All Forum Posts by: Hunter Vigneault

@Mike Montanye It would be your all-in cost, but don't make decisions off of the 1% rule (You didn't say that you are, but I think it's good to put it out there for anyone that might be). It is quick and can be helpful to gauge if something "might" be profitable, but there are so many differences in locations that I don't think it is particularly helpful if you're looking at multiple markets. A 1% deal in New York, Florida, or Tennessee will all have very different levels of profitability due to property tax levels, insurance costs, business/investment license and tax structures, etc. Even within the same local market, two different properties that meet the same initial cost and rental income rate and are therefore surface level identical "1% rules" will have different system ages and ongoing repair costs and/or upcoming capex items. Those are likely going to be harder to figure out at your initial pass, but will still impact your personal investment returns. Using your two examples, it may be that property 2 is way more profitable on an ongoing basis than property 1 after spending $20k replacing major systems.

TLDR - Don't think that paying a price at a ".9%" level is a necessarily a failure to be avoided (it might be, but that's why you need to actually run numbers).

The term "kick back" here is a little confusing - is it intended to just be cash that is given to you as a credit for repairs? If so, then the price would be set and the closing statement would show a seller credit of $30k that offset your required cash to close. If you are looking at this structure, I assume you have a lender and you're going to need to get them to approve this large a credit (large is relative, as I don't know the contract price). If the lender won't go for a $30k seller credit, maybe you can lower the sale price by $30k - it should roughly get the seller to the same place - and use a construction loan from the bank to fund acquisition and repairs?

Alternatively, I think what @Sanat Bhandari was referring to would be if the "kick back" was intended to be a shorter term seller carry of $30k, meaning they would loan you $30k of their sales proceeds so that you would be $30k lower out of pocket to close and then could use that cash for renovations. You'd still need to make sure the lender was good with the structure and, as said above, probably want to plan for a refinance event down the road to pay it off. In theory, a seller second could be a long term fully amortizing note, but in my experience that would not be typical.

This may end up being a good play over the long term (and I don't know this property specifically), but personally I think the assumptions could be a little more conservative. I expect the calculator would show this to be slightly underwater on the cash flow after adding in management and making some adjustments to the vacancy and maintenance assumptions.

Regarding the management question, I think you should always factor in management expense to judge the performance of the asset itself and then you can decide if you want to "get paid" the market amount for doing the job of a manager. For me, the answer is always to hire it out.

@Evan L.

If you have a PM there and the note might be from them, have you asked them about it?

 @Steven Barr They are not necessarily the same, so a private money lender could be a good way to go as well, though it's harder to find a good one particularly if you are just getting started and don't yet have a track record (I don't know if that's accurate). If you are just trying to get around fronting any down payment, there are sometimes hyper local focused banks that are willing to lend on ARV. If your appraisal comes in with a value that shows 20%+ equity they may be willing to forego a down payment. I have seen it personally, but it will take a lot of calling around to see if they'll do it.

@Steven Barr Generally speaking, yes - though a hard money lender would probably not be the right way to go, as they usually will not lend on owner occupied properties.

Speak with your local banks and see which one has a construction to permanent loan that you will qualify for - that's likely to be your best option.

I'm not clear on how you'd walk away with $133k despite being in it for $120k with an ARV of $165k.

If it is truly an over-rehabbed 4 bed class D, I'd look into selling it and just take the profit you can. Obviously any specific tenant might treat your property very well, but tenants in general could start to cause issues with your finishes and then you'll lose the premium you might command today. I'd guess it's more likely to be the case with a 4 bed because that's just a lot more people occupying than a 2 bed.

I don't know your market or goals, so you can better make those trade-offs/determinations.

Got it. Putting the loan in an LLC's name is unlikely to be an issue. As you said, most banks expect it and some even require a special purpose entity be created for the purpose of holding the real estate securing the loan. On smaller (sub $1m) or portfolio loans, you'll almost certainly still be personally guaranteeing the loan.

It depends somewhat on the value (and therefore the type of loan you will use), but get your financing first. You want to at least be sure that you meet the criteria of whatever bank or lending institution you are going to use.

Everyone wants to do the LLC first, but it can usually be completed quickly and just before closing. Your attorney(s) should be able to advise the proper location and structure, which may vary from state to state.

While there are reasons to go wider, I suggest you narrow down to a couple of states or preferably a smaller area than that. You will come across as more credible with brokers and lenders and you will need fewer of both.

@Miguel Rodas I use a property manager.

Back when I self managed, I used Cozy. I think that was 2013-2014, so it was great for that purpose and inexpensive but my experience may be different than today's product.