All Forum Posts by: John Hyatt

Hi Melissa,

That's how I did my first "flip"…although it didn't originally start out as a flip. I got an FHA loan and was required to live there for a year, planned on living there for several years, but things changed and I sold my house six months later. I was able to do so because I had a job change, but that's beside the point. If you don't mind people working on your house all day or sleeping in different rooms while they work on your room then I say do it. I had some people there at 6am to work and others who stayed until 11pm working. I had to move rooms twice and rarely had the house to myself during rehabbing. Once it was done I didn't want to sell it, I fell in love with the house and my emotions got involved. I debated selling after it was all done, but I had to because I had a loan for the rehab that I had to pay back. I still regret selling that house, but long story short if you can handle the emotional rollercoaster then yes do it! I made a lot of money on the house, but probably won't do it again especially since I am married now.

If your reason is purely money driven (highest return on your money), then I would do an opportunity cost comparison of both options. Example: if you think the REO property is worth 300k ARV and you can get for 200k vs that same 200k doing 3 – 4 deals could you make more than 100k? the other consideration in the calculation is taxes. Since it will be your primary residence you can make up to 250k profit (500k if married) and not have to pay capital gain tax (or at least I didn't – I am not an accountant or attorney though so you might want to double check). So if you made 100k flipping 4 houses it might still not be worth it because of the taxes. So many variables to consider.

-John

I think it depends on several factors. You advised that you have worked with them in the past, how long did it take them to flip a home in the past? I agree with Joel, an experienced flipper can do a deal in 3 months tops. If for some reason it is taking longer I would find out why. When I list a property I go all out and get it sold within 30 days on average. Flyer the neighborhood, door knock, postlets, craigslist, open house, etc.

Also, I think it depends on your risk tolerance. I have a high risk tolerance so I would say yes do it (unless the guy doing the flip usually takes longer than a year to flip a house then absolutely not). I personally try to do several deals before buying “do-dads” including my personal residence that won’t produce income.

Thank you John I will be in touch later today! Lots of great info!

Hi Thomas,

I feel your pain, I don’t know much about CPA, but I struggled through a similar situation. It took me 7 years to get my college degree, because I struggled with the same exact situation. “Why go to school and get in a ton of debt for something I will never use.” I dropped out 3 times…I wasn’t dumb (I had a 4.25/4.00 GPA at 16 years old my freshman year in college – just bored and pointless). The first time I dropped out to pursue a business that I was sure wouldn’t fail…it did! I desperately searched for a job and finally found one after 6 months when my savings was almost gone (they didn’t want a college dropout). Once I got a job I was doing really well getting promoted and raises every 6 months, then I remember my friend who was the party animal who stuck with it and got his degree was going to be making 50k right out of college and I was making 32k after two years of hard work. That day I made a decision to go back to college and then…I went through the same cycle, dropped out twice more and finally got degree back in August after 7 years. I’ve got an amazing job now and upside is huge. I have heard several times on several podcasts and I agree that it’s nice to have a job and invest on the side. The more you make the more you can invest too and just cash stack like crazy!

The other side to the coin is that I don’t want to be that guy that tells you not to drop out of college and start a business that very well could be massively successful. If you have a burning desire and will do whatever it takes to make it work then I am sure you will make it happen! There are countless stories: Microsoft, FedEx, GoPro, and hundreds of others who made it work. I just want to make sure you’re not just going through what I went through and looking for an excuse (like I was) to drop out of college or not take the CPA test. I am sure whatever you decide you will be fine, you sound like a go getter!

-John

I got inspired the other day when I read an article on a guy who bought 44 units in about 5 years, started at 20.

I found a neighborhood were the houses are selling around 35k and the rents are $700! I got so excited I wanted to stop paying off debt and save up 20% for down payment, but then I found out loans under 50k are almost unheard of...I got a couple of problems

1) No money - doing the Dave Ramsey method with my wife and paying off all student loan debt aggressively before investing. Every penny above my expenses each month is going to paying off debt. Would take me a year or two to save up 35k (opportunity gone). 

2) my friends with money are making 10% or more in stock and think they are going to double money...they won't cash out.

3) lenders usually want a loan to be at least 50k to make a loan.

Does anyone have a solution? I listened to a podcast on portfolio lenders and I think that will be great once I get a couple more houses.

Currently, I have two homes with about 100k equity, but I don't want to use my primary residence as collateral (learned that lesson in the crash). So I would have about 60k equity in a house. I have about 24k credit limit on all credit cards and some are at 0% interest and I can save about 5k in next couple of months instead of paying off debt. 

Will a lender do 20% down on two homes? 70k vs one at 35k? 

Hi John,

When you say rehabbing land, I am assuming you mean re-zoning and selling the vision to an investor or buying land and subdividing it? if so, then yes, my dad has done several of these deals and I used to accompany him. I love the idea and its really quite nice because the costs are minimal and upside is huge. Some of the easiest deals my dad did were taking a large piece of land and subdividing it into smaller pieces and then selling them off individually. He also used to take land that wasn’t valuable as is and get it re-zoned for residential/commercial, draw up blueprints and sell the vision.

-John

The FHA loan can be used for almost any property. I have purchased 3 houses with FHA loans in the past 4 years...I move a lot. FHA has stricter rules on the houses you purchase because they want you to live in it. It may have changed, but I couldn't purchase a house without flooring, mold, etc. They loan up to a 4 plex and up to certain amount and the key is it must be primary residence. I purchased an REO (that was remodled - rare), Short sale, and regular transaction all with FHA loans. I am a realtor so I had access to the MLS and found properties that listed FHA eligible. If the house is liveable and doesnt need much rehab work it will more than likely qualify for FHA loan. Here is a cool website I found with FAQ (it even lists by state and city):

http://www.fha.com/faq

http://www.fha.com/fha_loan_requirements

thank you Johnny and curt! Johnny you are correct I'm not sure based on the 1 month rent roll provided it's a steal, but the reason I am hesitant is because if it's doing as good as rent roll shows then why is the seller behind payments? Something is fishy. 

Curt thank you I will get in touch with the listing agent and request all the items, excellent point about existing leases! 

Thank you Mike, that is a great idea! If the seller doesn't sign the POA would you recommend walking away from the deal, due to lack of due diligence?

Hello,

I currently have a Mobile Home Park under contract in Tucson that I believe is a short sale. I have never done due diligence on a commercial property before and this may be a little different since it is a short sale. The listing agent advised me that the seller doesn’t even know the details of the property and then they sent me a one month rent roll (that’s it). I checked the tax records and they are current. Here is the scenario:

We have it under contract for 300k, 44k down and then there is a 256k loan at 6% fixed interest amortized over 20 years with a 3 year balloon (union bank). The listing agent advised that the 44k is to pay closing costs and the extra cash will go to the bank principal which leads me to believe it is a short sale. The bank must qualify me and my business partners in order for the deal to be approved so it’s like an assumable loan attached with a short sale. I feel like there is more information that the listing agent is not telling me, but not sure what to ask as this is my first commercial deal.

Any thoughts? We like the deal because we can get in with little down, just want to get started in investing in mobile home parks.

What should I ask for?

Let’s assume the seller can’t provide info, is that an automatic deal breaker?

Many thanks in advance.

-John