All Forum Posts by: Katharine Chartrand

The first piece of advice is to ruthlessly comparison shop. It feels like you are asking someone a favor to lend you money but its a business. You are the opportunity. In my experience, everything with loan products varies ... closing costs, interest rates, LTV, terms and there was never a purchase that needed to be shopped around more than a loan.

In direct response to your question, nobody here can tell you what is the best financing option. It depends on what your actual options are. So you have to go out and figure out what they are, and whether they make any sense at all. You seem to be aware of the reasonable places to go.

Second, in your post you talk about the $15K per year you take out as income and the reinvestment as an expense. From your business's perspective, what you take out to pay yourself is an expense, what you reinvest is your income. If your company has a loan, you will have to pay the debt service rather than reinvest income, but hopefully the loan gave you substantively more working capital to invest than you are paying in debt service.

Before you try to get a loan, talk to an accountant who can show you how to represent your financials and talk about your business ... the reinvestment is income that you had been choosing to use to increase equity. And if you had more cash, you could increase that income and pay down loans.

Run some models in a spreadsheet of how this is going to work for yourself with a loan. You have a rental that you own outright. Now you take out a loan on that rental... does the cash flow from that rental cover the loan payments?

You use that money to buy and renovate another property and that brings in cash. Is it more than you were getting before, or did you just put in a lot of effort to end up where you were before? Are you counting on the value of the property to increase to make money? How likely is that?

It's not clear in your post whether you are going to borrow to buy new properties or refi your existing properties. That makes sense, but you have to run different models taking into account closing costs of the different scenarios.

It seems like you want to find the one right strategy and then run out and get multiple loans against many properties. Try it with one or two options that seem viable and see how it works out. Continue shopping for loans, test your business model. Try something else. Don't assume you're going to figure it out the first time around, and don't let that stop you from trying something.

>KNC<

I have properties that i am fixing up that have no liens on them, so I figured I would go to the bank and use them as collateral for $300K in loans for some renovation.

• Dunlap - an unimproved but habitable investment property that should appraise as is at $200K+.
• Grillo is a nice piece of land with an uninhabitable building. I am hoping to borrow against the value of the land, which is probably $120K

The trick of course, is that I only hold them 4-6 months, so high closing costs on the loan can make borrowing too expensive. I shopped around a lot for low closing costs.

The Bank of Oklahoma (which manifests in NM as the Bank of Albuquerque) was willing to lend me money using these houses as collateral, assuming they appraise as I predict. BofO offered me 7%, no closing costs and a 75% LTV.

Or that was the deal until the understood that the banks are owned my my LLC and not personally. At which point they found they need to treat this as a commercial loan and I find myself starting from zero in an entirely different department. I am not sure where things are headed.

I can deed the properties back to myself. The main issue becomes liability. Flipping is risky and I try to isolate my business activity and assets in an LLC.

I am interested in hearing from anyone who has been down this path and how it worked out.

>KNC<

A deal is only good or bad relative to what other options you have to invest in and what your goal is.

Before I invested in anything, I spent 6 months creating spreadsheet to calculate the cap ratio, cash on cash return of every deal that kinda looked interesting in my area. That helped me think about my goals and what kinds of returns were available to me in my area. It gave me a baseline to measure opportunities by. And it helped think generally about whether I should put money into real estate or something else.

Once you collect even 10 of these, you develop your own sense of the goal, and you know what a good deal is, in your hunting area, by your measures.

By my analysis that is a 25%+ cash on cash return, assuming the total cost of buying it and renovating it (count vacancy) is 200K, you put 25% down and you get a 5% interest rate. In my area, that's a buy.

My spreadsheet looks like this. I am really curious how other people evaluate a rental property.

I understand wanting a mentor, but if you just start doing it you find there are many people along the way who will help you for free. People respect people who are trying to learn and putting effort into something. To the extent that you demonstrate that, I think people will step in give you hand.

Bigger pockets is great. Live people are better. There are real estate investment groups that meet regularly across the country if you need to find people to run deals by.

And of course there are people who will give you free bad advice. A key part of being successful is knowing who to trust and who to accept help from. And that is a skill you need to develop.

Moreover I usually figure things out myself while talking them through with another person. The process of explaining my situation and my strategy to someone clarifies what I should do. Often I don't take the advice or position of the person I am talking to, but I am always grateful for the listening ear and interaction.

Finally, I am not sure the guru's are bad. But I am sure you are not going to be successful until you have the nuts to make your own decisions. And I am sure you aren't going to learn anything you don't work through and almost discover yourself.

The advice I pay for is mostly legal advice. I pay for the advice of realtors through brokerage fees. And I pay for advice on insurance and liability by buying my insurance from one, good agent.

Read books, read this site, look at the free information on the guru's sites. And spend your money on a good lawyer.

>KNC<

I use My Solo 401K.

I wanted a Fidelity account so that I can move my assets seamlessly and without fees between mutual funds and my other assets. This is an amazing setup, but not everyone at Fidelity understands it. Mark Nolan at My Solo 401K was just amazing ... we breezed through paperwork.

Generally they were responsive and extremely knowledgeable. They did a huge amount of work for a flat fee of $600.

The purpose of incorporating is to provide some protection from the liability involved in buying homes, owning them and rebuilding them. Its just a different form of insurance.

You don't have to incorporate.

You don't have to buy insurance.

The question is what kind of exposure you are comfortable with. The risk is hard to grasp until you've actually been maliciously sued. It doesn't happen a lot, but when it does, you don't want your personal assets on the line. At the same time, people take risks all the time to get started. And when you have nothing, you have that much less to lose.

I spent the $200 to form an LLC. I used the Company Corporation and I had my lawyer review their docs (they were fine) and I am meticulously insured. But it is a personal decision. I would ignore people who preach on this topic. Risk is a personal thing.

I am evaluating offers from several banks for HELOCs on my investment properties. Basically, after my houses are rehabbed and while they are on the market, it is sometimes good to be able to borrow against them with a HELOC to have the funds to get started on another renovation.

The offers I am getting are 75% LTV, 7% interest, no closing costs.

Anyone else doing better? What bank?

Is there a smarter way to do this?

>KNC<

I imagine the banks and the FDIC push for enforcement.

I used My Solo 401K http://www.mysolo401k.net/ to set up a 401K Trust for my LLC. The trusts holds a non-prototype 401K account with checkbook control at Fidelity. The advantage of having the Fidelity account is that I can hold mutual funds until I want to invest in my self-directed investments and real estate deals. But I have a checkbook just like the money was in a bank.

The folks at My Solo 401K know Fidelity and solo 401K's better than Fidelity. It would not have been possible to get this setup started without My Solo. I cannot recommend My Solo highly enough.

>KNC<

Someone working on one of my rehabs somehow got a blank check of mine, forged my signature and either gave it to a friend who cashed it for $800, or cashed it with false identification.

It was cashed on Friday. I can see the check on line. I've reconciled my checkbook, notified my bank. I will file a police report tomorrow.

Anyone been through this? How does this kind of thing play out?

>KNC<