All Forum Posts by: Justin Webb

Hello BP,

For those of you out there seller financing and using wraparounds, what tools, websites, or packets do you put together (ie background and credit checks) when screening potential buyers using seller financing or wraparounds? Less than 5 per year. I know Dodd Frank and Safe Act require a licensed MLO for more than 5 seller financed homes within 12 months. In that case, they put the packet together anyways. (Please no posting about Acceleration Clause or Due on Sale Clause, I am well aware of these.)

@Daniel Basaldua Keep in mind, this is only my recommendation. At the end of the day, you are the investor and should make decisions that you feel comfortable with. It is possible to own rentals and be located half way across the world. I do. However, I would continue to learn the ins and outs and start conducting research in the city your next assignment is located. That way you can pull the trigger and have time to learn about the property before you purchase and after you purchases. It is inevitable, that the Army will PCS you again, but you will be more adverse by that stage and feel comfortable about owning an out of state rental. Besides, six months will allow you to save for a little more as a contingency. You can use your VA loan to purchase a quadplex 0% down and live in it during your next assignment. While the other 3 units pay your mortgage, it will provide extra that you can save to buy more properties with.

@Account Closed absolutely! Would be great to hear how things are going from you. Sounds like you found a good attorney as well. Shot you a colleague request.

@Daniel Basaldua welcome to BP and the world of real estate investing. I'm sure I know your lieutenant since I'm an air defender as well. That's a great book to start out with. I would also recommend The ABCs of Real Estate Investing by Ken McElroy. You have a steep learning curve ahead of you, but don't be afraid to get your hands dirty. Use this forum and the tools provided by BP to build a foundation. There are plenty of opportunities here in El Paso. Let me know if I can help in any way.

@Andrew Postell great idea! I was contemplating whether or not to post in creative financing forum or Texas since our laws are a little more restrictive.

@Account Closed thanks for the feedback, im aware of the due on sale or acceleration clause. If this happened everytime I've told the lender we are wrapping a note around theirs, myself and many other investors would not have been successful thus far. In Texas it is the law that you have to disclose to the bank within 7 days a wraparound will be placed on their note. If they do accelerate, we refinance. I'm asking to see what other tools investors are using so I can make my process more efficient and minimize risk of sellers defaulting in 5 years.

Hello BP,

For those of you out there seller financing and using wraparounds, what tools, websites, or packets do you put together (ie background and credit checks) when screening  potential buyers using seller financing or wraparounds. Less than 5 per year. I understand Dodd Frank and Safe Act require a licensed MLO for more than 5 seller financed homes within 12 months. In that case, they put the packet together anyways.

Hi Mikhil,

I agree with Antonio and Jason. The numbers seem good but there is a lot more to consider. You are on the right track as far as verifying valuation and income. Since you are new to real estate investing, I recommend using the bigger pockets rental property calculator and reading The ABCs of Real Estate Investing as well as The Advanced Guide to Real Estate Investing both by Ken McElroy. Each of these books will teach you some very important lessons about starting out. Although he is more focused on investing in apartment complexes, his advice about due diligence and ensuring the numbers line up is valuable. As you become more experienced you will be able to take the calculator and modify it to help analyze the deals you are looking for.

Keep in mind whether you are new or experienced, you are the real estate investor. Although another investor has given you an offer of the three homes for 60k, you have to find out the maximum amount that you will pay for all three. They may not be worth it.I will break this down but there is still a lot more to think about in your first purchase. If you want to get into the specifics feel free to give me a call or PM me. First thing I would do is have my real estate agent run the numbers and facts. Although all three homes are packaged into a single deal I would separate each of them to figure out if any of them pose a risk to my overall investment strategy and cash flow. You will need six CMAs. A rental and sales analysis for the previous three months within 8/10 of a mile from the subject properties. You can go out to six months but I prefer the most recent and up-to-date data. If the investor is using a licensed property manager, then your real estate agent will be able to see what type of lease and for how much each property is currently rented for. Be wary of the month to month. I've heard of instances where a property was sold with tenants in place paying more than the market average, but the next month all the tenants moved away and the investor was stuck leasing at market price. A loss, when the previous months numbers made the property worth more.

Once you have the valuation, as a buy and hold investor I max with 80% ARV then subtract expenses, closing cost, mortgage/tax arrears, and repairs to arrive at my maximum price. Meaning, that I will not buy a turnkey home or a home that needs no repairs and is current on its taxes, mortgage, HOA dues, etc. for more than 80% of its value. That way if something goes wrong and I have to sell or I need to refinance within five years I will at least break even. That's a lesson for another day. That is not the final factor though.

Once you have the rental CMAs, you will need to determine how much cash flow you want per door each month. Let's say a nominal $200. Next you take the rental income for each property and you subtract expenses. Expenses include but may not be limited to vacancy, HOA dues, minor maintenance, landscape maintenance, property management fees, and capital expenditures (CapEX). You will also need to subtract your monthly taxes and insurance as well as the principal and interest on your mortgage. If the remaining balance is greater than $200 you may have a deal. If it is less than $200, it is risky. If the remaining balance is in the negatives then it's no deal. Also keep in mind, maintenance and CapEX are not monthly expenses. They appear every couple of months or maybe after 10 years(CapEX). If you don't save for them month to month, then they will eat away at your cashflow.

Let's say for subject property 1 the tax assessment value is $80,000 on record. The sales CMA states $85,000 and the Rental CMA shows it rents on average for $950. Max value I would pay is $68,000. Since you are financing, I will assume 30% down for a loan of $47,600 at 4.1% APR for 30 years. Just guessing at the terms. You will probably get a blanket loan, so all 3 properties will be evenly split. However for simplicity, let's just look at one property. So $230 a month principal and interest.Tax rate in ELP is about 2.8% assessment value= $198.33 month. Insurance could be around 0.85% or $60.21 month. I'm presuming it's a small 3/2 or so. I would gander at $280 month for CapEX plus $50 for routine and yard maintenance. Property management for the $950 a month at 10% is $95. Vacancy for 65 days is 3.1% of the rent or $29.45 month. Add it all up and you get your monthly cashflow of $7.01.

Risky, but I would go for it as long as you have enough reserves to cover any immediate crisis. At the end of the year you are only claiming $84.12 in profit. The great thing about real estate is writing off depreciation, high taxes, plus mortgage interest at the end of the year. Makes for a nice bonus that evens out the lack of monthly cashflow. However, you will need a good CPA that understands real estate.

Once you have this for all three properties you can add them together to see if one helps alleviate the risk of another or if all three cash flow and you get $600 per month.Hope this helps.

Chris,

I wish I could help you out, but I deal mainly with wholesalers in the east and northeast as well. Naturally when I'm driving around, I notice we buy houses signs or their equivalent, jot the number down and give them a call. If nothing has changed, I noticed a few advertisement benches, trash cans, and bandit signs back in August while driving down Mesa, Sunland Park, and Resler. You may find a few, but its hit or miss. Some of the investors disappear as quickly as they popped up. I'll be calling a few this week when I get a chance. I'll make a note to ask then shoot you a PM if any do.

I agree with @Jason Chambers both local REIC's are a great place to network. I wish there was one that meets on the east side. Let me know if either of you know of one. One of the ways I find wholesalers in El Paso is to drive around some of the major intersections near local hotspots like 79938. Take a picture for each of the "we buy houses" signs. Lately I've seen sets of red, green, and yellow. Call those numbers and you will typically be talking with a wholesaler. Also, a few months back I had my VA round up a list of local contractors, both commercial and residential, to interview them. Many were hard to get a hold of since the actual contractor was on the job site and their secretaries answered. I cant vouch if they are any good or not, since we were filtering them for when we do need to call. At least have a refined list rather than calling number by number out of the phone book... If you would like the list just PM me.