All Forum Posts by: J Scott

That $864 appears to assume 0% down payment and 7% interest rate amortized over 30 years.

Assuming that's the case, Wheatie is right that you're breaking even, despite your "management fee" included in your expenses...

If one of those assumptions is incorrect (perhaps you're planning to make a down payment or would be getting an interest rate better than 7%), your cash flow may be higher. For example, with 20% down and a 6.25% interest rate, your P&I would be $640, so you'd be cash flowing about $140/month.

What's your plan?

1 point is equivalent to 1% of the total loan.

So, if you got an HML for $20,000 with 2 points, you'd be required to pay $400 (2% of the total loan) upfront as a loan fee.

A couple things:

- There is nothing inherently bad about an HML. The question is whether you really would rather get the HML at whatever rate it is vs using your own money. Certainly, if you could get HML at 4% interest rate, you would. And certainly, if the HML were 25% interest, you'd pass. Likely it will be somewhere in between; you need to figure out the cost of capital for that HML and decide whether it's worth the value of keeping your own money secured.

- What makes you think you'll find a quad that will cash flow with 100% down? You should make sure you fully understand how to analyze properties, and that you are confident that even at 100% LTV, you will cash flow on it.

- You need to make sure that you have a plan to repay the HML. Oftentimes HML will have a short-term (1-3 year) balloon payment. Will you have the money to repay it when it comes due?

This is a very personal decision. Some people would argue that you should use OPM to the largest extent possible, even if it means leveraging yourself to the point where you risk being upside-down on properties if values decline. Others would argue that leverage is bad, and that you should try to buy property with large down-payments, thereby protecting yourself even in the case of a major downturn.

While most people probably consider the right amount of leverage to be somewhere in-between (enough to build wealth quickly, but not so much as to risk getting wiped out if there is a downturn in your area), you need to decide what's right for you.

Some questions to ask:

- What is your plan? This is the most important thing...your leverage amount should fit your long-term plan...
- What amount of leverage will still allow you to sleep well at night?
- How does additional leverage help your COC return?
- How does additional leverage help your total return?
- How much cash do you have on-hand? Enough to buy more properties even without tremendous leverage? Enough to cover yourself in the case where you need the reserves during a downturn?

Generally, the seller signs a contract with the listing agent promising to pay a 6% commission on the sale (or whatever % it is), and the agent will either get the 6% herself, or will split the 6% with the buyer's agent.

So, while you can try to negotiate the sale price down based on the fact that you have no agent on your side, it's pretty much between the seller and the their agent whether this will be allowed. If the agent is desperate for a sale you're more likely to make this work than if there are other potential buyers (where the agent has a chance to make the full 6%).

Can't hurt to ask, though...

You could have the seller provide cash back (in escrow) specifically for the purpose of making these repairs. Or you could potentially get the lender to provide a "rehab loan" where the LTV is based on the ARV of the property, and roll the rehab costs into the loan.

Keep in mind that if you sign an agreement with a buyer's agent, and the agreement specifies that the agent is entitled to 3% of the selling price, and then you find a house where the seller is only agreeing to pay a total of 5% (2.5% for each of the agents), you will be responsible for paying that additional .5% out of your pocket.

That said, you could probably negotiate this contingency beforehand, and I imagine that a lot of buyer's agents wouldn't actually make you pay the difference, but it *is* a risk. Make sure you cover this in your discussion with your agent before you sign anything.

J Scott
www.reistartup.com

In terms of asset protection, LLC, S-Corp, and C-Corp are all about the same.

In terms of tax advantages, it highly depends on what your business will be doing. If you'll be flipping houses, you'll likely want a different business structure than if you're planning to buy-and-house real estate, and the issue of exactly how much money you think you'll earn is a consideration as well.

For example, if you plan to buy-and-hold real estate (like a lot of people on this forum), you'll probably want an LLC, taxed as either an S-Corp or a C-Corp.

You really should consult a CPA or tax specialist about your specific situation...

So you can get your deposit back if due diligence indicates it's not as good a deal as was presented by the seller or the initial inspection...

You can't necessarily do this if the thing that was not disclosed was not disclosed because the seller didn't know about it.

For example, a contingency on inspection would allow you to check for termites. Without the contingency, you make be stuck with a termite-infested house without any recourse or option to renegotiate or back out.

Yeah, but legally you can't sell a house before it's bought. Just because you *think* you have a buyer doesn't mean you do. If you haven't learned this lesson yet, you will... :)

Ummm, $10,737,418? Unfortunately, I've never known anyone capable of actually doing that...

This is just plain incorrect. Money that goes into a Roth has already been taxed (it is NOT tax-deferred), and assuming you don't take distributions early, will never be taxed again. It grows tax-free.