All Forum Posts by: Tim Delp

It would seem to me that there would be better ways to acquire real estate than using credit cards. What is your plan at the end of 12 months when these cards start charging 12% and up?

Also the other issue is the minimum payments required. Most cards charge 2 to 3% of the outstanding balance as a minimum payment. 2% of $100,000 is $2,000/month, not sure where you can buy anything for that amount of money that will cash flow that much. I understand that the $2,000 will all goes towards principal for the first year but then you are going to have to try and roll all this debt to new cards, incurring balance transfer fee of 2 to 5%.

If you have sufficient income to afford a $2,000 payment why not just save money and look to borrow through another source.

Do you own your current home, is an equity loan available, what about a personal loan with payments amortized over longer period of time?

I think it depends upon the type of property you are speaking about. If you are speaking about multi family and other commercial properties that sell based upon a cap rate/rent roll/cash flow then I could see where higher rates will hold back these prices as the return relative to investment will be less.

If you are looking at SFR then rates will not have a huge impact as their sales prices are not based upon a cap rate but are based upon supply and demand, as the economy improves, rates will increase, home purchases for sfr still typically increases when rates are rising because of all the reason rates are rising. People earning more money and thus feeling better about their employment situation are more comfortable making purchases for homes and or upgrading their home.

I read the message posted by the lender that did his first deal with Will and it sounded like that was a big help to that individual. I was going to encourage you to get involved with individuals in your area that are using private lenders. Get to know them, feel them out, ask for references, ask for list of previous deals, learn how to search on your clerk of courts to confirm that the deals they've done in the past have been paid on time and in full.

Lean towards safety and don't chase sky high returns, better to get paid back and learn your ropes before you venture to deals where the vetting of the deal is too great.

Also as you mentioned I think it is great to look for another private lender that might take you under their wing and bring you in to deals with them as a partner and they get paid a placemet fee or brokerage fee etc.

Do be careful as there are a lot of people that need private funds that are not worthly of being leant to.

If you have a Freddie Mac you can only increase your loan amount by 3% or $4,000, whichever is less, (in your case this will be 3%) Any closing costs above and beyond that you will need to pay out of pocket. Odds are anything above that is going to be establishment of your escrow account for taxes which really is not closing cost and you should have money in your current escrow which will be refunded or credited towards your loan payoff.

If you were renting it and plan on renting it again than it is an investment property. A 2nd home is exactly that a home you use for your personal pleasure as a 2nd home.

HARP loans are non income qualifying so it doesn't matter how much income you make, but you do have to have a source of income. If the current loan is just in your name you just need to show your income and I would suggest you do not add your spouse, no reason to add him to the mortgage where you are upside down in the property.

When the property was rented how much money were you losing monthly?

If you refinance how much money will you be losing monthly?

Whether you should refinance or short sale is really only a question you can answer based upon your goals, your financial means and such.

That is generally the issues with these low prices properties. The other issue in contrast to multi family is that you pay closing cost on each property which as a percentage of the loan amount typically are much higher than a multi family as a percentage of the loan amount.

If you are planning on buying a lot of these your best bet is to try to find a local bank that would be willing to do a loan with multiple homes as collateral, I hear of people getting banks to do that but i'm not sure where as I've never seen it done.

I believe there are 2 issues to contend with as mentioned above. Most people seem to feel you should take no compensation or risk comprimising the tax deferred status of your IRA. The comment mentioned above about not paying yourself and considering your time and effort that you do without compensation that you would normally pay to a management company is essentially like making a contribution to your IRA. If you are maxing out your IRA this would be a way that it could be perceived that you are contributing more than you are allowed.

Interesting topic, I don't own any in my IRa so don't face this issue, I just stick with private lending in my IRA. I guess you could say the same thing about reviewing loan applications and properties, should my time doing that be considered a contribution.

As I'm typing I'm guessing managing a property, making decisions about private loans or spending your time make selections of what mutual funds or stocks to buy could possibly all fall in the same category, so maybe all of that is okay?

The numbers sound like you can acheive a lot of what you want here. Not knowing your area can't speak for the value of the property but assuming you have done your homework on the values. If you were easily able to afford the $1,000 payment you were going to have you should be able to put some money back in to this property making improvements as necessary.

I'd suggest making the necessary improvements you want to make to the unit you will be occupying. I would suggest that although you will be living in that particular unit do make the repairs taking in to consideration that most likely you will be renting it at some point so make them to appeal to the majority and take into consideration low maintenance.

As your current renters move out you might then move in their units, make similar type improvements and rent your other unit and slowly over time make the right improvements to increase your rents and make the property low maintenance.

Good luck and congrats on your first upcoming purchase

Sounds like you have two potential questions:

The actual running of the business and how that would work, whether your wife is going to take over or hire property managers and she manages them?

The other question seems to appear more in line with long term estate planning etc.

As far as key man insurance that is typically put in place to provide for the financial loss a business would face in the event of the untimely or eventual loss of it's founder/ceo etc. If you don't see your wife wanting to have anythign to do with the business you could purchase life insurance with enough coverage to provide for her without the properties and have the plan be to sell the properties.
The other area where I've seen key man used is if you have business partners and you each own 50% of the business. Let's say you have a 10,000,000 business you can purchase key man insurance on each partner in the amount of $5,000,000 so the remaining partner buys out the deceased partners 50% of the business and the deceased partner has taken care of their spouse while leaving the business solely in the hands of their partner going forward.

If you do see the possibility of your wife keeping the business but bringing on property management to take the place of what you currently do in your capacity I would suggest that you interview and begin to build a relationship with such property management now so the decision of who would manage the properties is already made.

Whether you should buy there or somewhere else is a much larger question that just your debt to income but I'll share a little bit on the debt to income question. Typically when buying your first rental property you will need to be able to afford the mortgage payment assuming no rental income. Most lenders will want to see 2 years of tax returns and will use the rental income you have been claiming on the tax returns relative to the expenses in order to determine whether you are cash flow positive or negative. If you were able to qualify to buy the first property but need the rental income on that property in order to qualify to buy the 2nd property you just need to first keep very detailed records. I'd suggest keeping copies of the rent checks you receive as well as setting up a seperate bank account that you run your rentals through. Prior to having 2 years of tax returns you will want to demonstrate to an underwriter the amount of income and expenses you've had with the property. They might not allow you to count any positive cash flow but may allow you to offest your mortgage expense with a 1 year lease and documented receipt of rent.

The guideline they use is to allow for 75% of the rental income to be used to offset the mortgage payment. $1,200 rental means you can use $900 to offset whatever the mortgage payment. If you have a $1,000 mortgage payment you are now $100/month cash flow negative from an underwriter's perspective because they take in to account long term vacancy and maintenance for the other 25%.

I have seen and heard about this as well. I manage my own properties but I think there it is reasonable for them to get something for their extra effort but keeping 100% seems a little too high for me. If you think about typical rent of $1,000/month and typical property management fee of 10%. Late fees of $25/month for 3 or 4 days becomes a very significant increase in their income. 4 days of late fees me they just doubled their income per unit.

I guess the other consideration is you have to look at their overall performance and is it worth paying them what you pay including them keeping all the lates fees or would another company better serve you overall.