All Forum Posts by: Andrew Kiel

Adding a bit to @Account Closed's comments above.

Most of what I see today are subject to deals, loan stays in the original borrower's name and we/investor "takes over payments" by paying the lender directly.  In some cases we "wrap" a loan which still means the original borrower's name is on the loan but we can use a title company as an intermediary.  So we pay title company > title company pays loan, and if there is any excess, this goes to the seller/original borrower.

Assumptions, while they still happen, are much more rare in my experience. Generally the new borrower needs to qualify with the lender, and in this low interest rate environment, it's rarely beneficial. Non-qualified assumptions (where the buyer doesn't need to qualify to assume) pretty much came to an end with any FHA loans originated after December 1st, 1986. The term is still prevalent and often misused in my opinion.

Welcome!  It's a great time to be an investor in Tucson.

Not sure what advice you need here.  The numbers look good.  It's natural to get nervous on the first deal, the important thing is that you are DOING your first deal.  Many people simply can't pull the trigger on their first and as such, never become investors at all.  Congratulations for making the decision - and seriously, how can you go wrong with 4.5% interest rates?  Historically, that is amazing.

A fun trick I like to use to check one market over another: U-Haul rates for trucks.

I just looked up a one way trip on U-Haul's site from Phoenix, AZ to San Jose, CA for a 20 ft truck (June 5th pick up date). It was $153 one way.

The same truck, dates and trip from San Jose, CA to Phoenix, AZ is $1804.

This says it all.

It's really about finding the right seller.  We've purchased many homes with very low (5% or less) down payments with either owner financing or subject to their existing financing.  The two categories that work best right now for us are:

1. Tired landlords - I love this category, we talk about turning the landlord into a lienlord.  There are many landlords that now make more money with our monthly note payment to them as the seller of their home than they made prior to that with rent.  Run the numbers with them and talk it out.  Ask if they would prefer to sell rather than rent, etc.

2. Pre-foreclosures - We love taking over payments on properties that are going into foreclosure. We often are the only buyer even remotely interested in a property in this situation because they are upside down. We recently took over payments on a VA loan at 3.25% with less than 5% down. All we had to do is cover the back payments and give the seller a small amount of money to move. We ended up with a house that had a loan on it that was OVER what it was worth; however I wish I could buy many more just like it. Why? Our payment is $940 per month PITI and we get $1495 per month in - I really don't care what the loan balance is in this case.

Great question with so many possible answers.  The vehicle and strategy can vary widely.  Just a few realistic ways from my point of view without taking high risk:
1. Leverage money.  One of the best points of real estate is you can buy using high leverage and still do it with relative safety.  Buy as many positive cash flowing properties as you can with leverage.
2. Leverage your network.  You have the ability to buy as many properties as you want if you have money or joint venture partners.
3. Consistently save and invest.  If you just purchased one cash flowing single family home every 1-3 years it would be virtually impossible to not be a millionaire after 10-15 years.  Use time to your advantage.  It may not be the fastest way but it's highly likely.

@Brian Gibbons - Based on your scenario above, we would have a discussion with Betty and Tom Buyers and come up with a business decision based on both our and their needs. We could simply just agree to sell at the lower price (if we have a need for cash or other investments that need funded that's a very realistic situation). They could try to bridge the gap with additional savings, gift from relative, etc. Or simply, they may need to wait another 6 months to 1 year. We could possibly even carry back part of the shortfall in certain situations (FHA won't allow it, but some loan products may). I'd even consider doing owner financing if they have been a good resident with a proven track record (subject to buyer qualifying with a licensed originator for Dodd-Frank purposes).

With our program, it was designed for a much longer term exercise period - everyone thinks they can fix their credit in 1-2 years but we've found that few do.  We want to set everyone up for success as much as possible.

@Brian Gibbons - We make up an option price based on what we think the property may be worth in 5-7 years based on "normal" appreciation in our market of around 3-4% increases (we've been far higher than that in the last few years).  So right out our average house that we are buying for $150,000 or so would have a fair market value of around $180,000 and our option price would likely be around $225,000. So put simply, we never tie it to a new appraisal; simply a personal choice that we do.

@Brian Gibbons - we do a lease with a 10 year option and set an option price based on a future value.  We've been using this model for just shy of 3 years now so the answer is none, yet.  We have at least 2 of our very first residents that are in a nice equity position and I fully expect them to exercise in the upcoming few months.  As we approach the 5+ year mark I expect this number will increase dramatically.

The above post is exactly how we turned a 60k investment into a 5k/mo cash flow in about a year. Now by looking at the "cumulative" amount you would think - that's way more than 60k. And that's true, the 60k was the money my girlfriend and I had to start with. The additional money was from taking out a few personal loans ($20k, 32k, and 15k), taking 2, 0% cash advance offers on credit cards -and then getting a HELOC on the first property that we paid cash for to use for down payments on subsequent homes. We use a lease option model where every new resident pays $3900 plus the first months payment so we replenish around $5k for every new resident we fill a house with. And we also worked hard at our jobs to rapidly pay down the debt we took out. At the one year mark we had all credit cards paid off, all but 1 personal loan paid off and were able to retire my girlfriend from her job.

We did this with a LOT of hard work, networking, marketing, and education.  But it is doable.  And today we have expanded our portfolio quite a bit from there.  It's been an amazing journey and we are very blessed to be where we are today.  I share this in the hope that it inspires others to find their path as well.  Happy investing!