesn’t really do anything for you because you might end up with a higher interest rate and also closing costs and fees along with it.

So that might actually be a step backwards if you will. Now, your second bullet point here is a cash out refi to invest again. So now that is a good question, because if you have the ability to do a cash out refinance, to pull out some cash and use that as investment capital for down payments to purchase additional property, then that’s a smart move. You’re essentially borrowing against dormant or dead equity to put, to work in more property. And I talk about that quite often on this show. And so I, I’m a fan of doing that if, and when you can, when it makes sense. However, the problem here is, is that your loan amount is approximately 75% plus or minus of the estimated loan value. And with most refinances they’re floating around 75% loan to value. So somewhere between the range of 70 to 80% LTV, you’re not going to be able to take out much if any, at all.

So doing a refi, a cash out refi to reinvest is probably not even an option, let alone a consideration. So I guess you have to scratch that line item out. Your third one probably makes more sense, but I’m going to give you a fourth so you could sell it for cash. And you’re saying you wouldn’t pay capital gains on it because of the two five rule, which essentially means that you have, or are living in that property and have lived in the property for two out of the last five years. And I believe those two years have to be back to back. I’m not sure about that, but I believe so. So if that’s the case, then you can sell it as if it was your principle residence and you would have capital gains exemptions. So you wouldn’t be paying capital gains taxes on that, which is great.

And you would be able to pull out between 150 to maybe $170,000 of profit, which is equity from that property to reinvest. So here’s my fourth option. It really segues from that. If you’re thinking about doing that, selling it, then take it one step further and do it properly with a 1031 exchange. Now, of course, if you can sell this without incurring capital gains, then this might be one in the same and a wash, but just double check, because if you can’t do that, in other words, sell it, take the profit without capital gains taxes. Then you can get around that by doing a 10 31 tax deferred exchange. You just work with a 1031 accommodator, we’ll put you in touch with one of them. If you don’t have one to work with already, there’s many of them around the country, and then you can do that sale, take that equity.

In other words, the profit that you take out and use that to reinvest in other properties and with 150 to $170,000 to work with, you should be able to acquire anywhere from on the low, low end, let’s say to rental properties, income producing rental properties to as many as six or more. It just depends on the price points you’re looking at. And then they range from 80, 90,000 on the low end to 150 to 200,000 on the high end for single family homes, duplexes and fourplexes. You just multiply those numbers by a factor of two, three and four. So that might be your best option again, I’m, I’m assuming you’re not living in here. You’re renting it for 4,300. If that’s the case, then again, this is California and I don’t know where in California have this property, but odds are that you’re probably not cashflow positive.

And if that’s the case, even with a VA loan at 2.3%, you might be able to do better elsewhere. In fact, I would put money on it that you could do better elsewhere by repurposing that equity into two or more properties that generate passive income and you retain the equity. So anyway, I hope that helps William.

And we’re going to move on to our next question. Okay. So this question is from Felicia and she says, thank you, Marco, for such a wonderful and informative show. I appreciate the knowledge you inspire me with Felicia. You’re very welcome. I hope I inspire a lot of people. She says, I am looking at house hacking a multifamily home, using a VA loan from my understanding, I will not be able to transfer the deed of the property to an LLC using that loan system. How do I protect my property from lawsuits and such without an LLC?

Okay. This might be the core question here in your email. So I will come back to that here in a few seconds, but I just want to read the rest of this. I hope to acquire eight to 10 buy and hold units within the next five years. At some point, should I transfer my VA loan to a conventional loan or just buy my next properties as conventional loans and leave my first as a VA loan. Okay. The way you worded, this is a little confusing. I’m going to clear that up here in a few seconds. You go on to say, if I refinance that loan, okay, I’m going to stop right there just to keep this thing clear. So you’re looking to house hack, which essentially buy a property live in it and fix it up while you’re living there using a VA loan.

Okay. As long as the home appraises and it meets the condition of the property as the condition for the loan, then you’ll be able to get a VA loan or any kind of loan, conventional loan or whatever. It just can’t be uninhabitable or in such poor condition that it will not appraise or meet the requirements of any loan requirement. So your first question here is can you transfer the deed of the property to an LLC using that loan system? Okay, let me clear this up. I think this is probably clear to many people, but it’s worth repeating. The loan and how title is held are two different things. When you close and fund a loan, you take title either in your name or in some cases with commercial loans, the title goes and can go. And sometimes you don’t have a choice, but we’ll go into a entity like an LLC, which is very common, but more often than not, you are the borrower and you are signing the loan docs as the borrower and the purchaser and taking title in your name.

What happens after that is something that you handle between you and your attorney if one is involved. But essentially if you’re talking about the title, you’re not talking about the loan. And so where you hold title is a strategic and asset protection decision. What a lot of investors do and including myself from an asset protection perspective is you’ll get the loan. Whether VA or conventional it’ll stay in your name as the borrower. You cannot transfer that to anybody, but you can transfer the deed to your LLC or a trust or a combination thereof. And so if you have an LLC or you set up an LLC to be the title, holding entity for that property, what you’ll do is you’ll typically set that up. Sometimes it’s set up in your name as the managing member or the sole member. And that’s known as a disregarded entity for tax purposes, but essentially what you have is a single member, LLC.

And then you transfer the title of the property into that LLC. And you do not touch the loan at all. You don’t change anything. You don’t need approvals. You don’t need to mention anything to anybody. You have the right to do this. And as long as you’re making the monthly mortgage payments and you’re on time, you’re not late on any payments. There is rarely if ever an issue with it. In fact, I know asset protection attorneys that have been doing this for over 20 years and they find it extremely rare that anything ever comes up from the lender unless you’re in default. And then of course, then that becomes an issue because they start looking into things and they’re starting to realize that, okay, you have the loan, you had title, you transferred it to your entity, which is usually not an issue. They just want to be paid.

But the short answer here is that you can still protect yourself from lawsuits and whatnot. In other words, build your asset protection plan, using entities like LLCs to hold title to your properties with those loans still in your name. And that’s very common. That’s typically how it’s done. And if you talk to an asset protection attorney, we can refer you to some, that’s probably what they’re going to tell you. In fact, I would put money on it. That that’s exactly what they’re going to tell you, probably in maybe different words, but that’s essentially the same thing. I think it’s great that you’re looking to acquire eight to 10 buy and hold units within the next five years. That’s a fantastic goal. You’ve got numbers attached to it specific it’s you’ve got a timeframe on it. That’s fantastic. I wish more people did that. And then, uh, you know, you go on to say, at some point you want to transfer your VA loan.

Again, you’re not transferring your VA loan. Now VA loans transferrable. You can, as long as you have approval to do so transfer the loan, but you’re not transferring the financing from you to your entity because that’s really just more of the same. Technically you can have two VA loans. So if you can qualify for them, you can have two VA loans. The VA allows you to have up to two in certain cases for two, what they call primary residences. I, that’s kind of a crazy thing to have two primary residences. I would assume one is a secondary home, but they do allow you to have up to two different primary residences. And those are their words, not mine. Now, aside from that, you can get conventional loans. You can get up to 10 per credit score or a spouse if you’re married. So theoretically up to 20 per household.

So you can do that with conventional loans. And then when you run out of conventional loans, you can talk to us here at Norada Real Estate Funding, where you can get now non-qualified mortgage or non QM loans to theoretically an unlimited number of loans. So after you’ve tapped out your two VA loans and you’ve tapped out 10 conventional loans. Now you can get as many as you like in terms of non QM loans to finance your additional properties from that point forward. And that’s from one to four unit properties as well. So it’s not just single families, but you can do duplexes, triplexes and fourplexes just contact our office here. This is a division we’ve been building out since last year and we are funding loans. And if it’s something that you want to use, you know, by all means, get in touch with my team.

So I hope that helps you. I know some of the information out there is not completely clear when it comes to VA financing and what you can do, but it’s a common mistake for people to confuse the rules of financing and what you need to do or should do from an asset protection perspective. Don’t get them confused. Cause you’re transferring title. You’re not transferring the loan and this is just a common mistake. All right, Felicia, thank you for the question.

Thank you everybody for listening today. If you have any questions about real estate investing or finance, I hope to be able to answer them, but just send them in, go to passiverealestateinvesting.com, click on the Ask Marco link, submit that. Remember to subscribe to the show if you haven’t done so already, we drop a show once a week, sometimes twice. And of course we appreciate you listening. So thank you for listening and I will see you on our next episode.


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