All Forum Posts by: Alexander Santini

Well, i woke up this morning and said, "Hey, I want to think of some creative ways to exit flips and practice investment analysis!". After brainstorming about what kind of exit strategy i might want to run numbers on i figured "Owner financing might be cool". So i put together some some numbers, and tried to run some calculations.

The numbers:

I was doing this for fun, so i just wanted to keep this hypothetical simple

1) I decided that the house in this situation would follow the 70% rule

2) I figured an ARV of $100,000 would be easy to work with

3) I could'nt find any numbers on what other people are charging for rates on deals that       they are exiting with owner financing with, so i chose to just go with 3.9% because I know   that interest rates are super low right now

Why i thought owner financing might be a cool exit:

1) You can get a large down payment for your property (30% in this hypothetical)

2) You can generate a long term cash flow while avoiding the costs that are associated with renting

3) Your investment has physical collateral; the property that you are holding the note on

Now it's time for the Hypothetical: 

Say you got into a property using the 70% rule and financed the deal with cash as and were also the contractor with the intent to flip the house for $100,000 house (ARV). You would have $70,000 invested and you put the house on the market at $100,000. Say after a week or two you have a potential buyer, but said buyer can't qualify for a traditional mortgage for whatever reason (possibly self employed). Would anyone out there consider seller financing with 30% down as an option? You get to walk away with $30,000 cash, and you are no longer responsible for maintenance and other holding fees, and the property is held as collateral if the mortgage is failed to be paid.

Additionally, you would be creating long term cash flow. Say the rate of interest is 3.92% annually and agree to a 30 year term, your monthly cash flow would be $331 and over the course of 30 years your $70,000 note would actually be $119,000 (a profit of $49,000 in interest).

So if you include the $30,000 from the 30% down into the $49,000 you actually profited $79,000 over the course of the 30 years, and you no longer have the head ache of holding costs, vacancies, repairs, etc. The only thing you would have to worry abut is collecting your mortgage payment each month, which you would still have to deal with if you bought and held because of rent.

Initially, i was like "WOAH, that's like 112% return on investment!", but i ran the numbers and after that it didn't look so appealing, and if you were to factor in capital gains and other fun government taxes, well, i don't think it's a good option, and there are for sure better ways to exit.

The numbers play out like this (not considering taxes, capital gains, and other factors, i was just trying to play around with the idea and keep it simple for the start):

Your NOI: ($119,160 + $30,000) - $70,000 = $79,160 or $2638.67 per year for 30 years and $219.89 per month for 30 years when you factor in the 30% down into it ($137 per month for 30 years)

Cap Rate: 2633/70,000 = 3.76% per year for 30 years

Cash flow: $331 per month for 30 years but only $137 of that would be profit

ROI: 2.33% without the 30% down factored into it (3.76% with the 30% down factored into the calculation)

Total ROI = $79,000/$70,000 = 112.86% over the course of 30 years

Conclusion:

Well, from what i see here, the problem is the interest rate used. It's just not very profitable, and i would say it's not a good investment. There are way more investments out there that can generate and compound money more effectively. I was just doing this for fun and figured I would share with everyone. I am still learning, still have A LOT to learn, but i figured i would put this out there for everyone to see, get a little feed back, and see if there is anything I could do better. After all, practice makes perfect right?

Thanks guys

Hey guys, im 20 and looking to get into real estate investing, I'm about to get my RE license here in south florida on the treasure coast and have decided that multi-families would be the way to go for myself in the coming future. I'm currently putting my plan of action together. 

My ultimate short term goal is to acquire 7 units in my first year, and possibly live in one of them.

As far as my long term goal is concerned, in ten years i would like to own a minimum of 75 units and scale myself as large as I possibly can. 

My strategy is to buy multi units and hold them as rentals to build up my cashflows. I figured i could do most of the work on them myself, my step father is a skilled handyman and carpenter, so rehab does'nt scare me too much. I want to build a nice portfolio to aquire wealth and so that i always have income because RE is a commission based business. I'm unsure what kind of metrics i should look for when looking for deals. On average what kind of cashflows do you guys look for per door on multifamilies as well as ROI's, COC, and CAP Rates?

I would like to get 200 per door a month, so 600 a month on quad if i were to live in one of the units myself.

Just wanted to see what the pro's look for when they're making their moves.

Thanks guys

Also, i will be getting my real estate license in the couple of months, if i had that would i have more options to how i could wholesale? Or would a Florida's brokers license be the silver bullet to all my questions (which i will also be getting in a couple years once i qualify)?

 475.43 Presumptions.—In all criminal cases, contempt cases, and other cases filed pursuant to this chapter, if a party has sold, leased, or let real estate, the title to which was not in the party when it was offered for sale, lease, or letting, or such party has maintained an office bearing signs that real estate is for sale, lease, or rental thereat, or has advertised real estate for sale, lease, or rental, generally, or describing property, the title to which was not in such party at the time, it shall be a presumption that such party was acting or attempting to act as a real estate broker, and the burden of proof shall be upon him or her to show that he or she was not acting or attempting to act as a broker or sales associate. All contracts, options, or other devices not based upon a substantial consideration, or that are otherwise employed to permit an unlicensed person to sell, lease, or let real estate, the beneficial title to which has not, in good faith, passed to such party for a substantial consideration, are hereby declared void and ineffective in all cases, suits, or proceedings had or taken under this chapter; however, this section shall not apply to irrevocable gifts, to unconditional contracts to purchase, or to options based upon a substantial consideration actually paid and not subject to any agreements to return or right of return reserved.

So i looked up the statute which i posted above and it seems that the legality can really depend on how a person is perceiving the the property that is being wholesaled. "Based upon a substantial consideration" is used a lot in this statute. Is substantial consideration equity interest? 

But from what I am getting out of this is that a party who does not own the title to property but is advertising it, or attempting to sell it is brokering (which i already knew), and if contracts are written between a property owner and a wholesaler that have conditional circumstances, you are still brokering. So would this mean that if a contract is written with a fixed price for the property, which could not be negotiated after the contract is signed, that this would be a legal wholesale? So I would no longer be negotiating a deal, what the property will be bought/sold at is determined, i would have a deposit factored into the contract (maybe 5-10%?) to cover having equity interest, so i would just be selling the rights of purchasing the property at that price?

I will have to sit down and speak to an RE attorney before i do anything so i have a clear understanding of how to do this legally, but i'd love to hear the BP communities opinion's. Am i understanding this correctly?

Thanks guys

I've been reading a lot about wholesaling lately, and it seems like a great way to build some capital if you can hustle. My concern is the legality of wholesaling in FL, to cash buyers by assigning them contracts on deals i find. Does anyone have any prior experience they would be willing to share? Would i need to be a broker to do deals like this? If i did need to be a broker is there anyway i could use one i know and bring the deal to him/her along with a cash buyer to make it all legal? Just want to make sure i do things right before i start doing anything at all, thanks guys.

Thank you, i appreciate everyone's feedback 

As far as liens are concerned would either of you two know of a good book, website, text, etc on tax deeds or liens? I understand that if a lien is put on a property the owner of the tax certificate is entitled to what ever the principal plus interest (someone i was talking to mentioned to me that the interest can amount to 20%, but i take everything i hear with a grain of salt). I'd like to know exactly how the rate of interest is determined, is interest compounding annually on liens or is it solely based on the principal amount, how many periods a year could i potentially compound said interest if it is compounding (however, i am assuming its annual), and if the tax certificate is never redeemed are there any expenses to get the property to auction. Also, when a property is sold at auction, how much of that does the owner of the tax certificate receive? 

On the other hand, I am interested in buying properties at tax auctions also. What are some draw backs to purchasing properties at auction, are there potential hidden expenses that a property can bring along (other than structural issues a building may present).

1. Hello, my name is Alex. I'm currently a college student trying to learn the in's and out's of real estate investing in Florida. After doing some research I came across a form of real estate investing that i found interesting - Tax deeds/ Tax Liens. From what I have read this can be lucrative because the cities/counties are more concerned with collecting the taxes owed on the properties, rather than the actual market value of the properties. I understand that due diligence is the key to making any investment so you run the numbers properly and calculate the risk vs the reward. My problem is i don't know what i should be looking for when assessing properties that are going to auction other than the obvious stuff like market value, comps on other properties, how long other properties that are around on the market, Rehab costs to structures existing on the properties, and the cost of taxes if i were to have to hold on to a property. What are other things i should be looking for? What if there is a mortgage on the property? What kind of margins should i be looking for to make an investment worth my time (obviously more than 10% - as i could make that investing in a stock portfolio)? Are there any strategies that experienced investors would like to share? What kind of investments should i make if i have minimal capital (currently trying to save 20,000 to get started)? Any and all advice would be much help. 
2. A little background info - I'll be going to get my RE licenses within the next couple months or so, my step father is a contractor so I have someone who can help me evaluate costs of any potential rehabs a structure may hold, and my goal is take my 20,000 and try to grow it to about 50,000-75,000 so i can invest in a more long term investment where i hold and have a small but steady cash flow, and eventually i would like to own multiple properties like this.
3. Knowledge is power, and I'm trying to get as much I possibly can before i start trying to make moves. Thanks guys