All Forum Posts by: Nate T.

I have thought about this a number of times but never actually done it yet. Phoenix is pretty bad with people breaking in and ripping copper out of the walls, and taking appliances. In over 100 rehabs and property turns I have been vandalized about 5-6 times, and made about 3 insurance claims. I think if I had installed alarm systems in all of those projects, I would have lost money overall. But I think it would have been wise to install alarms in some of the sketchier areas, and I still plan to do that if I ever get around to it.

Even as a cash flow investor, when your property doubles in value quickly it is time to consider selling. In hot markets people forget that prices do go down as well as up.

My wife got a NACA loan before we were married. It took 7 or 8 months, and that was with a regular W2 job and perfect credit! It was very stressful for her because the process was such a pain, but in the end it was worth it for a loan at market interest rate, zero down, and zero closing costs. There is no PMI, but there is a $50/month NACA fee.

NACA loans are available only for owner occupants, and only of you don't own any other properties.

Los Angeles and NYC are tough places to get cash flow. You might consider investing in other areas where the numbers work more easily. Just about anywhere will be better than Los Angeles, but there are a lot of threads on BP about investing out of area that could give you some ideas about what areas might be best.

Even if you are okay "self insuring" against damage, I would recommend that you get insurance at least for liability purposes.

If you are planning to live in the 4-plex then you'd be better off getting a bank loan if you can qualify.

If you are not planning to live in the 4-plex then it is not subject to Dodd Frank because it is no longer a consumer transaction. So that makes the seller financing process less complicated. But even with consumer transactions that fall under Dodd Frank it is not that big of a deal, it just means that the seller may have to hire a licensed loan officer to handle the paperwork and confirm your "ability to repay".

Paying a higher price for owner financing is pretty standard. You just have to figure out if the numbers still work for you.

>> how would the lease option work without paying off the underlying mortgage first?

A lease option would not be affected by whether or not you had an underlying mortgage.

But none of these possibilities would make sense without keeping the underlying loan in place (aka "wrapping" it).  That's what gives you the leverage to make it a good deal. Otherwise you're just buying a home with no equity.  

Whether you're doing a lease option or seller carry, the idea is to create cash flow.  With an underlying payment of $1800 and income of $2400, you would be in great shape.  And the buyer is responsible for the repairs and maintenance, so in that scenario you would have true $600/mo cash flow.

I've never invested in Texas but I have heard rumors that they outlawed lease options, so that's something you would need to look into.  I'm guessing there's a workaround but you would need to consult with a Texas investor or attorney, or google/BP.  If you're spending 20K then you would probably want to go with the seller carry instead of the lease option, so you could get a larger down payment from the buyer to recoup your money invested.  But even if you had 20K invested, and you didn't recoup any of it, and you were cash flowing $600/mo, that's a 36% cash on cash return, not too shabby.

If you believe, as I do, that we will eventually get significant inflation in the US due to the country's high debt and the inflationary activities of the fed, then fixed rate 30 year mortgages at low interest rates are not just good debt, but GREAT debt.  Why?  Because as inflation devalues the dollar, the value of your mortgage payment will also be devalued, but the rents you charge will raise with inflation.  So essentially your mortgage will disappear!

I did a similar deal recently. Property value was 160k, loan amount 170k. 2 months behind. Payment $1200/mo.

I purchased the home subject to the existing loan, caught up the back payments, made the repairs, then sold the home on a lease purchase for $194,900, with 10k option fee and $1,500/mo payment. Worked out great.

The key questions if you wanted to do that type of transaction are:

1 - What is the market rent? If it's a lot less than the payment amount then that would make it hard to do anything.

2 - Sell as-is or do the repairs? If you can afford the repairs I would do them, and then rather than selling as a lease purchase with a small down payment, sell as an installment sale (carryback) with 10-15% down, so you can get your money back.

I think your numbers look pretty good. But those numbers would be applicable only if you were planning to keep the property forever. Depending on how long you plan to keep the property, and how old and/or dilapidated it is when you buy it, you might not have to deal with a lot of those expenses.