All Forum Posts by: Deyano M.

So folks...

Just wanted to see everyone's opinions on this. About 2 years ago my wife and I hired a financial advisor. He has been fantastic- we have some great retirement investments and are 200% better saving for the future now than before.

Only issue- he has been dead-set against any real estate investing. He feels that it is just too risky and continues to come up with "what ifs". His stance is that until we have a substantial "cushion" in the bank, we shouldn't even attempt it. For him, his cushion is around $40K. His attitude is very conservative in nature, so I'm not sure if it is just him or what.

Needless to say, I am pretty much going against his advice and aim aiming at a property purchase in the spring of 2007. I have done the logistical planning and some financial scenarios and it seems like a win/win here.

The project would last 8 weeks. If it went longer we can handle the carrying costs (which we also have estimated and can handle easily). It's a team of my wife, myself, and my Mother and our collective cash flow is substantial enough to carry the house no matter what- indefinitely it we had to. We have all agreed to rent it if it didn't sell in 6 months time- So...

I just don't understand why my advisor is so alarmed by this proposal...
I have read about plenty of people building up their funds- one project at a time until eventually they are an all cash buyer and it makes sense. Sure - it is risky, but isn't life risky in general? haaa

Any thoughts???

Thanks!

Thanks Obi-Wan....

Yeah- I have a realtor friend who I ended up getting into a conversation around this subject and he agreed- a buyer is a buyer.

Ok- only one problem with investing in "my area". I live in Essex County Massachusetts, ie: near Boston, Camridge. Just rated most expensive place to live in the US of A!!! Why? A combination of salary averages mixed with the cost of living, taxes, and price on real estate. A single family here is $300K. A single family where we are looking to invest is $120K. The area we have targeted is where we grew up- so we know it well, and has better projected revenue for us- the area is growing and alot of commercial investors from NYC are putting money into the community: parks, arts/crafts store fronts, cafes, restaurants. It is a historic area as well.

Does that make more sense?

Thanks Wesley!

Initially I contacted my bank and they said that would be a business loan- which is in line with what you are saying.

But what about a traditional mortgage product under the terms that the property was a vacation home (2nd home). In some thread someone suggested that a bank wouldn't necessarily check up on your activities or intentions. How true is that?

Would there be prepayment penalties?

Very interesting!

How does a listing agent typically react if you come in to buy a property and are licensed? Do they frown upon that?

In the meantime, I probably won't get licensed for the first project. Do you have any other tips or thoughts to consider?

Thanks for the advice...

Ok- a couple of things.

1)I tip very well at restaurants because I managed one when I was younger- worked my way up in the ranks of the industry. Touché

2)That analogy doesn't quite compute for me. The way I see it, in some cases, the selling agent will get much less than 3% (given the scenario that there is a buyers agent and selling agent). Our friend that is a realtor said that is usually the case and we actually got the idea from him. He said he would help as much as possible with the FSBO. Not sure if he is trying to leverage working outside of his office in some way, but if we were to list it with him and a buyer comes in from another agent, he is getting less anyway. But I do understand your point. Of course ideally, he would want to list AND find the buyer.

I'm looking at it purely by numbers- cutting an extra $8K off the top is tough- especially with a partner. We are doing this to make money (obviously).

We have thought about one of us getting a license and I think that is something we will pursue in the future. One issue is that we are both out of state (from where the property is.) The other problem is finding the time away from our day jobs to find a buyer. But logistically, getting a license does make sense. So you are saying Obi-Wan that if I had my license, I can buy a property and take a nice 3% off the top in the deal?

Any other suggestions or thoughts- I am open to them...

Thanks again!

I have read mixed reviews about sites like forsalebyowner.com regarding their flat fee MLS listing service. I read in another post that giving an agent just 3% deters them. BUT doesn't the buyers agent split the commission anyway?

Here's what I was thinking (because I studied marketing). My partner and I really don't want to cut 6% out of our profits. Say we listed on the MLS- one of the flat fee services. We would also market to area real estate agencies. And in particular form an agreement with a friend that is a realtor, ie: if he brings the qualified buyers that ends up closing, he would get 3.5%. We would do the open houses and the rest of the marketing to drive traffic. Being that he would be using his agency, wouldn't he be able to keep the entire commission for himself and not have to provide a cut to his office?

I thought this would make sense as the after rehab property we put on the market in our area will not have much competition- it will be one of maybe 6 other properties that could be used as comps. And the advantage over those houses is that ours will be up to date- while most of those are still stuck in the 1950s!

Any thoughts?

Thanks Wesley,

We also considered taking out the HELOC for the rehab costs as well.

Good idea. How would the mortgage products be for a secondary home since it would be my Mother and myself on paper for the loan and we both live in separate states from the property. I'm in MA, Mom is in AZ, and property is in NY. Would that be an issues. As mentioned- we have good credit and substantial income, funds etc- just not a lump sum we are comfortable putting down for the down payment.

Thanks Bonnie!

I'm definitely going to target small banks to try to get a better loan that will accomplish what we need it to. We will probably stay away from a HELOC, or only get one for the rehab. We have a few credit cards that have better rates than most HELOCs anyway.

I'll have to schedule some time to sit down at the local banks and really chat out all options.

Thanks Gateruner-

I definitely have alot to consider and look into when it comes to financing. I'll post back here next week after I have made some calls and gotten some answers from banks.

Thanks Hurrikane!

Since my post I have looked into some Hard Money lenders and their terms mostly benefit them. I have also heard from other members on this site to target very small local banks. I went to my bank awhile back and they said they couldn't do anything because it would not be owner occupied. They said that would be a business loan and since we don't have a business that has been in existence for 3 years, we were out of luck. But that was our credit union. There are some very small local banks in the area- one of two branches total. Would that be a good place to check? I also have heard that sometimes their are early payment penalties (which we would want to avoid).

We'd really like to go conventional for the purchase of the property and the rehab funding. Or we could even get a smaller HELOC just for the rehab.

BTW the team is already completely set and in place. We are literally ready to go when we can figure out the best funding.