All Forum Posts by: Glenn Gray

I've been pursuing a deal to invest $20k, sourced from my SDIRA using a 65% LTV solution. This loan solution must be non-recourse and is designed for the purchase price of $50k, and loan amount of $32,500. Borrower will pay all closing costs. This is a buy/hold investment that I intend to earn a 13% CCR in the first year.

The property is a 912 sq.ft.2bd/1.75bth townehome in Aurora, CO, constructed 1980 with basic operating expenses detailed below. If I could find a Finance structure that works, I think I would have a winner to put in my portfolio.

My current challenge is, I'm not able to find a finance solution that will offer terms that will make this a winning investment.

*Finance Expenses

$50,000 Purchase Price

x 65% LTV

$32,500 First Loan

@ 4.75% (5/30-year Mortgage)

$233/month Principal, Interest, Taxes & Insurance (PITI)

*Operating Expenses:

$800/month Proposed Rent

x 75% (to discount for vacancies, utilities, etc.)

$600/month "Discounted Rent"

$600 Discounted Rent

-$233 Mortgage Payment (PITI)

-$235 HOA Dues

$132/month Positive Cash Flow

Shouldn't your HSA custodian provide you with a check card to pay expenses? Mine is administered by Chase bank.

Corrected the math:

$50,000 Purchase Price

x 65% LTV

$32,500 First Mortgage Loan

@ 6% (3/30-year Mortgage)

$330/month Principal, Interest, Taxes & Insurance (PITI)

$800/month Proposed Rent

x 75% (to discount for vacancies, utilities, etc.)

$600/month "Discounted Rent"

$600 Discounted Rent

-$330 Mortgage Payment (PITI)

-$235 HOA Dues

$35/month Positive Cash Flow

Reserve Requirement:

- $1980 (6 mo. PITI)

@Wendell De Guzman What are your thoughts on this opportunity for a longer term 3/30 ARM note, non-recourse for a Self Directed IRA (SDIRA)?

$50,000 Purchase Price

x 65% LTV

$32,500 First Mortgage Loan

@ 6% (3/30-year Mortgage)

$330/month Principal, Interest, Taxes & Insurance (PITI)

$800/month Proposed Rent

x 75% (to discount for vacancies, utilities, etc.)

$600/month "Discounted Rent"

$600 Discounted Rent

-$233 Mortgage Payment (PITI)

-$235 HOA Dues

$132/month Positive Cash Flow

Reserve Requirement:

6 mo. PITI

Take a look at this example transaction from a lender website:

https://www.efirstbank.com/products/credit-loan/retirement-based-real-estate.htm

Hi Dan,

I currently have an SDIRA and a prior as well. The first time, I did expense basic office supplies (printer, letter head, etc) and even an education seminar. I was never audited by the IRS and filed the LLC returns with such expenses itemized. However, I'm taking a more cautious approach on this newest SDIRA and will not expense such items.

Basically I'm saying that my understanding of the IRS tax code is that there should be no "self dealing" but that line is not clearly defined.

I LOOK FORWARD TO ATTENDING, IS THIS THE RIGHT LOCATION (Galvanize)?

It's good to be enthusiastic about starting, and can personally relate to the circumstances of having limited finance options. I think it's great to hear that there's a common investment objective: "have the principal reduced every month with very little maintenance, and realize the appreciation one day."

With that objective in mind then, may I suggest giving some thought to what appreciation you expect to inject with the repairs and what you estimate the annual appreciate rate to be. A BPO-brokers price opinion should suffice, no need to obtain an appraisal. An annual BPO will allow you to valuate the asset equity as its held. This analysis will provide the members with an idea of what they expect to gain at the end of the deal, and you can monitor the performance and make any adjustments if needed. Also, perhaps discuss how long you expect to hold the property and what options there are for exit strategy?

Hi Daniel,

I've owned low income rentals in the past. I shiver when I hear C/C- quality. That caliber of tenant usually introduces the greatest hassles, be it violations of the lease, non-payment, abuse to the property, criminal activity, etc. Something you will definitely want to consider and evaluate. That said, low income property doesn't need to be improved with class A amenities and 2-tone paint jobs. Are you sure you can't reduce the improvement budget and still offer an desirable product? On a sq. ft. basis you're improving the property nearly $9/sq.ft. In percentages, you're injecting $6500 of $47,500 purchase, that's 13.5%. Will that produce and equity increase of that amount, or more (i.e. will it then appraise out for more)?

It's perhaps a workable deal, but give serious consideration and discussion to the scrapes that I've mentioned and decide if it's really something you and two other folks wanna tolerate, just to divide three ways the forecast $106.25/mo cashflow?

Glenn

@Sean Rand it's a tricky situation partnering on a deal. You can't tell a worthy partner from the size of their shoes. In your position, you have to have something tangible to offer. Either a sound deal, experience, time, project management, sweat equity, etc. If there's nothing the capital partner stands to gain by partnering with you, then there's no tangible benefit and you're going to get turned down. Determine what you bring to the deal and seek out those that NEED those benefits.

In addition, it takes time to establish a good professional relationships. Getting out and pressing palms goes a long way. We're social animals and tend to instill a lot more trust and confidence in those we meet personally. Go make connections in your market of interest, even if it's just to talk to the local credit unions or HMLs (hard money lenders). Even if they turn you down or politely state, I'm sorry we don't fund those types of loans, you've at least opened a dialogue and more than likely learned something. In the past I've done that, and learned that my deal criteria wasn't aligned with the loan terms a bank was willing to offer. Once I aligned my deal search or finance terms with the bank's program, I found a new lending source.