All Forum Posts by: Ben Leybovich

I agree with Bill G. Figure out the basics.

If I may, I’ll give you this advice. This alone will save your but many times over. I’ve learned that when getting into a deal, you must have 3 exits available to you. Thus, if you use hard money, but can not flip within the time-frame, have refinancing options lined up. At which point you have a rental on your hands. Can you cash flow this property in this case…

Flipping is very, very hard - the hardest thing there is in RE in my opinion. There is no margin. Check out this clip:

In short, assume the worst case. It should not be a matter of either making money or loosing money. Rather, frame the proposition as: which way will I be making money?

Personally, a wholesaler is the last place I would think to look for a deal.

The Government borrows money from the FED. FED prints money and writes a check to the government. This borrowed money is not free. The government has to pay interest on it. Where does the government get the money to pay this interest? Taxes is one place, but that’s not enough. The government borrows more money with which to pay interest on the previously borrowed money. The formation of the federal reserve system guarantees national debt – it is structural and unavoidable. Taxes have to go up because they spent too much and won’t be able to pay interest when rates go up. How long before hyperinflation hits? Your guess as good as mine…

Good job Tim. My first deal was similar - seems so long ago.

Welcome Steven! You are definitely in the right place.

Sorry Kanku, I meant to address my reply to Charles. Appologize

Kanku,

In this life, you’ve got to have one of two things, either knowledge or money. You’ve come to the right place to ask questions. A lot of guys and ladies here have spent their lives studying and practicing the art and science of RE investing. The trick, for you, is to know the right questions to ask!

Why would you go to a wholesaler? How would you be able to tell whether the deal you are getting is good, or you are being screwed out of your money? HAve you done the market analysis? Do you have the money lined up to do a deal? Do you know what is the footer is and what is its function? Have you priced out how much it costs to replace roofing/siding per square in your area? Do you have relationships with contracts established? What are passive losses and how do they impact taxation of profits on a flip vs. a long-term investment?

The point I am trying to make is that unless you know these answers and much more, you are jumping the gun looking for a deal. Remember, money follows knowledge in this business. But, knowledge is never free - you pay for it with your time. Have you put in the time? Have you put in the time to keep out of trouble; to keep from loosing money?

Without the knowledge, you are better off handing you money to a stock broker. They will take ****** care of you, but it’ll be better than a wholesaler…

Devin,

You are smart to look at newer structures. And if you are trying to rent them for a while, but ultimately flip them for cap gains then this is a good proposition. However, if you are going to hold onto them for cash flow, singles are not the best in that vacancies are much harder to handle in singles then multi. It’s not like you just loose the rent if it’s empty. You still have to pay mortgage, taxes, insurance, etc. So you get hit on both sides. Potentially, 1 month of vacancy kills your profit for a year. I have both, and from long-term perspective I'll take a multi any time.

You are wise to consider the cash on cash return as the definitive metric. Of all of the metrics we use to evaluate deals, this one hits home. I have a 10-unit under contract as we speak. The financing package I've put together, which involves both commercial and private money, has me leaving 2.5% of my cash in the deal. This will be well over 100% cash on cash. In this context, 15% COC is perhaps not so great...

I always remind myself that there are 2 profit centers in every RE deal: one is the bricks and lumber on top of a dirt pile, the other is the terms. Perhaps the latter is the much more important piece. I focus on terms. This is difficult because most deals out there don’t lend themselves to negotiating many of the terms that should be negotiated in my opinion. This is why I am happy if I only find 1 good deal per year – but it’s really good. I hope this makes sense to you. Look me up; we'll talk more if you want.

Devin,

You should be fine then, unless you don’t meet some other qualifying criteria like debt to income, credit score, etc.
Can I ask you, though, why you focus on SFR if cash flow is your primary focus?

Devin,

Fannie and Freddie count of 10 is applicable to residential, salable-type mortgages which are resold on the secondary market. The properties you have in the LLC sound like they are within commercial umbrella mortgages which are held on the books by the originating lender. Am I right? Did you finance those at a small community bank? To my understanding, they should have no impact on either Fannie or Freddie.

Kerry,

I agree with Jon Holdman. Make sure you have the proper permitting to put 4 units into the structure. The property is in the LLC, which is why a 30-year residential is not going to happen. As to 7 years, this is likely an ARM. 3,5,7 year ARMs are typical on a 20 or 15-year amortizations. What an ARM does is that the interest rate on your loan resets at the specified periods and the payment is recalibrated based on the new interest and the balance at those times. So, you do have to be careful because your payment at the adjustment could be higher than at the origination if the interest rate is much higher.

There is something you can do. Most commercial lenders will negotiate caps on their loans. For instance, in exchange for 2 points, they will guarantee that the interest will not adjust by any more than say 2%. At times of high interest rates, doing this might mean that you miss out on a lower rate. However, in 2013 the only way interest rates are going is up, which makes this a strategy that has value.

Once you know the worst case scenario % rate, you can throw a bit of cash flow at the mortgage to positively amortize it to arrive at a balance which will guarantee that your monthly payment stays even keel. And if the rates are lower at the time of the adjustment, your payments will be lower. This is a good safety play. I do this all the time on notes for properties that I will be keeping for a long time. Feel free to get back with me. Good luck!