All Forum Posts by: Elijah Brown

@Jake Diamond Hi Jake, I’m looking for investors. Feel free to PM me if you’d like to discuss.

@Jonathan Toruno I try to stick within the zip code. What’s most important is picking comps that are similar (e.g. same beds/baths, sqft, renovations, recently sold, etc.). If you have to go a few miles away to find good comps, it’s better than using bad comps just because they’re on the same block.

@Derrick Wortman put it on a credit card with 0% interest for 12 months

No smoking because it is very expensive to remove the smell and it's a fire hazard. Also, I find that some people who smoke cigarettes inside also tend to make other poor decisions inside their homes.

I allow 2 pets with breed and weight restrictions and require an extra $300 security deposit. I recommend allowing pets because you don't want to eliminate a huge source of potential renters.

@Habbak Burs Every listing has a price that makes it worth it  to YOU. I recommend that you focus more on what price makes it a good deal for you rather than a specific % below asking price. You will get lots of rejections for low ball offers, so make lots of offers and expect rejection. Last thing you want to do is overpay for something and then struggle to keep it alive.

Interest income for the lender is taxed at the personal income tax rate (ordinary income) while principal repayment is not.

Therefore, you can make the deal more attractive to the seller by offering a higher price for the property at a lower interest rate. The lost interest payment to the seller will be compensated by the higher sale price. 

The seller should be happy with this, as 1) they won't pay as much in interest income taxes, and 2) they will receive more money up front and can invest it in higher yielding opportunities than the interest rate on the note.

Note that this deal is only good for you if the additional money spent on a higher purchase price is less than or equal to the reduction in interest expense that results from a lower interest rate.

@Scott Lyons Even if you plan to manage it yourself, always include a property management fee in your analysis. This ensures that if anything happens to you (you move or can't manage anymore for whatever reason), the investment can still be profitable.

Based on your inputs, Cash on Cash seems a bit low around 4% ($1.96k/$49k). If you consider the comments that @James Mc Ree and @Brandon Roof made, Cash on Cash will be closer to 0% or negative. It will be difficult for you to cover all of your expenses with monthly rent at $2,400. 

Also, if you consider any rehab costs, legal fees, or contingency in your initial out of pocket, that cash on cash return could be negative. Unless you're projecting 10%+ appreciation per year in this market, I would stay away from this one as you're likely to lose money every month.

Hope this helps!

@Mauricio Rauld what if the returns aren’t generated solely through my efforts? What if my other partners/investors have clearly defined roles in the operating agreement? Would it still be a security?

@Todd Dexheimer @Greg Scott He’s pooling money for a duplex, not a $5m commercial apartment complex. 

He should be able to claim an exemption from registration under rule 506 of Regulation D. He won’t even have to provide a Private Placement Memorandum although it’s highly encouraged for added protection. He can also take non-accredited investors if he wants! 

To be safe, he should give all his investors a job to do in the Operating Agreement so the offering isn’t considered a “security” (because it is not solely through the efforts of another).

I would understand spending $10k on legal fees if you’re raising millions, but for a 20% down payment on a duplex, I don’t see how it’s necessary or feasible. 

As long as he discloses to his investors all the risks involved and avoids any sort of fraudulent activity, the SEC likely won’t question his ability to serve as a good fiduciary. 

However, as you both mentioned, it is highly recommended to consult a RE attorney before proceeding. I usually spend around $300-500 on this....again not $10k for these small deals.