All Forum Posts by: Fred T.

Technically, since Investors are suppose to be educated - more so than the seller - in most cases, you should have a presentation that expresses the answers to not-yet-asked questions like that.

When Investors valuate a deal, one usually know what in-fact the land value is in the property's current condition and has that written down somewhere in their offer presentation (of course I am assuming Investors use such a presentation in the first place). They also come prepared with the latest Tax Assessor Report that breaks down the land and building values as further evidence of justification for the offer.

Then they have the Building value in as-is condition based on supporting comps ascertained through industry Appraisal or BPO standards to present to the Seller as well as the repairs the property requires being pointed out during the walk-thru with the Seller.

The explanation of both is important to discuss so as to make the Seller aware that you are aware of the value of the land and the building based on your experience and expertise and furthermore have provided the Seller with the facts used in your determination.

So long as you're not trying to get one over on the Seller, or use the old rules of 60-65-70%, then you should be able to negotiate a fair deal for all. I assume you tell them you are an investor and this is your Business...and of course Businesses should make a profit...so once you explain that, then all usually goes well. If you forget to mention this is how you feed your kids, then a low-ball offer holds no validity to them in the first place.

Honesty is the best policy...otherwise you come off looking and sounding like a crook!

If the profit margin isn't in your wheelhouse, and you believed you offered a fair deal, then simply move on. This is an emotionless business...simply numbers, relationships and mutual respect and sometimes you have to walk away from deal in order to get the deal in the long run after the Seller talks to other unprepared, uneducated, ignorant, greedy Investors offering even lower numbers than you did. K.I.S.S.

BTW, if you were offering less than tax record land appraisal, one has to wonder why (unless it was a demo of course)..lol

Good Luck!

All you really need is a solid JV Agreement and you're all set!

In a good JV Agreement, it spells out everything you mentioned and more such as what happens if someone dies, who is responsible and accountable for what, what happens in case of....., and more.

A good Real Estate Attorney has these templates and would encourage a "Meeting of the Minds" to fill in the blanks of the agreement. Once the Master Mind is completed, and the Business Plan Formed, the JV would be executed by all and enforceable in a court of law.

I wouldn't try to put together a new venture, where each party has capital in play, without a JV Agreement in place...and our Community does plenty of them no matter how close the individuals are (friends and family..lol).

Good Luck!

Here are the main indices of Loan Underwriting (keeping it simply):

As-Is Value

After Repair Value (ARV)

Loan to As-Is Value (LTV)

Loan to Cost to get to ARV (LTC)

Types of Lenders: Conventional or Hard Money (there are others but let's keep it simple)

Conventional Lenders will look at the AS-IS Value of the property and on Residential Properties will typically loan up to 80%LTV or up to 80% of the Purchase Price, whichever is lower. On Commercial Properties, it's usually 75%LTV or up to 75% of the purchase price, whichever is lower. Now there are programs out there like the 203k and Portfolio Lenders may have some unique programs...but just sticking to the basics, these are the percentages.

Conventional Loan Example:

ARV = $150,000

Purchase Price: $125,000

Cost to Rehab: $10,000

Residential Loan Amount (80%of the Purchase Price and not the ARV): $100,000 (Meaning you would need to bring $25,000 to the closing+closing costs+reserves+cost to rehab)

Commercial Loan Amount (75% of the Purchase Price and not the ARV): $93,750 (Meaning you would need to bring $31,250 to the closing+closing costs+reserves+cost to rehab)

As you can see...the ARV doesn't matter with Conventional Financing unless you are using a 203k or other type of Construction to Perm Loan.

Hard Money Lenders will look at the ARV of the property and will typically loan between 65-70%ARV. They will also not to exceed between 80-90%LTC up the the MAX ARV.

Hard Money Example: 

ARV = $100,000

Purchase Price is: $35,000

Cost to Rehab and Stabilize the asset is: $38,000

The Max Loan Amount, using 65%ARV, would be: $65,000

This example's Loan to Cost (LTC)= Purchase Price+Rehab Costs = $73,000

In this scenario, the Lender would lend $65,000 (The MAX % ARV because your LTC exceeded the Max ARV percentage) causing you to come to the table with the remainder of $8,000+closing costs and reserves (as applicable).

Hope that helps some and again..this is a very simple explanation./

Wholesaling IS NOT what was described in the original post "...finding a house on Craig's list and putting a buyer together with the seller."

In order to do exactly what you mentioned, you do need a Real Estate License.

"Wholesaling", on the other hand, means that one individual "controls" the property via a Purchase Agreement acting as a Principal (Buyer) in the transaction and then assigns their "Equitable Interest" to another (Buyer) who then completes the transaction.

It is very important to note the difference between "Acting as a Real Estate Agent" and "Wholesaling".

Any kind of "Match Making" without having a vested interested in the asset, when it comes to Real Estate, is illegal.

 1) When you take out a mortgage, you have to "certify your intentions" which is where the occupancy restriction comes into play. You can certify today that you will be the primary resident and then lose your job next month and have to move for a new job...things happen

2) Have your Attorney review your Note and Mortgage documents to determine if some form of action by you is required should your residential status change...most of the time the answer is no

3) The likelihood of a bank putting you in default when they are getting paid regularly is slim though I'd be doing a dis-service if I said they couldn't do that

4) There is no "rule" as each lender's requirement is different...some are Self Certification Only, some are 6mths, some are 1yr and some are 2yrs...it just depends on the loan type and issuer...again, the exact language will be expressed in your Note and Mortgage and unless you committed fraud by saying you were going to live in the property and yet had no intentions at all, then most likely no issue exists

5) There is no asking a bank for permission in my opinion...not sure if I know of any Residential Status Change Authorization Desk... 

I wouldn't stress it (unless you committed Fraud of course)...BUT DO consult with a Mortgage or Real Estate Related Attorney for consultation so you can sleep easy at night.

DISCLOSURE: I am NOT an Attorney, CPA/Account or other related Professional and prior to acting on the opinions written on any Forum, you should ALWAYS consult with local Professionals first!

@Bil Casimir you can "help" your Mom's IRA BUT you can not accept a dime for doing so, you can not benefit personally in ANY manner, nor can you manage her IRA or IRA/LLC for the reasons @Dmitriy Fomichenko  stated above.

In general though, your Mom's SDRA can and may want to setup an IRA/LLC for which she can play with Real Estate and manage her own LLC, on behalf of her SDRA, as needed for asset protection.

You mom's SDRA can invest in another LLC so long as there are no disqualified individuals in the same LLC with a controlling interest.

With all that said, if YOU want to play in her retirement sandbox...then she may be able to form an S-Corp on her own, do a reverse IRA Rollover to a new 401k sponsored by her S-Corp and then loan another LLC, or fund her an LLC that you and her are part of, or just your LLC, the money for the Real Estate...whichever way you all feel comfortable with.

This is very important to get right...so don't hold weight to any forum post or opinion, consult the professionals in your local area for further guidance./

Good Luck!

On the surface, the answer appears to be simple...BUT one will caution that in order to make a true determination, it requires a lot of actual research on a local market/neighborhood and the answer is actually much more in-depth...so take this with a grain of salt..lol

Class A- Newer Growth Areas (new construction, rebuilding of infrastructure, core fundamentals reflect strong growth, low unemployment, pro-active government, home prices increasing, vacancy rates decreasing, demand slightly higher than supply, School Districts usually have a 5+ rating, etc.)

Class B - Older yet Stable Areas (Little new construction, no major fluctuation in growth or reduction of population, little to no change in employment opportunities or unemployment rates, infrastructure is old yet functional and not being updated, supply and demand are fairly equalized, rental vs home ownership relatively equal, home prices stabilized, School Districts usually have a 3-5 rating, low to moderate crime rates, etc.) 

Class C - Older yet Declining or Barely Stable (Know as Crap Shoot areas, large population decrease, home prices flat-line or slightly decreasing, infrastructure needs repairs, School Districts usually rated a 3 or below, high localized unemployment, no new construction, businesses moving out of the area, moderate crime rates, more inventory than buyers, high rental communities vs home ownership, etc.)

Class D - Older, Declining, potentially rapidly declining areas (potential "War Zones", high crime rates, properties is vast disrepair, very high localized unemployment rates, small pockets of population, high number of vacant and boarded up properties, bad infrastructure - barely functional, disorganized local government, vast numbers of public assistance housing puds, overall community in need of extreme assistance.)

Each Community though has its' own Real Estate Cycle and for the most part that occurs every 7-10yrs on average. While I highlighted some of the most regarded tell-tail signs some look for to determine a community type, it should not be considered all inclusive signs by any stretch of the imagination.

Hope this helps some...but again, take with a grain of salt because no one can answer your question completely as each market is different and each have their own tell-tail signs...not a one size fits all classification./

@Brandon M. first off, Thank You for your service!

Wholesaling is usually the first Strategy people learn when starting in this wild wild west industry. By learning how to put together a Wholesale Package properly, it makes for an easier transition into your first project. You can even take the wholesaling one step further and offer to volunteer as a co-project manager on that investor's project where you work along side of them or their project manager to get the feel for the process.

Get a baseline educational foundation before you venture off into anything...just like Basic Training for Real Estate. Then you can start to learn different exit strategies (which is equivalent to the training you had to complete for your actual job in the service). 

There are many ways to secure that foundation education, so do your OWN Due Diligence (take opinions with a grain of salt and research on your own before investing into anything) and choose the platform or product that you are happy with and fits the way you like to learn (i.e. reading, watching, listening or a combination of the 3).

Form yourself a Team (Mentor(s), Real Estate Agents, Mortgage Brokers, Contractors, Home Inspectors, Appraisers, Title Companies, Attorneys, CPA/Accountants, etc.) to support and guide you as you learn.

By the time you are ready to make the transition, you should be good to go...and if not, no worries..just keep the machine rolling until you are.

Again, Thank You for your service to our Country and best of luck to you in your ventures!

@Account Closed good note...thanks!

SoCal to Pgh??? WHY!!!...j/k, welcome to Pittsburgh and Happy Investing!