All Forum Posts by: Joshua Nudell

@Andrea Lizcano Summers,

Banks will lend on unoccupied, investment properties.  You just have to find the right bank.  I secured a loan against my vacant rental property in order to finish up the rehab on it.  I owned it free and clear as well.

You're more likely to get better results from a small community bank than from any of the large banks. I got my loan from a small community bank in the form of a small business loan. I didn't have an LLC, or any other type of corporate entity. I just explained to the bank what I was trying to do, and asked if they had any line of credit products that they could provide me with.

The only thing that you don't mention is the income of the couple.  In my case, I have a good income from a full-time job and therefore easily qualified for the line of credit.  If they don't have ANY income it might be hard to convince a bank to lend.  If they have SOME type of income (social security, pension, etc) then it will definitely be easier to find funding.

The line of credit is probably going to be your least expensive source of funding.  Next would be private money, and then hard money.

I hope this helps, let me know how you make out in helping out this couple.

@Shiquilla Dreher,

First off, great work on finding such an amazing deal!  $100K on a $45K investment is AWESOME.

If you're going to just flip properties at the rate of one per month, it might just be best to pay the capital gains.  Sure you could do the 1031 exchange into the next property, but that's usually to "upgrade".  I don't necessarily think you could take that $100K and plunk it into another $50K flip.  You would have to move on to a $100K flip (and then $150K, $200K etc..) and eventually when you finally sell, you would still be liable for the capital gains.  You would have just postponed paying it until your final property.

If you can successfully do one flip per month, you won't have to worry about the capital gains until April 15th of the following year.  You could use the complete profit from each new flip to fund additional flips.

Something you might want to consider is looking at renting the property. What could this $100K property be rented for? The reason I say this is because if you hold onto the property for a little while, you could very quickly pull out up to $80K from it by applying for a HELOC (Home Equity Line of Credit). Most HELOCs will want you to have the line open for a minimum amount of time to avoid fees (2, 3 or 4 years usually). The benefits of using a HELOC over a conventional loan:

- No or VERY low closing fees

- Fast time to funding (I closed a HELOC with a community bank in two weeks),

- It's re-usable without applying for a new loan (think of it like a giant credit card)

- Interest only payments are available during the draw period

- Low interest rates (although they are variable and can change)

Having an 80K HELOC is exactly what you want to do your one deal per month, and every deal will be 100% financed by someone else (the bank) at super low rates.

If you go this route, you will not only have access to that line of credit, but you also have the income from the rental to cover the monthly cost of the line of credit.  It just depends if you feel comfortable being a landlord.  Even if you're not, you can hire someone to manage it for you, and have them deal with any issues that may arise from being a landlord.

Congratulations again on your awesome deal, and good luck in your future endeavors.

@Andrew Davis,

From what you have described, it looks like a great deal if your numbers are accurate. I would also ask what the cap rate for the area is and verify that the asking price is comparable for similar cap rate building sales. If your area is a 10 CAP, then the asking price seems on par for the numbers you've provided.

If you're able to put this together, and execute close to what you're estimating, you could be having the $1.2MM a little sooner than you expect. Once you get to 90%+ occupancy, you will have an opportunity to refinance for just shy of $2MM at a 10 CAP (Another good reason to find out the cap rate is so you can determine what banks will offer in terms of financing once you have improved the NOI on the property).

If you're inexperienced, refinancing the property may be a lot more difficult than if you already had several properties under your belt.  It might be worth it to partner with someone who has the experience in order to pull the money out more quickly and move on to your next deal.  There could be a difference in YEARS in terms of refinancing if you don't have the experience the banks are looking for.

Good luck!

@Kathleen DeNault-Ridge,

If you searched all about seller financed deals, the one thing that you find typical about them is that there is no typical seller financing.  It's completely up to you and the seller to determine the terms of the financing.  Personally, I would try to get better terms than the credit union is willing to offer and see if you can start your negotiations there.

If you're unsure of what the seller is comfortable with, I would suggest having a more candid conversation with the seller regarding what they are looking for.  Are they looking for some cash up front now?  How much?  Are they fine with just getting a monthly payment and not a large deposit?  How long would they be willing to hold a note?  Ideally, you would love to get 100% financing at 5% interest only payments, and there might be people out there who would do it too.  But you should be able to get a better feel for what the seller is comfortable with if you have that conversation with them.

Going by the credit union option, to do better you could offer to do a 20% down payment at 6% interest, with interest only payments on a 5 year balloon.  5 years should be enough time for you to figure out more permanent financing, and have taken advantage of the generous terms the seller is offering.

Good luck, and let us know what you work out!

@Ester Hopkins,

That does sound odd, but it sounds like a learning experience.  If the owner was supposed to have vacated the house at the time of transference of title, you should not have closed escrow because the house was not vacated at the time.  There should have been some final walk through or occupancy verification prior to closing the escrow.  That would have been your backup leverage to remove the seller from the property.  

Now you have people who are unresponsive, and there are all sorts of worst case scenarios that come to mind now (they got their money, they can damage the property however they want and you would have to use legal recourse to recover any damages.  Not a good situation to be in.) aside from carrying costs while you try to remove them, and lost revenues due to those costs.  You could try to recover in small claims court once they are out, but what a hassle.

I would definitely talk to a lawyer regarding this issue to see what your options are, preferably an attorney familiar with evictions and squatters rights.

Good luck, and as @Jason Mak said, keep us posted!

Hi @Justin C.,

Before you get opinions, you should let us know what your goals are. Are you looking only for the highest cash flow? Or the greatest ROI on your cash investment? Depending upon your answer, people could provide you with different advice.

The numbers you present don't sound bad. The first property sounds better than the second in terms of ROI. The interest rate seems high for the $55K loan. What kind of loan was it? Is it due to your credit rating not being as high as you would like?

Two houses with $600 month cashflow sounds pretty darn good.  But we don't know if you're counting ALL the usual suspects with regards to expenses (taxes, insurance, property management, maintenance, vacancy and capital expenditures).  According to analysis by Ben Leybovich you should calculate about $150 - $170 per unit per month for capital expenditures over time (boilers, water heaters, flooring, roofing, siding, etc, etc) for buy & hold properties.

If your $600 is missing some of those items you might be in trouble.

Hopefully, you've used the BP analysis tools (free!) to get a better idea of the numbers as well.

Let us know more information, and people will provide more detailed feedback.

Good luck and thanks for sharing!

@Taylor Harrison,

You should totally run this property through the BP Rental Properties Calculator.  If you're going to self manage, consider still putting 10% for property management (think of it as paying yourself that money every month to manage the property).  Put 5% - 8% for vacancy.  There might be long term tenants, but when they leave you'll incur expenses for fixing up the apartments and making minor/major repairs depending.  It sounds like you're ok for capital expenditures, but if you want to be ultra conservative put in an additional $140 - $170 per month for capex.

I'd be interested to see how the numbers look on the BP calculator.  Don't forget closing costs (probably $2 - $3k).

@Yvette Hirsch,

If this is a property that you owned and obtained the original mortgage on, then you are still liable for the mortgage payments and it is not defunct.

When you enter a contract for a mortgage, the bank is extending a loan to you personally AND putting a mortgage on the property as collateral.

In your case, the property can no longer be used as collateral, because the mortgage against it was removed during the tax lien sale.  However, the bank can still continue to collect the mortgage from you because you are personally liable for the balance of the mortgage and remaining payments.  This would have sucked if you went past the redemption period because you would be liable for payments on something you no longer owned.

Additionally, the bank can most likely call the note due in full due to all sorts of legal clauses in the original mortgage agreement regarding transfer of title, default in tax payments, etc.  This can mean all sorts of bad things for your credit.  But the one thing they can no longer do is take possession of the property through foreclosure.  What they can do is win a judgement against you and garnish wages, seize other assets, seize IRS refunds and anything else to recover their loan balance (probably plus attorneys fees at that point).

I don't know how your credit is, but you might want to work with the bank on re-establishing the mortgage.

Getting a better attorney to help you with the situation is advised.  I would say sue the old attorney, but that's usually not worth the money or time or aggravation.

This is not legal advice, just advice based upon my understanding of how mortgage notes work.

Good luck on resolving this interesting situation!

@Dave Manning,

I think you're missing some expenses that you should consider (even if you're self managing);

Capital Expenditures (boiler, heater, siding, flooring, etc): 13%

Property Management: 10%

You might be able to lower your vacancy number if you do your tenant screening properly.

The capex figure is the one to watch out for, and there are several posts on the site that have a highly detailed explanation of why capex is going to be roughly $150 - $170 per unit regardless of the cost of the property.

Read this post for a more in-depth analysis:

Capex post on BP Forums

@Jon Huber,

I agree with @Linda Weygant, @Brandon Turner and all the rest, but just wanted to point a technical point that isn't addressed clearly.

In your original post you mention paying off the HELOC (sign of good-faith) and then opening ANOTHER HELOC. With a true HELOC, you don't need to close the original HELOC during the draw period (10 years as you stated). You can treat it like a credit card; you only pay interest on what is outstanding, and you can pay off any amount over the minimum due. It's better than a credit card in that it's interest only during the 10 year draw period (great from an investment standpoint), because that makes your minimum obligated monthly payments lower.

I would keep the HELOC open because it's a quick and easy source of funding for your next deal. Sure, pay it off if you can when you refinance and avoid interest, but don't close it.

Hope this helps!