All Forum Posts by: Aaron Hale

@Jason Goretzki, Yes, we created a quick LLC online but the property hasn't been transferred into it. We are closed but still awaiting final documentation. I'd appreciate your Ohio attorney's info to get this and other real estate legalities. Thank you.

Learning the hard way...

I decided a while ago to get into real estate as an investment vehicle to better provide for my growing family. For over a year I’ve been studying and searching the listings.

Being blind and nearly deaf make house hunting among other things a bit of a challenge. The strategy I read about that made the most sense for us was the Buy, Rehab, Rent, Refi, and repeat (BRRRR) method. Essentially, If you can find and rehab a place for 70% of the ARV, you can refinance it and redeploy your seed money over and over again. However, my wife and I would need some help.

The choice was to look in the Akron, OH area where my mother and her boyfriend, a general contractor, life. It’s my hometown and I know it well. Plus, I have family to help with the renovation and management.

The hunt was on! Still, competition was fierce. The only properties that seemed to be on the MLS seemed to be Class C/D small multifamily places in rougher neighborhoods that I'd rather not send my mom into or 150 year old colonials in Class A neighborhoods that needed a ton of work and were still over priced. After weeks of searching and finding nothing, I was getting pretty discouraged. Until I found this one house up for auction. I noticed it before in an earlier auction. Its ARV was estimated to be around $165,000 but the bidding had ended having not reached the reserve price. So, it was up again.

The market rents in the area were between $1250-1450. I figured that if I could keep the total project price under $115,00 (70% ARV), I was golden. I put in a bid for $64,800 and won! This meant that I had a $50k margin to work with. No problem.

Yeh, right! My first thought was, “Sweet, we won!” Then it was, “Whoa, we won. Now what?”

my mom drove over to the property to do some snooping as I began the contract execution process. The place was vacant and unlocked, and she let herself right in.

“Oh, Honey...” Never a good start. “This place is going to need a lot of work!”

“How much?!?”

“About $81,000. Everything needs to be replaced; the windows, HVAC, water tank, roof...”

All of the sudden my new adventure turned into something else. In the meantime, I was looking to hard money lenders which were the only way I could find thus far to help with the purchase and renovation on an all cash purchase. The title company was moving quickly and I'd signed the purchase agreement with me as the buyer, not a LLC. I'd heard that banks don't like to lend to LLCs without a history of revenue. The plan was to transfer the title over after refinancing. There's a risk of triggering the banks Due-On-Sale clause by doing this, but I've also read that this is very rare if the loan is till being paid on time.

What I didn’t realize is that HMLs most often only want to lend to LLCs! Catch 22? This isn’t true in all cases but it was too late. The seller and the title company were waiting on me to wire the money to the escrow account and I sidn’t want to lose our earnest money or this house because of delays.

So, here we are. We closed Thursday. HMLs don’t do just home improvement loans. They want to be in on the purchase. Most banks don’t want to touch a non owner occupied property belonging to an out-of-state owner. We have about $30,000 in reserve cash earmarked for this project and could pull from less liquid investments, but I’m still looking for alternative ways to leverage even a little portion of this project to get us across the refi finish line.

I tell you what... I’m learning all those things they leave out of the real estate books very quickly! If anyone has any suggestions, I’m all ear. ...That was a little joke. The other ear doesn’t work. Get it? Oh, never mind. Thanks for any advice you can offer.

Hey, Johnathan. That’s often a difficult questions to answer. Neighborhoods can and often do differ from street to street. You’re best bet is to look in areas you already know and are familiar with.

Another good idea would be going to a local meet up to network and find out where others are investing. 

Paul, @Jeffery Waicak and @Stephen Tice are right on point. Learn from your fellow investors and do a.a little networking by hitting a local meet-up.  If your goal is to become a landlord, Brandon Turner’s book on managing rental properties is a good first read:

https://www.biggerpockets.com/store/managing-properties-physical

A cash-out refi is a great option and will put money in your pocket for paying off your sister, repairs, and/or a down payment on another property. Home Equity Loans (HEL) and Home Equitey Lines of Credit (HELOC) are just other ways to use the equity you have in hour house to do the same. I would recommend, however, that before you rent your house out, you ensure that it is safe and up to date. It is much easier to do repairs to a property while the house is vacant and you won't have to worry about more maintenance for awhile to come.

Hey, @Paul Farley. Congratulations on taking the plunge into real estate investment. What do you want to do? You have many options, but the real question is which direction you want to go? First, what kind of property do you already own? And how much work do you think you’ll need to put into it?

You could get a HEL or HeLOC and use it toward the down payment on a rental. You could sell and purchase a multifamily. Then, house hack.  

However, you've got to ask yourself why you're creating the LLC in the first place. Protection from litigation? Taxes? If you only plan on buying one or two SFRs, an LLC may not be necessary. Search the forums and definitely the blogs for properly forming LLCs and how the veil of protection can be pierced if not done correctly. Then, when you're sure an LLC is for you, consult a real estate lawyer about the best course of action.

If you do it, do it right. The little extra time, effort, and money spent could pay off in the end.

As far as lenders, I’ve got contacts at Fifth Third and Union Home Mortgage, and have also heard good things about Hometown Bank in Kent, though I haven’t worked with them.  DM me if you’d like their emails/numbers. Good luck! 

As this thread gets even older, some points above are no less informative or interesting. I’m originally from Bath and have family in the Highland Park/Fairlawn area. I have considered university housing and am about to close on my first investment property in Green. If anyone has a lead on a good contractor, by the way, I’d be grateful.

I’m mostly intrigued by the joint venture on a block renovation and if there were some area in or around Akron where that might work. Any thoughts? Akron is my hometown and I’d love to breathe a little life into a small corner of it that needs it. 

Hi, @Johnathan Varvara. I few up in the area and now invest there. I’d be glad to help out where I can. 

@Brian Metze. If all goes as planned, the HML should handle the renovation funds. However, that's a good tip on Key Bank. One I'll keep in my pocket for future projects. thanks!