All Forum Posts by: Huggy Baird

Jim M. story is similar to mine. I've had inspectors scold us for "trying to make a quick buck". But, after the first home, I've always won them over by doing good work and improving the neighborhood.

I've had inspectors stop by (and drive by) randomly many times. Sometimes to verify permit is posted. Other times just to "see how it is going". One time I had an inspector check in to "make sure work was being done so the home wont stay vacant forever"

I would not get too nervous about the inspector driving by.

1. If the returns are 15% to 20%... why would you be asking if that is sufficient to buy and hold? 15% to 20% is a nice return
2. A good rule of thumb is Inflation + 7%. Today inflation is just under 3%... so the cap rate is just under 10%. There is a lot of variance here. In appreciating area, the cap rate could be as low as 6%. in a war zone, as high as 20%+.
3a. The market prices CAP rates based on expected capital appreciation. There are some variances between condos, SFH's, etc. But the bulk of the variances would be explained by expectations of home value in 10 years.
3b. Yes. The equilibrium is the intersection of supply and demand :P
4. Inflation plus 7% is a sustainable return on a passive investment. Being here on BP means you are not just investing. You are adding value by answering phones for tenants, valuing property, maintaining the home, etc. Active investors returns are much higher because you are adding value to society

Sounds like you have $500k cash (after HELOC and selling duplex's).

Flip business will need all cash due to challenges in financing. What is the typical investment going to be in your area? In some cities like the rust belt you could flip for $60k/home. In other areas like California you'll need $200k (or more) / home. My rule of thumb is the flipping side of the house should have cash to do 5 homes simultaneously. Average hold time 5 months. You could try to squeeze by with cash for 3 homes but wont have any wiggle room for seasonality or deals falling through.

The passive income rentals will offer lower returns, but build wealth and require less time. It sounds like your strategy is to use this as a parking spot for whatever you cannot put to productive use flipping. Sounds reasonable to me

I did not do anything different from a sales pitch; it boiled down to the lender appetite for residential property. Some banks have zero interest, some will entertain the idea.

One thing i did different = not giving up after the demoralizing experience last week. I was told no twice, the third bank (Ohio Commerce) said yes. Persistence payed off

I knew I'd have a good chance if any lender took a look at my company's financials, collateral, etc. My challenge always was never making it this far.

Great news!

Today a bank offered me a $400,000 commercial credit facility today at 5.5% secured by a pool of residential properties.

I'm a little surprised the amount is so low. It is not enough to do a lot with, but I see it as a stepping stone towards the future.

Special thanks to James Vermillion for getting me off the sidelines

Agreed on the portfolio lender suggestion.

I'd be over a $1mm relationship. If the bank said they will only offer a 70% LTV off of actual investment I'd be a $1.16mm loan ($500k from me). If the bank would offer a 70% LTV on the appraised value I'd be closer to a $2.25mm relationship

I am not throwing in the towel just yet. I'll approach a couple more portfolio lending institutions this coming week.

You will have to honor their lease. Without a lease you'll need to give 90 days notice. Google the Foreclosure Tenant Protection Act for all the rules and possible exceptions (eg if the rent is below market value or they are family members of previous owner

In addition to that law, you'll have to check local or state ordinances

Good luck

I just realized that you're the buyer (not the seller). Reverse what I said then. You should pay less for the home for both the pro-rata rent and security deposit

the standard would be pro-rated. The security deposit shoudl be discounted too. The cash cash to you at close shoudl be reduced by these two amounts

Of course, everything is negotiable and sales contracts can have virtually any arrangement you can think of. The title company/escrow officer will follow whatever is in the contract

I completely missed the part about not being able to have a job other than full time REI. Whooopsie

I'd change the formula to fit this hypothetical situation as follows :
Ideal_Capital$ = Needed_Income_Per_Year$ / Expected_Return%

As you brought up before, someone needing $35k/year in income would need $130k if they expected a 27% return on their capital.

Interestingly, this formula closely matches the dollar reccomendations of others like Brian Hoyt if you needed $65k salary