All Forum Posts by: Sam LLoyd

Depending on your market, there might be deals on the MLS that are foreclosures.... and just don't say it. For example... the house that I live in. It looked like a so....so deal of a duplex for 169k... we were driving by and one of the sellers (it was an inherited property) was there. She talked us into getting out of the car, walking through the property, and insisted we make an offer regardless of the asking price. The property had been sold owner finance, and then foreclosed on, and she was eager to sell the property, then sell the note, and be done with it. We made an offer of 125, and settled on 124 with about 10% down. Rented out the apartment for the same price as the mortgage, and now I've lived here for 6 years for the cost of utilities... and after depreciation and interest deduction and principal paydown.. even that's probably covered.

So... You don't have to go to foreclosure.com to find them. REOs are good if you can see something others miss. The key is to keep looking. And not just looking, but really digging into things. Look up owners on government pages to find out what else they own.... call FSBO signs... It's a treasure hunt.

Happy Hunting

I'd say you are more likely to loose a ton of money than go to jail if you don't watch you contracts.  I figure that when you're dealing with an institution like a bank, their liability works for you.  If you loose a paper here or there, they have copies.

When you're working with agents and brokers... again, they have liability, and will help protect you from faulty contracts because it can also protect them and their reputation.

Where you need to be careful is when you go to do a deal on your own, without a broker or a lender to review your contracts and any unforeseen implications.  Be very careful when your looking at a home made contract.  Read every word of the contract, twice if you need to.  And, if you don't understand everything in it, or have any doubts, don't sign it.

There are many similarities between this deal and one I did that went VERY badly... the only difference is the family member aspect... which could make this better, or much, much worse.

Things that this deal has going for it.... the recent updates... one of the major downsides to the deal that went bad for me was improper maintenance allowance.  I also like how you calculated 8% even though its full right now... without knowing more about the market, I'd say that's a good starting point.

One problem is that the rents are at the top of the market... I'm in the same situation right now... I see the leases, the units are full, but is that a fluke?  A fix for this is to do your own market research, come up with what you would ask for them if you were starting from scratch, and do the numbers from there.

Now, financials... I put 25% down, 6.5%interest for 30 years, since that was a quote I was given recently... that's a monthly PI payment of 1,300 or an annual payment of 15,600.  So, you would be losing $200/year.  Also, I do think all of your numbers are good except the management.  10% of gross is reasonable, but after a year, if you find a manager that can charge you only 10% without any other fees or costs, I'd be surprised.  Even if you could manage it yourself, I don't think you would be getting paid well for your time and money.

Summary: At the current terms, it does not make sense to me.  I would never advise you to even get close to a negative cash flow deal.  The value in the land is significant, but only if you can act on it.  Unless you have a strategy in mind to access this value and the means to accomplish it, you can't consider this value.  I think your uncle will understand.... or maybe lower the price further... you never know.  Any ill-will felt by turning him down will be far less than the ill-will when you loose your shirt on it.

Wow... can't find a junker duplex in my area for under 150.  I'm working on a loan through a mortgage broker right now who has gotten her underwriter to make an exception on the reserves... Cutting the reserves about in half.  So, if you have the down, and the deal is good enough, maybe you can sweet talk them, or hit the sidewalk till you find a banker/broker that can make an exception.

Other than that, I'm not aware of any magic.  You are in the same situation a lot of us are... coming up against institutional lending hoops, and not skilled at raising money any other way.  I'm assuming you are not owner occupying either duplex?  If you did, you can probably get them to waive any reserve requirements for the one you're living in.

The other way to attack it is patience.  If you're cash flowing $430/month, I'm assuming you have other income from a job.  If you pinch pennies... maybe pay some bills with credit cards for a couple months while saving pennies, you should be able to save 6k in a few months.  Make a 90 days to close offer... pinch those pennies, and be able to explain to a lender why you'll have the funds when you need them.

Oh yeah, another thought that may or may not be helpful.  On my last purchase, I had some funds in a Scottrade account.  When I divested these funds, the lender was able to use them as reserves.... they're sitting in the account, but not in any stocks.  So.... if you have any retirement accounts, those can be used as reserves as well.

I'm not used to getting loans that small, but this is what I've done, and it should work for you.  

I've had trouble with banks, but working with investor friendly mortgage brokers has worked great. With Good credit and proof of income, they should be able to get you a 75%LTV conventional loan, assuming the property will appraise high enough and you can comply with any lender required inspections/documentation. So, your loan would be for 30k.. you come up with 10k down, and you'll have to have additional funds in the bank (liquid) to show as reserves for the purchase and your own home... maybe 4 or 5k.

Now.... if your new purchase will not be financeable... you should be able to refinance one of your current rentals for the same terms.  So, assuming it's worth 40k, you'll pull out 30k, and only need reserve funds in the bank.  This is a cash-out, so they charge a percent or so higher... maybe your loan will be 5% instead of 4%.  You'll have to pay for the appraisal up front, but that cost should be rolled into loan cost, which should be rolled into the loan.... so $500 appraisal up front, pull out 28k... or so after all the fees and costs.

Note:  This will work for the next few properties... after that you or your mortgage broker will have to go shopping for more loan products as you run into your limit of government backed ones.

Specifically, the book of Ecclesiastes in the Bible.  This is a great book for money mindset.  A line I liked last week, referring to work and money:

Better a handful with tranquility than two hands full with toil...

It sounds to me like you're a workaholic (as am I).  It also sounds like you're into wholesaling and less hands on (I could be wrong).  For me, I love to create.   Cash flow is what I need to justify building houses, additions, and making places look/function better.  I have set goals in real estate investing that will allow me to have the time/money to create what I want, be it art, writing, building...  There are many aspects to real estate that I don't like, but I do them because of my goals.

Summary:  As long as you are motivated, and as long as you can step back and look at your motivation and understand it, I think you already have the mindset you are looking for.  If you get up at 4am to get stuff done, but you don't enjoy it, that's fine.  If you're doing what you need to do, and you know why, then you already have the correct mindset.

The cheapest livable house in my market with plumbing is over 100k, so this is not market specific advice: Don't do a deal without skin in the game.  If there is no security deposit on the line and no up-front down payment, the tenant/buyer has no reason to make the first payment.  Sure, they might be great people, but I personally would not take that chance. A down payment does not have to be money.  If they have a decent vehicle, they can sign the title over to you or something like that, but I would stay away from a deal where someone gets into your house without having anything of their own on the line.... they might ruin your new locks.

Good question?  That sounds about right depending on your rates.  However, tenants tend to be aware of what market rent is.  If your unit is still a good deal, they will stay.  If you're trying to find a way to get rid of them, a rent raise is probably not the answer.

In relation to the Month to Month vs. longer lease:  It depends what market you are in and your turnover costs.  If there is a demand for rentals, month to month keeps the landlord safe because he has options.  If there is low demand for rentals in the area, a longer lease keeps the land lord safe because filling a vacancy will probably take longer.  Another thought about leases is when they end.  Right now, I'm trying to fill a couple places.  I'm looking for a year lease because I just don't like filling vacancies even though the market here is pretty good.  I'd go down to a 6 month lease, but not lower because sometime in the next 6 months, I'm going to be out of country, and with winter, holidays, and very little daylight, I think filling the unit will be harder.... not to mention, if I have another month of vacancy in the winter, I'd be paying a couple hundred more for utilities.

I hope these thoughts help.

My thoughts: There are many owner financing opportunities on the MLS and Craigslist that don't say they are owner finance. For example... if you have a downpayment that's 40% of purchase... the owner may not have thought about owner financing if he has 40% debt. So... Yes you can market for owner finance, but you can also run down every listing you are interested in and find out if the seller is in a position to owner finance weather they know it or not.

As Joel said.  Don't overpay just because the financing is better.  Make sure the numbers work and then some.

If your goal is to accumulate units, the duplex is the no-brainer.  It gives you more cash-flow, which can be used towards your next unit, and if you can get into it with less down.... that leaves more money for your next unit.

If I understand your post, you'll be living in one side of the duplex.  It's amazing how your 'unit accumulation' can take off once you drop the housing expense from your personal budget.  Jay is also right about the vacancies not hurting as much in a duplex.... in the same way, if you're living in it, that unit is never vacant.... vacancy will hurt, but your average monthly budget will look better.