All Forum Posts by: Ben Sears

I'm going to be as nice as I can about this. Don't ******** people. If I was your client I would much rather know what's really going on with you instead of you halfway lying to me. As a fairly experienced investor, I can promise you that if I found out that I was being jerked around by an agent I would delete your number from my phone and never call you again. On the flip side, if you're honest with me and can demonstrate that you have some knowledge in the industry (or at least have a good attitude about learning) I would be more inclined to help you out and make it work out for both of us.

When you say you're near the end of your deal, does that mean that you're closing on a property to purchase or about to sell your finished property? 

It really just depends on the amount of damage. Honestly, nothing scares me away from a property as long as the numbers work out. You can have termite remediation completed, but it can be expensive. I would consult a good extermination company or two to determine the scope of the issue and then talk to some contractors regarding remediation of the damage. Factor these numbers into your costs and see where it takes you. 

I have the opportunity to purchase two properties from the same owner for buy and hold. Assuming that I can BRRRR both I need some advice on structuring the deal with the seller.

Property 1

SFR 960 sq ft 3/1

Purchase Price: $20k

Rehab Costs: $40k

ARV: $75-80k

Property 2

SFR 1000 sq ft 3/1

Purchase Price: $10k (assuming I purchase the package deal. $20k by itself)

Rehab Costs: $60k

ARV: $80-85k

My funding options are the following:

-I have two private lenders who will end the total amount on either/both properties at 10%

-The seller will finance one or both to me on a land contract for monthly payments and a balloon on refinance. This presents an issue as I'm not sure that I can place my lender in a first position lien without title to the property.

-I have $70k in cash available for purchase, rehab, etc. 

-I have a community bank that will do a portfolio loan on both properties together when they are finished. 

I'm considering completing both properties at once or doing one after the other. Any thoughts on structuring this deal would be appreciated!

@Account Closed in Virginia we would have to update our operating agreement to reflect a change in partnership. You may ask your partner what type of business entity and documentation he has of its creation. This is likely where the change will need to be made if you want it to be official.

@Marsharen DuPont electronically is the way to go. Use a free service such as Cozy.co and enroll your roommates. You can get automatic bill and late notices with direct deposit into your account. A standard lease from your state realtors association can probably be found online for free. Don't make it more complicated than it has to be. 

@Darryl Jennings I think when people wait to purchase real estate in order to pay off debt they are missing the boat. I invest and have plenty of "normal" debt such as a mortgage, student loans, etc. I separate this personal debt through my LLC and as long as the company is profitable it helps pay down my personal debt. Having said this, I think people need to control their debt and work on improving their credit scores prior to being in real estate investing heavily.

I'll see what I can contribute to this, however I haven't finished my coffee yet so bear with me! If I understand correctly your business aims to conduct both fix and flips and buy and holds. You want to basically develop a "parent" company to manage both of these divisions, or separate LLCs. Your parent company (Company A for arguments sake) would hold your owner contributions. These contributions would be disseminated to "Company B" for flips or "Company C" for buy and holds

-First, let's talk about why you would form an LLC. A real estate business would form an LLC (or other entity) for either tax purposes or asset protection. In your case, it sounds as if you are developing your LLC for asset protection. IE...a rental goes bad resulting in a law suit and you are protected personally from some liability. You should understand from the beginning that each LLC should have a separate bank account and books in order to prevent "piercing the veil" or mixing business with personal. This would surely result in the nullification of your LLC protections should you ever end up in court.

-I'm not sure if you have already started your business or hold any properties currently. Your build out seems like a good idea albeit slightly complicated if you're only holding/flipping a few properties in the first couple of years. Transferring money between completely separate LLCs might cause you some headache in the beginning and not really benefit you how you want it to. If you don't have many properties, I might suggest that you form one LLC to conduct all of your business and branch out into different "divisions" or LLCs at a later time. You may find that your buy and holds a far more profitable and you discontinue your flip business. You could simply stop flipping houses instead of going through the process of closing an LLC.

-To answer a few of your questions specifically, your rent, property management, rental maintenance, etc would all be conducted through your LLC that holds your rentals. All of these transactions would be recorded on that LLC's books and ledgers. All liens, mortgages, etc are held against this company as it will be the company that the property is titled through. I would caution you against titling the property in your parent company then collecting rent, etc through the buy and hold company. This places both companies liable should you find yourself in legal trouble. You should not "siphon" funds between companies. There is a proper way to transfer funds and you should consult your CPA on the proper method. (When I take distributions from my LLC to my personal account, I write an official company check that is recorded in my ledger)

Hopefully this was helpful. Possibly a little scatterbrained. Let me know if I can help any further!

Ben

@Anthony Hosea I'm sorry that I didn't get back to your message. Apparently BP isn't sending me notifications on all of my posts for some reason. To answer your question, we are a two college town which provides ample transient student and labor positions. Our student rental market is huge with companies buying up houses within walking distance to the schools and converting into multi-family. This isn't my niche per se so I won't comment further other than I know that some landlords are getting $550-600/month/room in a property with 6-8 rooms. 

Outside of the college scene, we follow the national average of about 63% home ownership. Our average household income is $45,000 which I think make renting more attractive for many people. The funny part is most of our houses can be purchased for far less than the rent payment. I think this has to do with a combination of credit issues and socioeconomic status as our county population with the incorporated town removed is far closer to the poverty line. 

On this property specifically, we talked with approximately 45 people but only received one application. This property is one the high side of rent for beds/baths and I knew this going in. For a list of $750-800 we would have had far greater applicants. Our next property is almost identical to this (built at the same time by the same builder) and we plan to list for $800/month as a type of "rent experiment". 

So I just realized that it's been a while since I've updated this thread and boy have we been slam busy! Over the past couple of weeks we have completed gutter installation, framing, plumbing and electrical rough-ins, begun HVAC install, and hung insulation in our gutted spaces/crawlspace. We had power trenched in yesterday and the electrician finished our final hook-ups today to get the panel ready for service. We're continuing to learn new lessons everyday (like don't leave a pile of trash in front of the meter because the power company won't hook up your power!) and we're excited to see this project done in just a few weeks. The best part of last week was actually getting a signed contract to rent with a $375-$400 cashflow per month!

Our preliminary numbers are as follows:

Purchase: $20,000

Rehab: $42,000

Investment $62,000 (possibly a few thousand more as we finish)

ARV: $78-80,000

Refinance at 85% LTV through a community bank at 5% on a 20 year fixed ($66,300-$68,000 loan)

Cash out return: $4-6,000

Monthly mortgage: ~$450 out the door

Monthly rent: $850 with a 12 month contract

Ok cool...so leaks in foundations can be tricky. A lot of this has to do with outside drainage (grade sloped away from the foundation, gutters and downspouts pointed into the yard, etc.) Without fixing some of the external issues, water is going to find it's way in. The last basement we did in Virginia was a 12k job but it was done right. A lot of people are scared of basement leaks but it's not a huge deal if you fix it right. I would want a gaurantee that the contractor is actually a basement contractor and not just a handyman/GC. There are definitely right and wrong ways to fix that issue which may be why he has an additional leak. Side note $500/month cash flow is hard to pass up!