All Forum Posts by: Ed Caldwell

Remember it is hard to find good contractors that you can trust to get the job done without babysitting.  If you are not able to keep the contractor busy from one job to the next and there is time in between your flips, that contractor still has a family to feed just like you do and has to line up jobs to keep working.  Contractors make more money generally working for retail homeowners and not investors, so it is a fine line to how much pressure you can put on them.  I am assuming you have been setting a time line on the past two jobs this contractor has done for you and he has met the time that you both agreed to?  Also, speed is good but not at the cost of quality of the work.  I have used contractors that are faster, but that usually means they cut ALOT of corners.

Good luck finding a contractor that will agree to a penalty for not meeting a set time.  If you do, I can guarantee you they will increase the timeline to make sure it never happens.  I would agree to just doing some kind of bonus for meeting the completion date would be a better incentive.

My two cents.

Good point Brian.  I think you give the IRS WAY too much credit on the ability to track anything.  Take it from a CPA, I wonder how the IRS functions half the time as does most of the country ;-) Why to you think the subject of Flat tax keeps arising with politics and the IRS is always under scrutiny.

However, if you get on their radar things can go south pretty quickly.

That said, I never said one loan was contingent on the other, thus true third party relationship.  This is why I prefaced that you would have to have a great relationship and trust with the parties involved.  The contracts would have to be mutually independent of the other. Of course, I am not an attorney and I would advise anyone to consult a good tax attorney to be on the safe side before going forward with any such arrangement.

If you can't submeter, then I would suggest structuring the lease in such a way as to include utilities based on current consumption and allow for increases if utilities dramatically increase.  You just have to give the tenants incentives to keep the utilities down.  Maybe you refund part of the utilities if they are lower that expected and built into the rent. Of course, one could use less and the other more which would just cause more headaches between the two renters.

Good luck with that call.

It never hurts to have multiple strategies and you have to adapt to the current market conditions in your area. You should not be passing up great SFH deals. Get them under contract and wholesale them to other investors if you don't want to be in SFH's. This way you capitalize on the deals that are crossing your path and you are making money for the time spent until that great multifamily comes into being.

Best of luck and get started making some money!

First, as a landlord we all would love to have all our tenants like you!  Second, why are you improving a property that you do not own?  I would save that money for a down payment on a house that you could own and improve and build equity.  Perhaps you should approach your landlord and ask if he would sell you the house on seller financing?  Win Win for you both.

Since you are a great long term tenant, you should not hesitate to ask as all the landlord can say is No.  He isn't going to kick out a great renter that improves his property and is putting more money in his pocket.

I have seen others use this.  If you have a best friend or another investor you trust with another 401K that you are not related to and you trust, that person can loan you there funds and your mother can loan her funds to that investor/friend that is unrelated.  That investor pays your mother interest on the loan and you pay interest to the investor.  In this sense, you are both initiating a 3rd party transaction.  The other investor is liable on the note to your mother and you are separately liable to the other investor. Beneficial to your mother, the other investor and you if the trust is there.

Curious if others have seen this type of arrangement?

Hi Ryan,  I think you need to do more diligence on this property.  How much deferred maintenance has gone on and how much are you going to have to put into this property to get better rents? I would look at the rent rolls if they only gave you Excel spreadsheets as well.  I would be hesitant if the seller is holding back vital information, such as the debt service on the property.  As a new investor, it is really easy to get caught up in the excitement and talk yourself into a property being a good deal rather than walking away and waiting for a better one.  You have to get all the information you can and buy the property at a price that makes sense in its current condition, not what it could be.  I would also research what the rents are in the current area, as you can only increase rents to what similar rentals are going for.  It is always better to have rents below the max and keep them rented.  These spreadsheets don't show much in the way of maintenance expenses and there is nothing included for property management, buy I guess you can manage them yourself if you have time.  But, how much is your time worth is yet another factor for a minimal return.  Ultimately, any property can be good if purchased for the right price. Of course if the seller is upside down with the mortgage, you may be spending a lot time for nothing unless the lender is willing to do a short sale.  I noticed the spreadsheet only shows interest only on the mortgage, which would be a red flag for me.  Most likely a private or hard money loan on the property?

Without eyes on the property, I can't really tell you if this is a deal or not.  As a CPA looking at these numbers that appear to be annualized, there is not enough cash flow buffer for the unknowns.  

Be careful and proceed with much caution and due diligence.  Good luck!

From similar experience, I pushed the envelope and used my money with hard money as a newbie, which has not worked out very well.  When you use hard money, there is no room for error, mistakes, delays, market hickups, etc.  My last flip I got caught holding a property for 6 months with $2K per month interest only payments going to the hard money at 15%.  The market in my area just stopped and I could not find a retail buyer after the flip and the bank would not refinance for 6 months to get a loan to pay off the hard money and turn it into a rental.  My advise is to start slow using your own money as it is much more forgiving as a beginner.  Once you are more comfortable flipping and have a good team in place (i.e. contractors, realtors, lawyers, etc.) and your speed and predictability improves, then I would start using leverage to scale up your business.

Jen, there is no right or wrong answer to your question.  Investors all have different risk tolerance and no two investors ever seem to look at things the same way.  In order to stay married, you can't discount the concerns of your husband.  He sounds a lot like my wife by the way as I am the risk taker and she is not.  I would suggest not immediately paying down the mortgages, but instead build enough reserves to put your husband at ease.  With enough reserves to cover the mortgage payments for an extended time and any required capital expenditures that may come up.  Once this is achieved, I would bet your husband is more on board to save more money for the next investment and with mortgage rates this low, let your renters continue to pay off your current mortgages.

My two cents as and investor, CPA and husband.

Just a follow up.  Remember it is better to work ON your business and not IN your business.  Buy houses at a larger discount to accommodate using the higher priced GC on major rehabs.  Let the GC do the work and manage the subs while you look for the next deal. Which do you think is the better use of your time? ;-)