All Forum Posts by: Jeff Thompson

I thought of that, signing both sides would be awkward.

Really when it comes down to it though, buying cash, rehabing, and selling to someone else, then buying a similar property with a loan that someone else flipped equates to the same thing.

Ed Lee The point of the thread was to see what financing options are available so I don't consider your question a hijack. That certainly sounds like a good option vs cash, It's just many the properties I'm seeing at huge discounts are cash only. If that makes refinancing easier and reduces the draw of personal cash then all the better.

Kevin Amolsch I wasn't aware banks looked at the two situations different, thanks for pointing that out.

One idea I thought of is to buy cash and rehab in a C-corporation (because they don't show up on personal returns) then buy the property with a traditional loan from another entity or personally. The down payment could be a loan from the corporation, but of course i'd have to pay taxes on the sell and closing costs, so it's not the cheapest option. Would this work?

Monica Breckenridge This is exactly what I'm hoping to do (buy with cash, rehab, zero seasoning refi cash out). I know these things have to do with the individual banks in question, but I'm looking for what to expect so I can structure my business properly. I have a few questions:

-Do they want to see 'history' of the cash for those reserves or can it be freshly deposited? (like cash pulled from a HELOC)

-do you get the loans personally or as a business entity?

-can you explain the arrangement you have with the credit partners?

Thanks, This helps a lot!
-Jeff

Aly: Thanks for the input. so using a HELOC it doesn't matter if the place is "unwarrantable"? and under $50K. Good to know, and TD bank is certainly a big conventional bank. You didn't run into a limit of how many heloc's you can have with 7 properties?

I see was looking at the finances wrong as I didn't really understand what the 50% rule was estimating.

The NOI currently stands at $810($900*.9) - 60 (insurance) - 100(taxes) - $135(15% for repairs/maintenance) = $515
cashflow = $515 - $587 = -$72 So yeah, we are bleeding money.

I'm sure I can reduce expenses and raise rent to get it in the green, but I think I'll plead my case to the previous owners to drop the interest rate down to 4% which would make it return our investment in my lifetime... Whatever the case it is worth keeping.

Thanks for the tips about the HOA's and loans. I'd really have to do my due diligence on the HOA, and I'm sure this is one of those "build a relationship with a small local bank" type situations.

I think I over estimated vacancies and repairs, should be more like 10% and 5% and I'd self manage. I also screwed up my how I calculated my pro forma:

NOI: $750 * .9(10% vacancy) - $23(taxes) - $78 (insurance) - $185(HOA) - 88(5% for repairs) = $301

Cash flow: $301(NOI) - 122(Mortgage payments) = $179, lets make it $150 to be safe as I'm using the zillow estimates for a OO.

COC = $150 * 12 / $8000 = 22.5% Wow, that's actually a very nice return even though I'm no where near the %50 rule.

Nicholas: I was wondering that too, I have enough cash to buy outright if I could refi out later.

In the market I'm looking at I'm seeing a lot of condos that I'm thinking may make good sense as rentals. . There's quite a few similar to this deal:

35K ready to move in, 8k down at 25%, 27K financed. Zillow estimates $222 for mortgage, taxes and insurance ($122, $23, $78), lets say $250 as it will be a rental. HOA's are $185, so monthly expenses are $435 on the high end. Rent should be $750 a month, so that's $315 a month in cashflow rented with very little concerns of maintenance and repairs.

Using 30% of rent for vacancies and repairs (HOA's cover the building/grounds) we're looking at $525 a month or an expected $90 after expenses per month per unit, or $1080 per year. That's a ROI of 13.5% I believe, not the greatest returns in the world, but a pretty easy way to get it. I especially like that I could add one ever few months as I get the cash for down payments. I imagine the hardest part would be finding a bank willing to go along with my plan...

How does this look to everyone else?

Can you elaborate on this Nathan? I'm curious peoples experiences with how things work out as you scale up in units per property. lets say a sfh at $50k renting for $1000 vs a duplex that's also $50k for 2x $500. Both command 2% monthly, but which is likely to work out better?

Hi everyone, I've have a rental I co-own with my father. We bought this 3/1 in northern California in mid 2008 for 126K thinking how much lower could it go? Today it's worth around $75K with around $91k remaining on seller financing (originally $98k at 6%). We also rehabbed the house very slowly... My father contributed 14k total cash and did most the rehab work, I'm about $35k personally invested, and we have another $16K unrealized losses.

The home rents for $900 and has a mortgage payment of $587, insurance $60, taxes of $100, so $747 a month, or $153 cashflow rented. Yes, this was a horrible choice of a rental from the start, but I didn't know any better. Now my choice is to try and make the situation work, or dump it.

I've been living overseas and letting my father deal with it... I think it's a bit under market on rent, so $1100 is may be possible, and I can probably reduce insurance and get a reappraisal (taxes) to get maybe $50 less a month there. I might be able to convince to previous owner to change the agreement on our loan. If I can convince them to accept 4% the payment would drop to around $450. In this scenario monthly expenses are $560 and cashflow rented of $540. Still not the greatest deal, and this is the best case scenario, but probably would at least stay afloat.

Selling would mean realizing further losses, but may be able to work with the previous owner to avoid ponying up the cash right away, or maybe even split the difference or full on short sell (we have made $21k in interest payments).

The previous owners and "bank" I'm dealing with is an older retired couple who lived in this house since the 60's. Either case hinges on making a deal with them. How would you approach this situation?

Thanks,
Jeff

I'm going to hazard an answer to my question, correct me if I'm wrong.

A) If the investment is by loan then they are like any other employee/contractor like I stated above for a renter.

B) If the person is a partner, then it depends on the partnership was made up how the "contribution" is compensated for, but no W2 or 1099 is needed.

If a corporation then the work could be treated either way.