All Forum Posts by: Scott Hubbard

Assuming the son/daughter is there for four years only, then I do not see the value in this proposition. Even with 2% appreciation, fours years is not enough time to cover resale costs and operating costs in most cases.

Why buy when the same could be accomplished with a sublease?

For instance, lease a large property near a campus for the son/daughter, then sublease the extra rooms. This would help subsidize the lease payment without taking on too much risk should the son/daughter decide to leave school.

I live in a college town and I see examples where parents bought their kids "a place to live" near campus and it almost always ends up biting them in the ***.

Most of the near campus properties are older and require a lot of maintenance. Property taxes are also generally higher and demand is stronger which results in the parents paying retail.

Personally, I do not see the value in the proposition, but then again I am an investor not a speculator.

I usually split 50/50 on rehabs with my JV partners. I recommend your partner JV with this rehabber. Your partner writes a check to the title company for the purchase price of the property and gets the title. The rehabber then finances and manages the renovation.

If your partner wants to reduce his split for the value of the education, then I see no problem with this.

There is a simplified JV agreement located in the Fileplace (under the resource tab) of the site.

Good Luck

This is possible, however, you should consider a couple of things.

1. Since you're the only guarantor of the mortgage, you have more skin in the game becuase you stand to lose more than the principal in a default scenario. With payment penalties, legal fees, foreclosure costs, you might be stuck with these costs as the guarantor.

In your LLC operating agreement, you should plan for the worst with the worst being that all partners are responsible for repayment of all debts including those that are guaranteed separately and outside of the partnership.

2. Since the risk factor is greater for you, I suggest you get a larger percentage of the profits.

3. When you transfer title to a partnership (LLC), you might be adding additional risk if your partner has creditor's trying to extract payments on bad debts or even a judgment.

Another way for you to do this is a joint venture agreement. You and your proposed partner have separate LLC's where both enter into a joint venture agreement. Example:

LLC A (you) and LLC B (your partner)

LLC A holds the property with LLCA and LLCB co-managing and financing the rehab and resale of the property. The priority of payment goes, loan balance, rehab costs, carrying costs, selling and closing costs, then splitting of the proceeds, if any.

Since your LLC holds title to the property, then you avoid the risk of passing equitable interest onto your partner through the transfer to a partnership.

CYA, anytime you partner up.

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VRBO can be a great way to bring in some income, but my experience says the results are usually mixed.

First, you need to consider who is your target market. The best way to zero in on a specific target group is to look at demographics relative to your specific location. Sounds like to me, your property wuld be best suited for a family. Does your home and surrounding area attract vacationer's? Is there a destination or specific attraction like a lake, amusement park, college, or some other reason people will come to your town or city?

Perhaps you have an large employer like Boeing or Raytheon which sometimes hires temporary contractors that need a place to live.

Anyway, you need to decide if your property (product) has a market. If not, then you may instead find more value as a long-term rental.

Second, what are the rates of comparable properties on VRBO? Price is as important these as anything else. All of the great amenities you have in your house may set you apart from your competition, but you will find people are more price conscious these days.

Also, too much competition may drive down prices and up vacancy.

Third, VRBO is a great site, but you need to spend a lot of time promoting your property properly. Your competion will be your floor, so do not be afraid to go the extra mile with details, photos, etc. Create something catchy like, "Great Family retreat equipped with a game room to keep the kids distracted while mom and dad can enjoy the serene surroundings" something cheezy like that.

You may also consider creating a separate website about your property. This might drive people not familiar with VRBO. Talk to agents as well. They can be a great help when they are dealing with a family relocation.

Lastly, test market your property. Do not commit too much time or money without first testing the waters. I have seen too many people buy property with the goal of renting to short-term tenants. Low expectations can be a blessing.

Good Luck!

Although I agree with your statement in theory, in practice, however, the broker will unlikely allow a buyer to use their own purchase contract on listed properties just as J Scott states. The state REALTOR associations have spent millions of dollars in legal fees in an effort to deflect perceived legal risk from disgruntled buyers and sellers.

Yes, it is legal to use any contract. Yes, you might be able to find a broker willing to use a non-REALTOR contract. I am just saying you're going to find it difficult and sometimes it is best to take the path of least resistance. Just use the state approved REALTOR contracts with your own verbiage.

1. You first need an end-buyer with cash. If you have an interested buyer, then proceed to step 2. If not, you should shop the deal before going under contract since listed properties generally mean you will have a sizable EMD at risk.

2. Since it is listed in the MLS, you're not going to be able to use your contract. However, you may be able to incorporate some of its language in an addendum.

3. On the contract where it says buyer, make sure you put "and/or assigns" right after your or your entity's name. Some REALTOR contracts are assignable and some are not. It may not be necessary to put "and/or assigns". You should check with your local association.

4. Submit your offer. You will have an inspection period to fall back on, but you should also have an Assignment Contract signed and in escrow before the inspection period is over.

Good Luck

True, my model is for my own rental portfolio and most of my notes have 18 month stops. I, too, offer a quitclaim deeds and I issue a guarantee of repayment from my parent company.

Where I have need for intermediate capital and want to sell the property using seller financing, I tend to offer an equity position through a partnership. If a default occurs, risk is spread to the partners.

Although I know Chris' model works well because there is such high demand for seller financing, I shutter to think what would happen if he had a sudden jump in defaults and had to make good on your guarantees. Can you say a "reserve for losses"!!

Yes

Yes, put that in an escrow account along with the lease option. It is unearned until the option is exercised and should not be considered revenue for the SDIRA LLC until then.

Aside from all the obvious issues Bill has so accurately pointed out, raising medium term capital without the help of a licensed securities dealer is VERY difficult. It is the holy grail for RE investors.

I can only share my limited experience with debt partners.

In my experience, you might find it difficult to attract any medium term debt partners at 7.5% as others have said. Most people you run into are leery about real estate either having been stung by bad deals themselves or through someone they know. Security means very little these days as the headlines are dominated by banks losing money because of foreclosures and the talk about a deed of trust will go over their heads. Hence, your pitch will need to focus on safety through long-term cash flow and you will undoubtedly need to create a high level of trust and hold their hands through the entire process.

1) I have had luck with doing I/O payments in order increase cash flows. These interest only payments can easily be illustrated to the laymen. Example, You loan me Y and I pay you X for 5 years and on the 60th month I repay you Y + X. Additionally, I have been able to defer payment and interest for up to 3 months while I rehab and rent. That way, I can offer a higher interest rate on their money while maximizing cash flows and reducing risk.

2) Since your looking for medium term capital, you might consider offering points. You might find it more useful since you require a medium term. Although I prefer to offer points to be paid upon refinance (back-end) as an incentive for the debt partner to not jump ship, you might find it a useful tool to incentivize your partners to hang in there for the full-term.

3) Offer some sort of equity offering. For instance, incentivize the debt partner to stay in full-term by offering to sell them a minority equity stake in the LCC holding the property.

4) Form a private placement and get it registered with the proper authorities. This will likely cost you $20K or more in start-up fees, but then you could utilize financial planners to market to accredited investors. With that, you should have better luck with the 7.5%, but when you consider commissions to the security brokers, start-up costs, and other marketing and accounting expenses, your likely going to pay an extra point or two anyway.

All of the above are merely based on my own experiences with investors who are known to me and who are accredited. Obviously, what works for me may not work for you and you should ALWAYS consult with legal counsel as part of your due diligence. Some of what has been discussed may violate securities laws and I am not an attorney or an expert in said law.