All Forum Posts by: Adam L.

So I'm looking to take a job that comes with a pretty kush relocation package. I'm torn on the idea of selling my house or holding it for a rental and appreciation in equity. Curious what this forum thinks.

Details below.

The House

- I live in Austin, TX. A hot market. Home purchased 2016 for $545k w/ 20% down. Mortgage=$3k/mo, $386k remaining @ 3.25% (includes property taxes and property insurance.), also no HOA.
- the home is in the NW austin area....Cedar park/Balcones/RoundRock/Leander area... Big plans for upcoming developments (Domain North) and employers (Apple Campus).
- The home is a 4br/2ba with a great yard, 1/3 acre, in an all 10/10 school district (BVS) (elem, mid, high), backing up to a golf course, so it feels like a bigger space.
- Zillow estimates currently @ $650k.

The Relo:

- pays sellers closing costs, including the full 6% realtor fees if I sell my house.
- pays the buyers closing costs, up to 2.5% if I buy a house at new location.
- I have up to 1 year to utilize the benefits, so I could totally rent out my place and then sell next year.

So any input here? Capturing that 6% sellers fee seems HUGE, but I'm worried that if I ever do move back to this neighborhood, I would be priced out and unable to buy in. I think I could rent out my house pretty easily in the $3k/mo range. How do I help make this decision?

side note: the new location is Boise, so another hot RE market.

1 Vote

Originally posted by @Tim Herman:

@Adam L. my thoughts are what do the numbers tell you. Have you run it through a calculator. Does it cash flow. BP hass calculator you can use 5 times. There is a spreadsheet in the files section of BP. Rule of thumb to cash flow. Monthly rent divided by 1%. $1500/.01= $150000 max purchase price. Your calculator will be your best tool to use.

right there it fails automatically.

0 Votes

So I still haven't jumped on anything yet, but this one recently came across my email.

It's in an area that's way out of town, past the airport, maybe 15 miles. Big city. There's a small development that's built a few hundred houses. Nearest grocery store is 6 miles away. It's a pretty cheap market w/ rentals.

Purchase $175k including closing

3/2, 1500sf, 2car garage

looks to be in great shape, decently 'fresh' and rental ready

comparable rent ~$1500 in the development.

Thoughts?

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good advice all. So I asked the guy more specific questions, here's the responses and after talking w/ references.

Bank will not allow a 2nd, junior lien on the construction loan.
He's clear that he's asking for an unsecured loan w/ personal guarantee (quote "which is why the rate is much higher than a standard loan")
he does purchase title, builder, fire insurance.
he does NOT plan to refi mid-way through. His standard practice is to pay down bank lien at sale of first unit, then investors at sale of 2nd unit.
He plans to pay out investors in one lump sum at sale of 2nd unit. He does not do monthly payments.
His references from past projects said similar. It was a smooth easy loan, personal guarantee that was just a handshake.

So....it seems to me that this guy is trustworthy and excels in building these nice 2 unit properties, but he is not savvy or experienced the specific details of a private loan like this. He's operated his past deals with more or less a single page contract saying a simple interest loan lump payment at the end of the project.

He does not seem like he intends to write a lien against other real property (his truck, boat, other rental unit) nor does he seem to do monthly payments, nor does he seem to consider the time vs % factor. 25% in one year is great, but over 2 years is crap.

Any more thoughts on this? Has anyone else interacted or experienced a builder/flipper person that doesn't really 'get' the specific details of asking for a loan?

0 Votes

Originally posted by @Natalie Schanne:

@Adam L. - my concern is... if he’s so successful with these projects, why doesn’t he have or why isn’t he willing to pay his own $100-200k downpayment or at least half of it? Like on a $1m cost property, if things go south he loses his 100k first then his investors lose 100k then the bank loses on its 800k. He also doesn’t seem to have a team to do multiple rehab projects at once unless he’s doing construction jobs and only allocating his people to his own jobs when they’re not busy. Will that slow down progress? What was his reason for taking so long between projects? You have to ask a lot more questions. I’d also try to get 12-15% interest with MONTHLY interest PAYMENTS DUE. You’re more likely to get your money back faster and/or know if things are going south if you’re getting payments. Also, see if he will let you background and credit check him.

Hey! Good questions. I'm not sure why he's not putting down his own cash, I just assumed that's how flippers operated with OPM.

For timelines, it looks like this is his general schedule 15+ months to do a full construction and build out, then time to sell them, then time to find the next property. It appears he's happy chugging along at this pace so that he can enjoy time with his family and just do the amount of work he needs to sustain his family.

0 Votes

Originally posted by @Joshua Esparza:

Hey Adam,

Having been born and raised in the Austin area and currently residing in Round Rock, TX, I can say this seems to be a common trend in local areas. You have to consider with all the new development going on the prices will go higher as many investors shift their focus more towards Pflugerville, Round Rock, Georgetown. That being said the notorious 1% rule can be a little more elusive to find but not impossible...yet. For a property to start at $145k even for a 1 bath is steal. The appreciation will definitely be the major factor on this deal.

Thank you for the follow up on your post, I'm always curious to see the out comes. Are you a buy and hold kind of investor or flipper, or both?

I haven't done anything yet but looking to be a buy/hold person. I've got a day job already and not looking to replace that w/ flipping.

0 Votes

Originally posted by @Jay Hinrichs:

Unsecured Prom notes ARE shockingly simple can be as little as one page with 2 or 3 paragraphs.. that's very common and acceptable and enforceable..

GAp funding is risk funding no double its relationship funding.. we do a lot of it but with folks we have known for years and in most instances we are in a position to step in.. most lenders who do this are the opposite .. at least the ones that get in trouble.. no experience and no ability to step in if needed to protect their interest.. granted the return is good.. that's the bottom end of what we would expect..

Yes, it seems he usually operates on unsecured Promise Notes (he sent me a sample agreement).

I'm not sure I understand your first sentence about GAP funding.

Can you comment more about the interest return? I agree, 25% flat interest after 2 years seems quite low, but one a 1 year return seems great. What returns do you usually look for? How are you calculating an equivalent annual interest rate?

0 Votes

Originally posted by @Wayne Brooks:

Assuming you got a second mtg position loan, there’s no reason it couldn’t be done, an 11-12% APRi is still not nearly enough for the risks. If anything goes wrong, you are pretty much assured of losing your entire investment with an 80% first mtg.

Agreed about the APRi discussion. It seems he's usually operated on a simple interest agreement: "I'll pay you back your principle + 25% at the end of the project" I'm not sure he's familiar with doing a more complicated loan structure and not sure how he'll respond if I say a flat 25% at the end is too low.

What's the equation or term to convert this into an equivalent annual yield or interest rate?

If I loan him $100k and after 2 years (no monthly payments), I get back $125k.

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Originally posted by @Jerel Ehlert:

Run. You don't know enough to protect your interest.

What due diligence would you perform? What secures your money? What happens if he defaults on the construction loan?

You should be able to assess when the transaction starts to go off the rails, not after the deal has become a dumpster fire. If you don't have the knowledge, skills, or experience with the asset class or type of transaction, your risk of loss is much higher.

Try listening to the Private Lender Podcast.

Good points. As far as due diligence, not sure what that all would entail. I'm contacting his references and I've seen his previous projects and I know him around the neighborhood/club.

For collateral, that's the big question. It seems he's generally operated on handshake deals and simple interest loans from family. I asked what we can do about collateral (primary house, rental house, truck, boat, etc) but I think this is more technical than he's used to. TBH, I'm not sure how he's done his funding previously using such a basic, unsecured agreement.

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Originally posted by @Julian Buick:

@Adam L. what percentage of your investable capital would this represent? If it is more than 10% then it is probably not worth the risk. If something goes wrong you wouldn't have the knowledge or experience to know how to fix it. If it is less that 10% of your investable capital and you would not be destroyed if you lost your entire investment then it might make sense. I have done deals like this before that have worked out well but I was willing to risk losing the capital because it was a smaller percentage of my total capital. In this case the builder looks like he has a solid track record so the chances of him not performing are probably slim but you always have to protect yourself Incase unforeseen circumstances happen. In a 100k SFR flip if something goes wrong and you have the means you can take over the project and figure out how to finish it yourself to get your money back. It's not hard to figure that out. New construction is a whole lot different and takes a whole lot more money based on the houses you have listed. Also I would be looking at more like 20% annualized interest.

Yes, it does seem like he has a solid track record and does nice work, not just a cheap flip and run.

good point about the interest. I'm concerned he is not used to people asking for detailed loan agreements. It seems like he usually just says: "I'll give you your principle + 25% when I finally sell the unit." I looked at his sample agreement and it was shockingly simple and basic. Not sure he's used to signing something about annualized interest rates or monthly payment periods.

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All Forum Posts by: Adam L.

Adam L. has started 28 posts and replied 82 times.

Post: Corporate Relocation...Do I keep my house to rent or sell it?

Post: first purchase....way out from town?

Post: first purchase....way out from town?

Post: timid...looking at a private money lending deal, thoughts?

Post: timid...looking at a private money lending deal, thoughts?

Post: still timid to buy first deal...how does this look?

Post: timid...looking at a private money lending deal, thoughts?

Post: timid...looking at a private money lending deal, thoughts?

Post: timid...looking at a private money lending deal, thoughts?

Post: timid...looking at a private money lending deal, thoughts?