All Forum Posts by: Gideon Sylvan

I find the best way to determine market rates is to look at active rental listings on your area's main rental sites (such as Craigslst). At the end of the day, these are the listings yours will compete against. For a fast estimates, I normally start with rentometer.com.

This isn't necessarily the critique you're looking for, but the colors are a little hard to follow, and I can't figure out if you're improving the units at all, and if so, which are the out of pocket costs necessary before stable rent revenue.  

I'm sure there are loopholes for both (like duplexes or living in it first for the latter), but generally speaking these are both true statements.  

I've purchased all my rentals with bridge loans (normally hard money), improved the property, and "refinance" before the 6 month mark (not all lenders will do before the 6 month mark, so ask first). You'll likely have to put 20% down for the bridge loan, and when you refinance it will cover the bridge note. Combined with a HELOC for the remaining portion of the 70-75% LTV, this is my go-to strategy.

If you use an unsecured loan (like a retirement line of credit), you can often do what's called delayed financing if you don't want to wait 6 months.  

To summarize with your numbers, you'll need $15K (down payment), $15K (repairs), $5ishK (bridge loan costs), $2ishK (refinance costs, if you don't roll them in to the loan), $2ishK (holding costs before revenue generating), and to be on the safe side I would throw in another $5-10K for the unknowns.  That brings your initial cash costs to just about $39-49K.  

With the ARV of $110K, you should be able to get loans of about 82K (75% LTV). Add your $39-49K to the note amount of $73K and you're looking at $112-$122K, which means you would end up with a final cash out of pocket of $30K to $40K with a conventional 30 year note for $82K at a rate that is normally about 0.5% higher than you would get as an owner occupant.

I'm no CPA, but I have been advised to transition my flips out of an LLC and into a S-Corp so excess profits can be paid in dividends. If you're not doing a lot of volume, this wouldn't make sense, especially when considering the time and money costs of creating and maintaining a legitimate company (including an LLC). I also have a very unscientific opinion that some distressed sellers (and a lot of banks) prefer accepting comparable offers from individuals. If you change your mind and hold the property as a rental, you could always quit claim it into an entity when you're ready.

Are you looking for houses that are in default, but have not gone to auction yet?  My title company has this for $5 a week, and essentially everything listed as a short sale falls in this category. 

There's really very little to disagree with in this book, since it's mostly facts generated from what is arguably the best real estate database in the US.  I found this book to be refreshing in an industry where everyone has an opinion, but I also found myself thinking there is a little too much correlative data and the themes were a little all over the place.  In other words, it's a completely worthwhile read, but it's not the only read.  

If a seller said yes, would you be ready with a purchase contract and the appropriate terms?

From my experience, mailing abandoned property owners and calling FSBOs generated more serious conversations than putting up bandit signs. I personally lack the tact to do probate and divorce letters (got some angry responses), but I know some people do it well. This is something to speak with an attorney with, but I use to work with one who would start LLCs, get MLS offers accepted with the LLC as the buyer, and then sell the LLC for an appropriate amount.

Random things to think about:

- sellers are not idiots, and they know you're going to turn a profit, so be honest with them

- you're probably not the first investor who called that FSBO, so consider ditching the scripts for honest conversation

- short sales give you a lot of lead time to prepare your buyers during the negotiation phase

- it's best to know which of your buyers want what, but if it's really a great deal, it should sell itself to someone

- if it won't fit with a buyer in your list, consider reaching out to bigger wholesalers and offering them half the deal if they sell it to one of their clients

I mean, if you "trust him completely" why not?  It's true that on market properties include a selling commission, but off market properties do not, and why limit the search?  I would maybe add a clause about getting your money back if you actively make offers but non are accepted. 

This is completely normal.  Roof problems are your friend because they eliminate most buyers.  You will need to buy with cash or something that resembles cash like hard money.  If you're trying to hold the place as a rental, after you fix it up you can refinance or use delayed financing to get a conventional mortgage.  

You're right to be skeptical.  After all, in theory they're trying to maximize profits just like you and from what you're describing this isn't a good move for him.  That being said, there are also sorts of reasons one might sell, such as personal reasons, even with no profit.  

Keep in mind that he may have an opportunity that is better for them, even with just a small amount back.  Sometimes a double sale is forced to happen in a constrained time period, such as an acquisition being contingent on another sale; or in the case of 1031 exchanges where a time period expiration would possibly mean paying more in taxes than you would lose selling at a lower price.  Some people also just get sick of the investing.   

By the way, that is a great deal and you have been chosen (assuming there isn't more to the story).  Congrats!