All Forum Posts by: Dave DeMarinis

Huntsville is my preference for sure but “complicated” There are many neighborhoods where you won’t likely experience the growth that Huntsville is seeing in the press. That is OK, they are very strong cash flow neighborhoods. The neighborhoods that will see the benefit of all the growth in the press for Huntsville don’t cash flow well in a nutshell. 

I posted in the first thread with more details on my opinion there.

The second thread has amazing info and insight on path of progress, including a map

https://www.biggerpockets.com/forums/12/topics/631472-looking-to-purchase-in-huntsville-al-any-advice-or-expertise

https://www.biggerpockets.com/forums/597/topics/520388-huntsville-alabama-path-of-progress?page=3

I really like the Huntsville market. What price point are you hoping to invest in? Huntsville has a wide range from about $40K to $400K for single family homes. Generally, the higher the price, the less crime. There are a number of good C+ type areas in the $80K to $120K where you can be around 1% if you work the deals hard.

@Josh Smalley the issue isn't with the 2nd/HELOC. It is with the lender on the purchase. They will want to know where your downpayment came from and they might have an issue with essentially borrowing the down payment as @David Lee Hall, III said. Check with that lender about what you are planning. Transparency is definitely good. 

@Zachary C. what does Astro use out of curiosity? You are definitely correct on all systems having pros and cons. I had a PM using AppFolio and they really liked it. I thought the owner portal was very limited but that could have been their implementation. I personally use Buildium for my portfolio and I’m very pleased. 

Seth - was this a 3 unit and then a residential loan? Based on the term and rate, it sounds like it. I still think Steven can do what he’s attempting but will be commercial loan and terms (likely a 5 to 10 year balloon on a 25 year am ....

I ended up going direct but did thorough research before deciding that and liked Astro (Zach is active on here) and Rocketcity. Rocketcity is big but good. Zach is smaller and so you are dealing with the owner(s). 

Project expected to last 10 to 12 weeks, 20 to 30 hours per week

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@Jonathan Hagedorn Your objectives seem aligned with putting the LLC in the property. Based off what you shared so far, I personally would go with commercial financing in the LLC on this one. Since it is your first investment, your strategy is going to evolve and you may sell the property and/or make investments in far more expensive properties (where the residential rates and fixed term have even more value). Remember, the residential loans are limited to 4 or 10 per individual. In either of those cases, most of the residential benefit will be negated. As I see it, you need to make two decisions.

1. Commercial financing (downside is higher rate, lower LTV, variable rate and/or likely a 5 year call/balloon which forces a sale or refi in 5 years regardless of market forces, i.e. risk if market is in a dip. Upside is clean and consistent with your structure) vs. Residential financing (upside is 30 year fixed available at still historically attractive rates. A 30 year fixed mortgage would have enabled many landlords to hold on to properties they lost in the 2008 implosion so it is a big deal.

2. Will both partners be responsible for the loan?

@Justin R. - I’m not sure how important the anonymity is to you but if you are financing in your name, I think there is a recorded mortgage (or trust deed) that is public record that will show your name. Is that correct?

Congratulations on taking the plunge Jonathan. The long answer, as always with RE and Financing is it depends. I’m not a lawyer and you should consult your lawyer and tax advisor as well of course. Here are a few points to hopefully answer your question followed by some key questions to hopefully help you.

In short, yes. Many people on BP buy properties in their personal name and then switch it to an LLC after closing financing. The main reason is to take advantage of Residential RE financing options. It must be 1-4 units and CANNOT be in an LLC at time of financing. Many people will warn you about triggering Due On Sale Clause when doing this. It is a risk that should be explored but I've never heard of it actually occurring.

Key Questions

1. Are you looking at 4 or less units or 5+. 5+ can only be done with commercial financing. 4 or less can do residential or commercial financing. Residential has some huge advantage in lower rates and 30 year fixed terms easily available which is why so many people do the above. The biggest caveat is you cap out at 4 or 10 loans and then be forced to go commercial.

2. Why do you want the property in an LLC? If you are trying to have non-recourse financing (hoping the bank will only come after the LLC and property in the event of a default) - not to be negative, but I wouldn't waste your time on your first deal. Non-recourse isn't going to happen with long term financing (unless you can get owner financing) for a small deal. The LLC can still be very useful for many other reasons (liability, privacy, partnership ownership, etc.)

3. How are you having your LLC taxed? This can be a very important decision (and add a lot of cost)

Ironically, many (all?) commercial loans/lenders require the property to be in an LLC but also will require a PG (Personal Guarantee) on the loan. PM me if you want more specific help.