All Forum Posts by: Sam LLoyd

Ok, here's my updated opinion... I don't think this is a good deal.

If you're putting up 30k to get $50/month in returns.... that's only 2% return on your investment.  You'd be better off putting the money in a fund... and avoid the risk and management time cost.  Also, as far as your brother is concerned.... if I were advising him, I would say that $50/month is not enough to put your credit and future buying power on the line.

Also.... it sounds like you may not have ongoing maintenance and vacancy costs in your cash flow analisys... be very careful about this.  So... please, keep bringing us deals to help you evaluate... and maybe there's more about this one than I understand.

This is a very rough question.  I was in a situation like this a number of years back that lost money.  So, in the end, the question wasn't who had what share, but who actually had the money available to get rid of the project.

What I would do is put a value on your credit.  Let's say that's 20k or something.  Then he puts that amount in, and you do everything from there on 50/50.  I think we'd need to know about how much money is going to be needed up front before advising on the split.

Here is some advice based on my experience.  Your partnership agreement has to have all the duties lined out, not just where the money is coming from.  For example, who is going to find the tenant?  Who is going to get insurance?  who is going to pay when there is no income? Many questions.  Also, who is going to be on title?  Who's going to take the tax benefits? 

One idea that could be helpful, would be to have a reserve fund.  For example, give your brother a 70% share of the property, but only if he establishes a significant reserve fund available if anything goes wrong. 

Another idea would be to do a limited partnership.  You're the general partner.  Establish a $ amount for your brother to invest, calculate whatever return he would get, and what circumstances would prevent that return, and then do everything yourself.  This would be a little cleaner, and then everything is your responsibility and you won't have any disagreements.

Another thought, based on my very limited experience with  code-compliant building, is that in some places, once a certain amount of a building or structure is being rebuilt, then what is existing might have to be brought up to new code.  Often, getting an older building to meet new code is more expensive than building new.   For example, the exterior walls may need to be opened up to verify that they are secured to the foundation properly, and if not, they this needs to be addressed and then the damage to the walls fixed.  Again, this is a question for a local GC or project manager who has experience with these things.

@Rommel Pascual  That makes sense in a horrible buerocratic way.  I moved to an area without building codes so that I don't have to deal with that permitting stuff.  Everything I do still has to be built to code if I'm going to get financing, or be able to sell.  Hopefully someone in your area who is more familiar with the permitting can answer your question.  Sounds like a good question for a local real estate investors group.

It's not very clear what you are intending?  It sounds like you want to remodel your home's floor plan.  This is possible, especially if you're planning on redoing sheerock and flooring, but you have to tear everything out to do it correctly, with running wires and such.  However, your floor plan will still be limited to some degree.  In most cases, some walls will be weight bearing, moving some of them would require moving all the drain lines... that sort of thing.  If I were to guess, I'd say building a new house would be better and more cost effective, since everything would be the same age.  Example:  I saved 5k remodeling, but the roof is old and will need replacing sooner... 5k.

Now, if your house is old enough, or too small to suit the neighborhood, it might be more cost effective to tear it down and start over.

The banks look very closely at who is borrowing money, especially for residential.  The Bank is going to want to know where the borrower is getting the money.   It is possible to 'gift' the money to them, but there are limits to this.  Then, you have to work on your partnership agreement so that both parties are happy, and your ownership percentage is equitable.

That's a long way of expressing my thoughts... I'll try to put them more simply.  1st.  I don't think you'll be able to get a bank to go along with this, without hiding something.  2nd.  I don't think there is enough potential gain in this scenario to make it worth working with someone who cannot find 4% down themselves.  Those are my thoughts.

I would anticipate at least something for maintenance.  Since it's a condo, $60/month might be enough...  Plan in it costing several hundred at least to do flooring every 5 years.... even if everything works great.  Another expense is vacancy.  I plan on 8%, even though I can usually keep it lower.  That knocks off another $60.  So, I think it will be more realistic to anticipate an actual monthly income of about $60 if you are willing to discount the time it takes to manage.  This is a pretty decent return on 5k.  I would probably do it, if only to have control over who lives next door.

From an investment only perspective, you have to compare this with other investment opportunities.  could you find a better place for the equity to go to work for you? 

Another thought if you are going the super frugal way.... go for a small multi.  If you're trying to save money, being in a 4plex or even just a duplex helps with the bills a whole lot.  On top of that, if you do get a loan, all the terms are better (helping you maintain that conservative margin), and you can do some short term financing like a 10 or 15 year note... this way a ton of principal gets paid down every month.  It's not for everyone, but it has helped me out a lot.  We've been in a duplex for the last 6 years, and the income has paid the entire mortgage till I refinanced a couple months ago.  So, my cost of living here is about $400/month, and slightly higher heating and electric bills.  And that's for a 6Bd, 2.5Ba, house with a huge playroom for the kids with an indoor climbing wall and 2 garages.... not a bad cost of living if I say so.  And, I pulled out enough cash with the refinance to put down on a 4plex.  That's just a perspective on leveraging bank money, but I respect the desire to have no debt, I hope you can manage this.

The other thing, is it could be indicative that they don't intend to have their job for long.  Or maybe they inherited the money and can't really afford it on a monthly basis.  Again, red flags.  The ultimate red flag is when someone shows up to look at a unit and brings cash with them.  When someone is walking around with 2 or 3 thousand dollars, and wants to sign a lease agreement without you having time to think about, compare and review applications.... that's when you tell them nicely that you'll get back with them, and try not to get $ signs in your eyes.

Your question is not really clear.  Are you replacing the roof, or raising the roof and building another floor?  If you are building another floor, have you looked into raising the whole house? Depending on the types of trusses/roof you have, this might be easier.  Also, think about the finished floor plan.