All Forum Posts by: William Hiday

Scenario:

I happed into and ultimately picked up an off-market rehab in a very hot area for about 20% of the what it appraises for.  It will be a total gut job and the renovation will cost $125k+ and take four to five months to complete, but it will be well worth it as the profit could very well touch six figures.  Given my background as a custom home builder and remodeler, the construction phase isn't that big of a deal.  

With regards to the construction loan, the crowdfunders don't want any part of it, but the bank (local savings and loan that I have a relationship with) said that they would..... IF... I had someone co-sign the loan.  I have three interested parties (I've known them all for 30+ years) and they're all asking me what the deal looks like.  Ie: what's in it for them and how much do they stand to make.  I'd like to just work with one of them (all three are very well-qualified) on this deal.

How do I set this up?  Give them a x% return on the loan that they co-signed for?  Give them x% on the profit that is made?  The ball is in my court to come up with the terms.  I'm just not familiar with what the expectation is, from an investor's standpoint, on a deal like this.  Could anybody help a meager old hammer swinger structure this thing?  Thanks in advance!

That's the trick, @Robert Garcia, and it's the same issue that I've run into and I'm sure a lot of others have, too.  I think this strategy really forces you to scrutinize the numbers up front before you even purchase the property.  

This all ties into another issue that I'm running into: The local bank that I typically deal with will only do 15yr notes on investment properties.  I run numbers on a deal and everything looks great if I were able to get a 30yr note, but they don't work with a 15yr note.  I'm sure there's a lender out there that will do longer term investment property loans; I just haven't found him/her yet!  Anybody want to throw us a bone on that one?  I've posted this scenario before and never got a real solution to my problem!    

Hey @José Santos, good to have Indy area member aboard.  Feel free to reach out anytime you have a question.  What's your plan?  Are you looking to flip?  If so, what areas are you considering?  Indy metro is HOT right now!

Look at all of these Indiana boys showing up on BP!  Good to have you aboard!  Don't be afraid to reach out and ask questions.

No, never, not a chance, absolutely not.  The only time I've ever let a tenant barter their services for a reduction in rent was when I had a guy who owned a lawncare business renting from me.  He mowed my vacant lots and a couple other random properties and I knocked a couple hundred bucks off each month.  Understand that a) I knew the guy personally, b) all the properties were within five minutes of where I lived (ie: it was easy to make sure he was holding up his end of the deal), and c) a crappy mowing job goes away in one week.  

How much equity do you have in your properties? If you have decent equity, this sounds like a perfect scenario to use the BRRRR strategy (Buy, Rehab, Rent it out, Refinance, Repeat).

Example: You bought one of your properties for $40k and spent $20k on the rehab. You've got it rented out, so now go refinance it. A lot of lenders will refinance you for 80% LTV (loan to value)(ie: they'll loan you 80% of whatever the property appraises for), so in this case, you'd have a new $80k loan on your property. $80k minus the $60k you spent buying and rehabbing it leaves you with $20k that you get to use to put a down payment on another property. I've heard tale of some outfits that will even refinance you up to 90% LTV.

I hope I'm explaining that correctly (and please, if there's another more seasoned veteran out there, feel free to jump in and clean my explanation up!) and in terms that make sense.  Hope this helps!

Thanks for the reply, Brad.  

I'm familiar with and have used the traditional route of having the local bank finance the construction loan and then roll it into a perm loan on several projects in the past.  I have traditionally purchased the land/lot with cash and that was my 20% equity on the project.  My frustration with the bank is a) that their process is extremely slow and cumbersome and b) they are very, very conservative with their terms.  Ex: They'll only do a 15yr loan on investment property and not a 20yr or 30yr loan.  As you know, this one will wreck your numbers right off the bat!

I guess what I was fishing for in my initial post was this:  Is there any investor or investor type out there that would an appetite for longer-term strategies like what I'm talking about?  

I know it's been discussed at length, but I'm looking for more insight with regards to the business model that I'm considering.  Here's the set up and the items that I think I have checked off:

1- I've made my living as a custom home builder for the last decade, so I'm confident that I can build townhouses/duplexes on infill lots.  I already have my list of subs and suppliers that I've dealt with for years, so the construction piece is taken care of.  Heck, that's the easy part.

2- I'm in central Indiana, so there's an abundance of affordable infill lots that I can get my hands on.

3- I have a few sets of building plans that I've put budgets together for, so I know what my build costs are versus what I can get in monthly rent.  The margins are there and they actually look really good.

4- I have the property management piece covered as I've owned and managed several rentals in the past.

5- I have an LLC set up that is almost a decade old. I have accounts with my suppliers and access to small lines of credit with the local savings and loan.

All of this sounds good, right?  Here's what I'm struggling with:  The banks might let me do one or two of these , but that's not going to get me to where I want to be with this model.  What's my best bet for securing the financing to a) do the builds and b) hold on to them long term?  

Sounds like you may have two or three things working against you here.

1- Surface prep.  You HAVE to wipe the walls down before you spray your primer.  Ie: take a dust mop and wipe them and then go back over everything with the bristle attachment on your shop vac.  Spray your primer on and then give everything a quick, light sanding.  Repeat the wipe down and shop vac process.  I know its a tedious pain in the butt, but its definitely worth it.

2- I've urged, begged, and fought customers about the sheen of the wall paint.  In fact, it's in every one of my custom home and remodeling contracts that we're using flat paint.  I've heard all of the arguments about being able to wipe the walls down with eggshell and other sheens, but its not worth the touchup nightmares that come with it.  A good quality flat paint (get to Sherwin, Porter, or B. Moore) will let you give it a gentle wipe without removing color from the wall.  If that doesn't work, get your wiz roller and do spot touchups.  You can do touchups anywhere with flat paint and they disappear when they dry.  

3- USE. QUALITY. PAINT.  The $10/gal you save isn't worth anything if you're doing a third and fourth coat and it still looks like garbage, right?