All Forum Posts by: Dan Liptak

Hi fellow BP GURU,

Very glad to have found this forum and look forward to being an active member here.  Let me tell you a little about the property I am buying.

It is a forclosure that was put on homesearch.com. It is really undesirable mostly for cosmetic work I am planning to fully renovate the property. I won the auction for almost half of what it is listed on MLS for just got the contracts.

Purchase Price: 60,000

As Is Value: 95,000

Renovation Cost: 25,000

After Renovation Value: 140-160k

After Renovation Fair Rent Estimate: 1,700-1,900

Taxes: 6,500

I am using lendinghome.com its an interest only loan 12 month term with a balloon payment 65% LTV After Renovation Value and 90% of Purchase Price @ 11% and they have no issue with borrow holding title in an entity. This is my primary funding because I would like to build a relationship with a good HML and they look to good to be true.

If they fail to finance I have other options from friends and family that want in.  Hopefully it works out because it would be great to develop a relationship with a lender that can do that on a regular basis.

I anticipate having the house fully renovated in 3 months. Selling it is an option but I would really like to hold it for a year or for many years. If I was to rent it out the NOI would be apx 10k-11k which would easily cover the mortgage costs + give me a couple hundred a month + cash flow and of course paying down that mortgage.

Obviously I will be holding the title in an LLC which is good for the acquisition phase but I have not figured out what to do if I hold the property:

If I do hold it long term I am going to want to leverage it as much as possible to get cash on hand for more deals.  From my conversations with lender they will only go up 65-75% cash out on  refinance of an investment property.  Plus I have to wait 180 days!  What is the best way to get the most leverage out of an investment property?

Let me ask this is that a concrete number even going from a rehab loan to a conventional mortgage with a different lender?

Even if its rented with a lease?

Even if the renovations were substantial enough to warrant a drastic change in FMV?

What if the property was bought cash without any financing do I still need to wait 6 months?

I know banks will not give you a mortgage for a purchase when you are going to hold title in LLC instead people close then transfer the deed and from what i hear the banks don't enforce the due on sale clause if there was one. My situation will be the reverse I will already hold title in LLC but I will want to mortgage it (personal guarantee of course) anybody have any experience with this? If you do please fill me in on the nuances.

TIA! 

@Linda Weygant Thanks for the input. I have always enjoyed and prided my self in setting up my own corporations and doing my own accounting. Maybe I should consult with a REI CPA it seems to be the consensus here anybody have a good recommendation in Westchester, Putnam, or Dutchess counties NY. Honestly I have called in the past and even sat with some then I start talking about the LLC's, Real Estate, SD IRA, 1031's and all I see are blank stares perhaps someone knows someone in my area that is familiar with what we do.

Thanks for the info @Ned Carey you got my votes!  @Nick Versetto I do not have a CPA... nothing against them or people who use them.  I just use quicken, quickbooks, and turbo tax.  I feel like with a little planning and research ordinary people can take care of their own stuff.  Maybe the day will come when my opinion changes or hopefully  its just no longer feasible for me to handle my own accounting.  

They didn't advise me to use an LLC I just did it because I already have one created for business and it just helps add a layer of protection should anything go wrong in the future.

@Steve Vaughan Thanks for letting me know about the vote as show of appreciation for valuable information after all that is why I am here.

THANKS @Ned Carey! Couple of more ?s coming your way.

1) For my first few properties I am going to be doing them in my LLC with pass through to me. How can do I determine the after rehab cost basis for depreciation?

2) I will be doing most of the work only using the contractors for very big jobs.  I know I can put the contractor/material costs into the cost basis of the property but is there any way to include my work i.e. the material for a bath and kitchen is relatively cheap as compared to the labor you pay.  I am the labor but it seems unfair that I can not include this in the cost basis.  Any strategies for this?

3) I plan on opening up SD ROTH IRA this year and start building it up so I can flip with in those vessels for retirement. I realize that I can not contribute goods or services (need to use contractors for everything)... can i use this vehicle to avoid taxes on the profits from the flips?

4) Same scenario with a ROTH SDIRA but hold the property and rent it out. Does the income generated by the property become tax free within the IRA?

Thanks for the info!

Thanks @Ned Carey!  Glad to cope with that now rather than later.  How would it be taxed?

Is this going to be active income or capital gains ( this is a part time activity, i have a full time regular job)?

My intention is two pronged... I would like to rent it out and then mortgage the property and leverage it that way and keep it indefinitely. What is the usual LTV for a single family rental ?

Thanks

Dan

Just won my auction and contracts are out. This is going to be a flip investment and I will be vesting title in my llc. I have never put property in LLC name is anything special required at closing to show I am the authorized agent of said LLC?

Also I am anticipating no issues using a 1031 after the sale to move on to the next flip.  Any differences using a 1031 entity vs individual?

Thanks
Dan

Thanks for the feedback!  Glad to be in such good company. I will be moving forward without the attorney.  Seller is paying for title insurance and will issue me an owners policy at their expense.

My thoughts exactly!  Thanks @Michael Woodward

Hi Jean,  That would have been good.  I didn't see an edit button so I will just throw in some key words: 

Why should I use an attorney? Putnam County, NEW YORK ( NY )

Looking for some input here. This is my 3rd REO purchase in 7 years. The two prior were my personal residence fixed up, leveraged, rented out got bigger and better.

Each time I would buy one the lawyers would look at these contracts with no financing contingency and no inspection contingency and say I am crazy they would never do a deal like this.

I have to explain to them... I understand the risks then they go ahead with the deal.  I can understand the need for one selling for drafting the contract, or if buying a rental that tenant issues... etc

Those are not issues with this deal so what can an attorney do for me?  I already got prices from title company.  Do they do anything else other than communicate with sellers and order title?  Honestly I feel I would better communicate and expedite my transaction handling them myself.

This is a very small purchase 60k.  Lender doesn't care if I don't use a lawyer.  Every person I talk to tells me I am crazy... maybe I am... but I just don't see the need.  Please sell me on the need before I move foward.

Secondly, on the auction site it provides me with the option to use the sellers title company.  Is there any down side to this?  The company that is underwriting the policy is a 3rd party.  People on the internet forums act as if the 3rd party is going to work with the seller and conspire to sell me a property with defective title.  I just don't see why it should be paid for 2x.

My earnest deposit is going to be 3k.  Hiring an attorney and title co will add 3k to the deal.  If my financing doesn't pull through I will lose the 3k (but its so small they would probably find it easier to just give it back then go to court which I have had happen on a deal that I gave up to pursue a better deal).  

Thoughts?
TIA