All Forum Posts by: Jenni Utz

Hi Kamyshia! It's awesome to see you taking the steps to learn about real estate investing. If done well, you will be creating long term passive wealth. There is no better feeling! 

First want to say that its awesome that at 20 years old this is the direction you want to go. Congrats! Next don't be scared to jump in. There are great resources, facebook groups, meet ups and websites to help get you the information you need to begin. After that, go for it. 

Hey Anthony, meet up groups or facebook Rookie Real Estate Investor groups are a great way to connect and learn.

Seller Financing

Also called owner financing, is a great way to finance real estate deals. If it is difficult to get financing because of credit score, predictable salary, and imperfect employment history. This is great to leapfrog you into a deal you otherwise could not afford. All that’s needed is to execute a promissory note. The interest rate, repayment schedule and default conditions should be set by the seller, to which you agree as a buyer. Seller financing deals are usually more popular in areas or periods of time where it’s harder to get loans. I would recommend having an attorney review the promissory note.

The pros of this type of financing is that you don’t have to worry about the rejection of the banks. The seller is usually motivated to sell. It breeds trust in the quality of the deal being made if the seller is willing to finance it. Sellers get to collect interest payments, which built some of the richest institutions in America – banks…and the mafia! Sellers also don’t get hit with outrageous capital gains all at once.

Some cons of this type of arrangement is you may pay a little higher interest rate than you would with a traditional bank loan. They usually come with a balloon payment in 5 years or so. For sellers, they don’t want to play the ‘banking’ role. They want to get their money to invest into their new deal. This means that it may be harder to come across seller financing deals. Other ways to buy that count as seller financing include lease-options, equity sharing and lease-purchase agreements.

Private Lenders

Another great way to fund your real estate deals is private lenders. This is not to be confused with hard money lending companies. These can be people you know or know through a friend of a friend, that have been blessed with an abundance of modern civilization’s most precious resources…money! People who received an inheritance, just sold their company, or won the lotto could be swimming in dough and not have great ideas for what to do with it. You could approach these people with an equity share or interest payment proposition, which may be the investment opportunity they’ve been searching for. You could offer 8%, 10%, or 12% interest on their money, which may be the best rate they could hope to make. The pros of this kind of deal is that these deals tend to look more at your track record of success and the actual deal, instead of looking at things such as employment history, credit score, liquidity and other factors that banks tend to focus on. This is also a great way to do business because you may get good at this form of real estate deal financing and find unlimited opportunities to get private money. If you know you make winning presentations and sell yourself you may love hitting the streets and dazzling crowds with your ideas. The cons of private lenders include the fact that they usually depend on you having a good track record of success. This is no good for you if you are just starting off as a real estate investor. Most people with a lot of liquid cash are pretty smart folks and know how to watch their money, and the last thing they want to do is put their money in the hands of an un-trusted partner. The other thing about private lenders is that they can be hard to find. If you have a broad network of friends and family and friends of friends who are a more affluent crowd then you will love the private lending strategy of financing your real estate deals. However, if you don’t have a network then it could be difficult to gain traction with this form financing. (Another reason going to Investor Real Estate Meet Up groups is important. You will gind some hard money lenders in these groups.) Lastly, if you’re not good at selling yourself you may find it difficult to succeed with private lender financing, because often times private lenders are buying you as much as the property you’re investing in with.

Hard Money Lenders

Asset/property-based loans are another very common way to invest in real estate deals is hard money loans. Admittedly, hard money has a very sinister sound to it. Images of meeting in dark alley ways with guys named ‘Tony batters and Pitbull Paul’ come to mind. You may think striking a deal with these guys is a one-way ticket to swimming with cement shoes and alligator infested swamps. Indeed, predatory lenders have given hard money lending a bad rap but it’s actually a legitimate way of funding real estate deals, and very common. Hard money loans are short term loans that are secured by the hard asset – real estate. Funds made up of private investors usually provide the money for hard money lenders to lend to you. The length of time hard money loans usually go for is 12 months. Longer term hard money loans may extend 2 to 5 years. The pros of hard money lending is that most often when the bank says “No” to your deal, a hard money lender can still say “Yes” to your deal. Hard money lenders usually have a niche they specialize in. Some residential and some commercial, some multi-unit and some double wide trailer parks. This means you need to find a hard money lender that specializes in the type of property you are investing in. It’s also good to have hard money lenders who specialize in the type of property you’re investing in because if the deal raises red flags for them perhaps it should for you as well. Plus, there are plenty of hard money lending institutions that can easily be found, so you should not have a problem getting in contact with one. Some of the cons of hard money lending is that you will usually pay much higher interest rates for the loan. This means it is expensive money to secure. Another issue is that since these are usually short-term loans, you could run into trouble if you’re not able to refinance or sell for your term is up. Hard money loans are not appropriate for all types of deals. For instance, they are not appropriate for buying your primary residence. If you have good credit, income history and no history of foreclosure, bank financing is your best bet.

Hard money loans are great for:

• fix and flip deals
• construction loans
• buyers with credit issues
• quick money

As you begin investing one question that pops up- should I get an LLC? Well let's back up, what is an LLC? A limited liability company (LLC) is a type of business entity popular in the US. You register this entity with the State Department of the state in which you wish to do business. When the entity gets created through a series of executed contracts, that entity is legally not you. Even if you own and control the entity, it is treated as a separate “person” under the law. An LLC is similar in many ways to its more famous sister entity, the corporation. But corporations have existed for hundreds of years. Many laws, regulations, and traditions have been enacted over the course of those centuries to govern the actions of corporations. LLCs, by contrast, have only existed since 1977. With less case law and tradition that applies to them, they have a reputation of being flexible, versatile, and affordable compared to corporations, while conferring many of the advantages of corporations.

Pros of an LLC for your investment property- Limited Liability: The main advantage of an LLC is right in the name — limitation of liability. If a tenant gets injured on your property, they can pursue the owner for damages. But if the property is owned by an LLC, the LLC is the owner, not you. Remember, legally you are separate “people.” This means that the tenant cannot pursue you for personal damages, attaching your personal home, car, or wages in a lawsuit. After all, you don’t own the property! You just control the LLC that owns it. The scope of the lawsuit will be limited to the rental property itself — which is usually the only asset the LLC owns. By having separate LLCs for each investment property you own, a mishap on one property won’t put the other properties at risk. You Can Remain Anonymous-Property ownership is a matter of public record. If you don’t want prying eyes to find out about your property holdings, LLCs can be very useful. If a marketer, attorney, or bureaucrat looks at the property record, it will be the name of an anonymous LLC (assuming you give your LLC a generic name!) Pass-Through Taxation-One of the key advantages an LLC shares with corporations is the ability to elect pass-through taxation. This allows you to reap the tax benefits of your real estate investment on your personal tax returns, while still remaining legally separate from your entity. Easier to Maintain Than a Corporation-Corporations have strict rules for maintaining their legitimacy, including regular shareholders meetings, directors meetings, and strict keeping of minutes and financial records. The rules for maintaining an LLC are far less stringent. If you want a low-maintenance entity to shield your real estate investment, an LLC is the way to go.

Cons of an LLC for your investment property-It's Costly to Set Up and Maintain: You will spend at least a few hundred dollars setting up your LLC, including attorney fees and state filing fees. Once the LLC exists, it is a separate entity with a separate tax ID number … which means a separate tax return. If you pay a CPA or tax preparation specialist to do your taxes, expect to pay then for a whole extra return. (In all fairness, though, the tax advantages of a good real estate investment are often well worth the expense.)

Harder to Finance-Holding an investment property in the name of an LLC can present a problem for a mortgage lender. Most lenders do not allow LLCs to guarantee a loan — they require you, personally, to guarantee the loan. Lenders also don’t want the loan guarantor and the property owner to be different people, so you may have to buy the property in your name to get the loan. Many investors try to get around this restriction by buying the property, then immediately transferring title to the name of their LLC. But at that point, the title has technically changed hands — from you to your LLC. Many loans have a “due-on-sale” clause, affording the owner the right to call the loan due in full if the title changes hands. That doesn’t mean they will call the loan … it just means that property owners have to tread lightly when attempting this kind of maneuver. Must Maintain Separation-To enjoy the benefits of limited liability, you have to maintain separation between your personal affairs and the affairs of your LLC. This means using separate bank accounts, credit cards, etc. to keep your personal and business expenses and income separate. If you fail to do this, a plaintiff in a lawsuit could attempt to “pierce the corporate veil” and hold you personally liable for an accident or incident on the property.

Some Jurisdictions Impose Restrictions-Check to make sure that your jurisdiction doesn't impose restrictions on entity-held investments. For example, rental property owned by an entity in Washington DC is automatically subjected to rent control and other restrictions. BOTTOM LINE-Holding your property in the name of an LLC has benefits and drawbacks. However, most real estate investors believe that the benefits take priority, while the cons are manageable or circumventable. To limit your liability, enjoy tax advantages, remain anonymous, and protect your assets, holding that investment property in an LLC is an attractive option — one that many real estate investors elect.

I agree that most Realtors have preferred lenders. However, there should be a few to choose from and not a choice of ONE. The options help you choose who is best for you, but the recommendations from the Realtor give them the peace of mind knowing the lender can get the deal closed. 

It all depends on your goals. Multi-family (depending on the type of property you can buy in your area with $100,000 down,) may get you a Class C property. That will come with it's own challenges- usually more maintenance, more tenant issues, etc. The plus side is- multi unit revenue with big expenses like roofing etc all in one location. Everything is confined to one building as opposed to managing several homes in several locations.

I know a great cleaning company if needed!

Usually I would steer clear of mixing business and family, but if you feel they will pay on time and make good tenants my only suggestion would be to treat them like you would any other tenant. Have a signed lease in place, collect security deposit, etc. That way "if" something goes wrong, you are productive and can take the proper steps to evict or collect back rent.

I would not buy a home warranty. Unless the appliances are old and you think they will break within the year, it is a waste of money. The warranty companies have so many loop holes of why they don't have to cover the cost of replacement. They also take forever to schedule to go to the property. If you have a tenant in the property, this is not realistic.