All Forum Posts by: Jeff V.

James,

I don't have a guide, but this has been our experience so far.

You have to know your lender's LTV criteria for a refinance... most are 70% LTV some go up to 75%, possibly even higher, but this is lender specific. We'll use 70% in the next example.

If your newly renovated property now appraises for 100k they will lend you 70% or 70k against the property.  If you managed to get your purchase and rehab done for 60k they would apply the 70k loan first against any superior leans to wipe them out, charge you closing costs and cut a check for the remaining cash.

Note some lenders require a seasoning period as well...  Some are 6 months to a year and some do not have a seasoning requirement for refinancing.  This is lender specific as well, so be sure to ask.

Short story is to talk to your lender to find out their requirements.

Jeff V

Steve,

We show the prospect the property first, then if it fits their needs/family size and they like the property then we screen them to see if we in turn would like to rent to them.  We process a paper application, then process them through smart move for credit/criminal background/eviction and make a decision based on the information we learn.

No need to receive an app if the property isn't a fit for the prospect for whatever reason...

Jeff V

Joseph,

Maybe land lording isn't your thing...  there are other ways to make a buck in the RE industry... 

You could sell the property that you already have with a lease purchase and see if that's more suited to your liking.  OR you could hire property management and focus on finding the next deal and managing contractors for repairs ect...

We just got our 3rd rental under contract so things are starting to compound for us so I'm still in the game.

Also, you may try to check your rental criteria and see if there is a way to improve the quality of tenants that you get.  For example we do a credit check, criminal background check and eviction report for all 50 states on each adult on the lease.  They also must have a salary that is 3x the monthly rent.  We find that having such stringent requirements alone weeds out a lot of criminals and people who just have a bad history of not meeting their obligations.  The 3x salary portion ensures that the tenants have enough coming in to not just barely make rent, but actually have enough to splurge from time to time.

Here are some ideas, hope this helps.  Stay in there, it gets better.

Jeff V

Jeff,

So far they only appraise when your adding a new property as collateral or trying to raise your limit.

Jeff V

Jeff,

Our HELOC is evaluated annually. SO if the situation you described happened the HELOC would be adjusted the following year and corrected. I would imagine, that if your limit dropped below the amount that you had out they would call that portion due immediately, however, it would be up to the lender and the terms of the HELOC that you signed.

Jeff V

@Aaron Howell

Definitely watching...  it's not your normal flip show where everything is rosy and glossed over.  In my opinion it shows real problems that investors will face as they grow.  Already picked up a few good tips from the show that I never thought about.

It's also more about the problems that people have in the Real Estate investing business, and less about the nitty gritty details of flips ect.  So far most of the people he has helped were their worst enemy, mainly because they didn't know what they didn't know and didn't like taking advice from a more experienced investor.

Another perk is it's a local show for me, so I can relate to the area and culture.

Jeff V

If you have other assets with equity you can use HELOC for the initial purchase/rehab funds and traditional financing for the final refinance phase.

Note, talk to your banker to find out their criteria for cash out refi... some will only to 60% LTV others will do 70% ect... it's lender specific. Point being, make sure your exit strategy will work before you get to that point. Don't get caught, not being able to cash out your initial funds or investor funds.

Jeff V

He also has a book called the wealthy code that goes more in depth.  I feel like it's in the same category as RDPD in the respect that it expands your context and changes how you think about things.  Neither book give enough information that is actionable.

I believe both books are pumping the courses.  However there is alot of foundation information that can be applied to real estate and finance.  Both are worth reading.  The information is of high quality. 

Jacob,

Simply put our profits are calculated annually and split according to our capital contributions.  However we have agreed to leave the profits in the business for the first few years to boost growth.  Neither of us need the capital now, so this makes sense to keep it in for both of us.

On a side note we have a clause that says no member can be forced to make additional contributions.  If contributions are required, the remaining members can choose to put in additional contributions to meet a business demand, but will in turn increase their percent of ownership.  Basically you don't have to put in more money, but if you do your ownership percent will be increased proportionately.

This makes it fair for us because we separate our duties and both contribute capital into the business...  for example he does all of the tenant relations because he's more of a people person, I'm more of a numbers technical person so I do the books, analyzing property, annual filings, meetings with CPA ect.  We both handle looking for deals, project management, interviewing contractors, making scope of works, building timelines/schedules, paying contractors and firing contractors.  This works out well being we both work full time, but different schedules so one might hit the job site in the morning while the other checks in afternoon.  

We have a floating ownership percentage depending on the capital contributions.  For example if we have a total contribution from both partners of 100k where Partner A contributed 60k and Partner B Contributed 40k, then Partner A would get a 60% cut where Partner B would get 40%.  This is calculated annually at the end of the fiscal year.  Also capital gains are split at the same rate as cash flow based on our capital contributions.

Our business model follows closely to the Buy, Renovate, Rent and Refinance model.

This is a run down version of our agreement...  our actual agreement is 16 pages long and accounts for MUCH more than just splitting profits.

Again, hope this helps.  I know its not your specific scenario, but maybe will give you some ideas to get the ball rolling.

Jeff V

Jacob,

I've came back to this post 3 times now trying to come up with good advice for you.

First time I tried to answer without knowing what your investor partner's goals were and there were too many variables to account for.

Second time tried to give a parallel by offering up the structure that my business partner and I have, but it's not the same as the scenario that your describing.  So I figured it wouldn't be very helpful.

Final Try...  An operating agreement is just that, an agreement between you and the other partner.  However you decide to split up the profits has to align with your and their individual goals.

I will add this,  When you get a rough draft nailed down, take it to a lawyer to have them put their "What IF" scenarios in to be sure you are BOTH covered.

Examples:

What if you take ILL and can't perform your end of the deal.  

What if your investor decides they are better off putting the money in the stock market rather than investing with you?

What if your investor dies?

What if you die?

What if your investor gets a divorce and now you have a third partner that isn't contributing anything but wants his/her cut of the profits?

What if you get a divorce and now your partner wants their piece of the profits?

What if you disagree on business decisions and direction?   How do you resolve that dispute? Mediation, Arbitration or Litigation?

If that method fails what is your backup plan to resolve disputes?

What are the roles of each party?  You are the active partner, but will your investor have any active say in the decisions that are made or will he/she be a silent partner?

What if you decide to take on another partner...  will your existing partner have any say in the selection process?  

What if he/she doesn't like the partner you pick and wants out?  How do you go about dissolving the partnership?

So on and so forth...  so many things to think about.  Be sure you have your I's dott and T's crossed because most partnerships end up in business divorce per se...

Hope this information helps get you going in the right direction.  Sorry I couldn't be more specific.

Jeff V