All Forum Posts by: Alex Fenske

Happy to connect you with some of my brokerage contacts in Sacramento if you want to explore helping out an existing agent. Welcome!

I've never had one that did not have a balloon, though there's nothing that says there must be - only the seller's willingness (unwillingness) to carry the paper for the rest of their life. Ultimately any terms are possible if the two parties agree.

Sending you a message now

You'll want all the information about the income and expenses of the property itself, as well as the information about any financing you're using, so you can determine your projected returns.

Income is just rent and, if it exists, other income from coin laundry, garage rental, etc. Expenses include owner-paid utilities, property taxes, insurance premiums (use the current actuals or have your insurance person quote it), and historical annual maintenance expenses or an estimate. If the owner has to pay separately for scavenger/waste removal, and if you need lawn maintenance and snow removal, include all of that. All of the above are operating expenses. Revenue minus operating expenses equals Net Operating Income. NOI divided by purchase price is cap rate. These two metrics can be used to compare properties apples-to-apples.

Then introduce the cost of your financing to get your annual net return, and divide that by the amount of money you need to invest into the deal, and that will give you an annual cash-on-cash return. That metric can be used to compare this investment against other investments (real estate and anything else).

There's a calculator on the BP website that should help with this, in the Tools menu!

I believe they (conforming loan underwriting guidelines) use 75% of gross rents to offset mortgage payments on rentals. Based on that, if you only have a 15% spread then your rentals are still dragging you down a bit.

I've found it much easier to work with a local commercial lender who can use more common sense in loan decisions since they'll be holding the loan instead of being forced to package it into the conforming loan guidelines. The rates are generally higher than on a conforming loan (although that's not the case at the moment, which is extremely odd), and you'll likely always have a shorter amortization and a balloon of maybe 5yrs, but it beats not getting a loan.

As an experienced investor I would not lock up a contract and commit funding if I did not have some sense of who was going to do the work. That is a critical - and often difficult to achieve - ingredient in your plan, and one that has only become more challenging with changes in the labor markets the last couple of years. If you aren't able to get someone out quickly enough, or you are but the quote or the contractor are unacceptable, you'll be in a tough spot.

Another critical ingredient is an accurate projection of the renovation costs. Underestimating on a BRRRR can change everything. If you planned to buy for $250k and land all-in at $325k with an ARV of $435k and a 75% LTV cash-out refi, then all is well and you figure you'll end up with all your cash back. If the renovation turns out to be $100k and you land at $350k, you're stuck leaving $24k in the deal. If this is your first one, that gap may prevent or delay you from doing the next one. When starting out it's best to have a contractor - one you intend to use - bid out jobs for you before you sign on the dotted line, assuming you can find one to work with you in that manner. Eventually with more experience and more risk tolerance you'll be able to get a close-enough estimate to enter negotiations, then bring the contractor in either during due diligence or if negotiations get tight enough that you need to bust out the scalpel.

If they're both great deals, why not do both?

If you have to choose, I'd say it depends on your personal investing goals and preferences - whether you're more interested in cash flow and prepared to handle the challenges of a C location, or willing to accept lower cash flow for ease of management and hope of greater appreciation. Lots of success to be had in both categories so it's just a matter of your goals.

Could be a great candidate for an installment sale, which goes by many names that are all the same thing (land contract, contract for deed, articles of agreement, etc.). I've done a fair number as seller and as buyer and would encourage you to work with an attorney experienced in these transactions to draft and close the contract as there are many considerations beyond a "regular" closing.

In theory it's best for you if you can get the seller to agree to a full title transfer and carry back a mortgage, though often they resist that due to legal factors and prefer an installment sale. 

These options work as long as the seller doesn't need the bulk of their cash now. 

Investment Info:

Single-family residence fix & flip investment.

Purchase price: $175,000
Cash invested: $295,000
Sale price: $427,000

Fix & flipped a SFR for a net profit of $107,000

How did you find this deal and how did you negotiate it?

Seller was referred to me from someone in my sphere of influence

How did you finance this deal?

Several sources - a line of credit against other rentals, plus several unsecured lines

How did you add value to the deal?

Assisted a seller whose home was in major disrepair and was behind on taxes. Closed on seller's timeline and helped them buy a small condo nearby with their cash proceeds.

What was the outcome?

Everyone is happy!

Did you work with any real estate professionals (agents, lenders, etc.) that you'd recommend to others?

Plenty! Ask me

Chris Gilbert the new buyer will need to qualify based on credit & income but does not need to be a veteran. However, if they are not, then you will not be able to use your VA loan benefit again until the current loan is paid off/refinanced. If the new buyer happens to be a veteran then you get your eligibility back as soon as the sale closes. Either way you do not retain any financial responsibility for the loan after the sale, it is out of your name. Contact your current mortgage servicing company for next steps.