All Forum Posts by: Jason Bilbrey

Assuming that the DSCR is still 1.25 (which is what most commercial lenders want to see) or above even with both a bank loan and a seller financing loan, in people's experience does the bank care as long as there is a strong enough DSCR?

For example: Let's say I could get a commercial loan for 80% of the purchase price at 5% interest, and a seller-financed loan for another 15% at 8% interest, and put in 5% cash from my own pocket and the DSCR was still 1.5...would the commercial lender be OK? Would it typically be bank has 1st lien and seller has 2nd lien?

I'd really love to hear some real world experience from people have have actually pulled off a combo of bank/seller/cash funding to get an idea of what people have been successful with...

If I have a Solo 401k funded at $200k and a traditional (company ran) 401k funded at 200k also, can I take $50k loan from each to have $100k for a downpayment on a rental property?

@Heather Easterbrook It's a 12-unit multifamily property. I've seen many investor stories where people used bank and seller financing to buy a property as long as the financials back it up. With commercial loans the banks often don't care as much about the finances of the buyer as long as the finances of the investment are solid. I think the risk to the seller doing financing would be greater since they wouldn't have first lien position.

@Justin Windham There are no rules prohibiting an investor from partnering with their self-directed 401k or IRA. It's also not a loan from the IRA account to me (which technically I believe a solo 401k actually allows, but not an IRA except for primary residency), each "entity" would have a legal portion of ownership of the property. I believe the only restriction I might face is that I couldn't perform any sweat equity on the property which actually would be prohibited because of the partial ownership by my own retirement account.

I'm looking at a property around $900k and wondering how I could possibly get a commercial loan to fund 75% of it and use either seller financing for 20% and cash for the remaining 5%. Do commercial lenders care where an investor gets their down payment from as long as the DCR meets their criteria?

Or alternatively, if I have a self-directed solo 401k, instead of trying to get a non-recourse loan, could I get a tradition recourse commercial loan for 75% and use my self-directed solo 401k to pay the other 20% in cash, and pay 5% out of pocket? In that scenario, could I say the self-directed LLC owns 20% of the property and I own 80%? (Then of course all profits/expenses would be split 80/20 going forward.)

@Brian Murray in BiggerPockets Podcast #126 used seller financing and bank financing to purchase his first commercial property and I'm wondering if this really is feasible or not.

I'm trying to find creative financing options for a great property/opportunity.

I'm an avid listener of the Bigger Pockets podcast and reader of the various articles/blog entries. One of the things that I've heard many experienced investors suggest is to make sure your offer has a clause/contingency that allows you to walk away from the deal. I'm trying to incorporate that into my offers but my realtors tell me that they've never had _any_ investors have a clause. My realtors are suggesting that I use the inspection contingency.

The inspection contingency only let's me walk away from a deal for a safety issue or defect if the seller and I can't agree on what to fix.

What about for other factors though? Here are some examples:

1) After talking to the tenants I find out that they have a large dog and the nieghbors are constantly complaining and the current selllers haven't done anything about it.

2) Or maybe I find out they haven't paid their rent in 3 months and there are 8 months left on their lease. Sure, I could evict after I own the property, but maybe the cost of that makes the property no longer such a great deal. Or maybe I ask the sellers to evict before the property becomes mine (but technically nothing in my offer had such a clause so do I even have the right to ask for that without breaking my own legally accepted offer?)

3) Maybe I'm driving the neighborhood at night and find out its not a very good area and drastically different than daytime.

4) Or I'm talking to my contractor about some improvements I want to make and my estimates were much lower when I put in the offer and I find out something will be much more expensive than expected.

5) Another possibility is that after getting more access to the owner's books I find some surprising things that affect the NOI that I couldn't anticipate

There probably are countless other examples of things not covered by an inspection contingency...

How do other investors protect themselves in their offer letters? Instead of an inspection contingency, I'm thinking that make I just ask for a 10 day due diligence period where I can walk away for any reason (and get my earnest money back). I don't want to word it like that, so I'm hoping that others can share some examples of "walk away for any reason" clauses people include in their offers.

(I'm looking at property in Wisconsin if that matters and someone has specific knowledge of real estate rules there, but otherwise any examples from other investors would be _greatly_ appreciated!)

@Max T. - Thanks for sharing you're experience.

Based on everyone's feedback, I'm going to install a garbage disposal in some of my units and then update my leases with verbiage that indicates they are responsible for fixing any issues with them, and that they were working when they moved in (or when the unit was installed), and that they must be working when they move out or they are responsible.

@David Ok, then for units with septic remove them, but for units that don't have septic, can you think of any other downsides? I think the people advocating that people could clog pipes without a garbage disposal is a valid argument too. People have clauses in their leases against that, why not expand that to the garbage disposal too?

I can see both sides of the argument to have them and remove them. They certainly are nicer for tenants, and more costly for landlords.

Has anyone ever considered putting it in their lease that says the unit has a working disposal? At the end of the lease it must have a working disposal or it will come out of the security deposit. Any repairs or clogs during the lease are the responsibility of the tenant.

Wouldn't that take the potential economic risk off the landlord while giving the tenant something many desire?

@Michael Bier - What did you ever decide regarding quarterly maintenance checks? Would you share your experience? I've seen some people recommend every 6 months, and for problem tenants every 3 months. Have you found a good balance and why?

@Roger StPierre or anyone else... I've been devouring every article I can find on SDIRAs the last couple of weeks but still am a little confused on leverage. Normally when making a real estate purchase I'm leveraged and its a recourse loan (which basically means the bank can come after my assets).

If I open an SDIRA and then create a IRA LLC to get checkbook control, are there rules about loans than it must be non-recourse because it's inside an IRA? Or do some lenders provide recourse loans that if the investment went belly up they could seize all the IRA assets and then come after personal assets outside of the IRA?

Also another broader question, but related. Some people have suggested that investors get a series LLC and then put each investment property under its own series. Others suggest a new LLC for each property. Either approach's goal appears to be to prevent one investment from hurting your other investments or personal finances. When using an SDIRA to purchase real estate, should I

1) Create a separate IRA LLC per investment property all under the same IRA account?

2) Create a separate IRA LLC and separate IRA account per investment property?

3) Is there such thing as an IRA Series LLC? Should I create one of those under a single IRA account?

4) Create a single IRA LLC under a single account for all properties?