All Forum Posts by: Nathan E.

As promised I'm back to close the loop.  Everything went fairly smoothly with the transaction.  I was able to get traditional long term financing which puts me in a cash flow situation.  The best part is the built in equity.  Here are some numbers:

Purchase price 139, Appraised Value 175 (this is fantastic to me, and the main reason I pursued the deal)

Repairs - Minimal for continuing rental, 5-10 for sale

Current rent 1200, market rent 1300-1400 

The closing was a little interesting. The seller was adamant about not bringing any money to the closing, to which I had agreed. When we got the HUD, their prorated county property taxes were due. They balked, claiming that I was not holding up my end of the deal. I tried to carefully explain that these were not closing costs and that this money was sitting in an escrow account at their mortgage servicer. I offered two solutions a) to wait another month until the tax bill is paid out of their escrow, or b) I would personally loan them the money for closing, which they would repay when the refund comes in. We went with b. I know it sounds a little sketchy, but I've come to trust the seller as an honest person (and they cant hide from me :). I did what it took to get the deal done.

Now for the next deal...

I got a quote from my insurance agent with an exclusion for damages or liability caused by pets.  I can think of a few ways to handle it, but would love to hear how you manage this liability.

a) I could have a no pets policy

b) require renters insurance with pet liability

c) Exclude vicious breeds, and pray the little yipper doesnt bite anyone. (doubtful)

Here we are 6 months later and I have this house under contract for the amount due on the loan.  I thought for sure the deal was dead. 

The assumption is a no go since the original mortgage is a FHA (I would not qualify as a non owner-occupant), and the seller is not interested in a Sub2. She wants off the mortgage and away from the tenant.

I am currently looking at getting my own financing. I'll keep this thread updated on how it goes.

@Nick B.

 Thanks for the clarification. The first 20% goes to the sponsor, the remainder is divvied up by % of investment.

@Lew Payne 

Thanks for pointing this out.  All of these things will have to be ironed out before closing.  I'd love to learn more about structuring deals of this sort.  Besides the treasury regulations you mentioned, do you have any good source of reference information?

A couple of different perspectives on this, interesting.  I was also thinking 80/20 in this case. An additional 10% goes to the sponsor for their work.

I am trying to get an idea of a fair split for an apartment complex deal that is currently in negotiation.  Without going into great detail, there are essentially two parties: the managing partners, and the money partners.

The managing partners' LLC found, negotiated, and while not directly managing the property, will manage the PM. They are investing 10% of the cash and will be holding a recourse loan.

The money partners are putting up 90% of the cash. They will not be on the loan, nor be involved in operations.

The deal is set up so that there are two splits: one for the cash flow, and one for the proceeds at sale. What would be considered fair numbers? Essentially, how much are the managing partners non-monetary contributions worth?

If only it were so easy.  The seller is now getting cold feet and wants to let the tenant try to buy the property, knowing full well he has no credit.  She really clammed up when I explained subject-to.  The idea of keeping the financing in her name caused some head shaking, so I backed off.

At that point I offered some advice, that she should have the tenant get prequalified before even considering that he may be a potential buyer.  I then gave some landlording advice and offered to help any way I can.

@Mitch Messer thank you for your reply. I came to a similar conclusion about sub2 and its good to hear confirmation.  

The total mortgage payment is 1080 including pmi. She is current on the mortgage and has been dumping money into the home, concluding that it is a pit. She is 100% ready to walk away, only asking that closing costs be covered.

Evicting would be a new experience for me, but would be prepared to start serving notices immediately. The lease is up in May. Dealing with the tenants will be the toughest part here of this deal.

I don't see this as a great rental unless I can get a much higher rent. A quick flip could be profitable!

I overheard a coworker speaking with a tenant. She was complaining about managing the property, the issues, etc, and expressed that she wants to sell.

Later in the afternoon, I approached her and mentioned that I was looking to buy. We got to talking and I found out that her motivation level is very high, and that she just wants out. She then produced the loan statement and mentioned that I could call the bank and ask about assuming the mortgage.

The loan balance is 140K at 3.75% interest. The house has a deadbeat tenant with a lease until May at 1200/month. Nothing sounded that spectacular until I looked up the address. The house sits on a small spring fed lake and is 1500 sf 3/1.5. She’s put a lot of work and money into the place (new septic, flooring, kitchen and bath updates, new plumbing, HVAC, and exterior paint.) Houses in the area are selling for around 110-120/sf non waterfront, so I think there would be some equity.

I am looking for some advice on how to approach the transaction. Thank you in advance.

I have to second what Darren Budahn suggests.  Using a portion of your funds for a down payment on a rent ready or light rehab rental property that cash flows is not a substantial risk. You would have a cash cushion for emergencies as well as a cash flow cushion. 

If you decide to go that route, use the 50% rule if you are unsure of the expenses.  I have a friend who has been investing in Milwaukee rentals and doing quite well. It seems that this market supports cash flow investing.

I don't know Dave, but it seems like he makes his nickle selling people fear.