All Forum Posts by: Keegan Darby

Quote from @Eric Jubeck:

Hey Keegan, it's hard to give very accurate answer without more information. But, my first thought is your buyer is not "qualified" for the FHA loan without the 3.5% down payment requirement. No lender would have told you so without seeing the funds already seasoned in an account for the money down, or already knowing the situation for having the money in time for closing. So yes, they would have to receive verifiable gift funds, or their lender could try finding them a down payment assistance program. Not sure where you are, but here in FL the big one has been Hometown Heroes for covering down payment, but there is much more criteria to get approved as well. Provide more info and maybe someone can help give more insight...

 Thank you @Eric Jubeck - I’m in Arizona 

We are selling a home to a buyer who has qualified for the loan (FHA) but doesn't have the required 3% down payment.

Apparently the only work around is that they have a gift of the 3% from a family member to then close. 

The buyer can’t go conventional 0% down given that it’s a flip and we haven’t owned the property for 90 days. We’ve owned it for 4 days. 

Aside from waiting the 90 days so they can do conventional, are there any workarounds? 

@Carlos Ptriawan @Corby Goade

Agreed. Thank you both for your comments. 

I only lend if the borrower puts down 20% and has experience rehabbing (8 or more house flips in the last 15 months) and no previous defaults. Plus, we get pictures as the rehabs go. And, of course, they maintain home insurance. 

Worse case is they default, and I obtain the property at a 20% discount (their down payment) + the discount they bought it at (typically another 20%). The property also would likely have been rehabbed or in the process of it. 

 

@Dan H. - 

Assuming the 75% LTV loan and being "all in" on the property at $70k:

In 5 years at a 5% annual appreciation, the house would be worth $345k. 

So, the initial purchase of $230k would be a $115k gain over 5 years. Or, a 50% ROI over that time.

if I lent the money during those 5 years at 10% and assuming a 26% tax rate, my total proft after tax would be $94,000.

So, a difference of $21,000 over 5 years. 

Quote from @Jonathan R McLaughlin:

With the BIG caveat that I am trusting your numbers to be accurate I’d definitely consider the deal walking in to that level of equity. Assuming you are talking no cash flow with financing. Not sure how u are financing but if you are funding loans at 10% you are cash flush? Pay cash then decide on the finance structure later. I’d be very surprised if you went able to structure something that’s ultimately profitable.

If it’s B or above depending on the tax and utility structure you may practically be at 1%. 

Thank you @Jonathan R McLaughlin- 

Yes, I lend cash at a 10% return, so would be reallocating that cash to buy this house. 

Likely something I'm missing but I'm viewing this as being a 7.2% ROI given that buying the home and being all in at $230k and an estimated annual rental income of $16,500 after accounting for insurance + taxes.

So 7.2% ROI vs the 10%. Can you explain the benefits of the $40k equity? To me that just seems "dead money" as I can't touch it + with the purchase of the home assuming the risk of bad tenants, etc.

Likely something I’m missing in my analysis 

Quote from @Keegan Darby:

Quote from @Dan H.:

Quote from @Keegan Darby:

Thank you both @Corby Goade @Chris Seveney - 

This is the quick analysis I did from a 5-year perspective: 

Buy the SFH at $220k, $5k clean-up to get rent ready

Strategy 1 (hold as rental):

Worth $322k (assuming 3% increase in value each year)

Rent over 5 years: $83,400 (after PM, insurance, taxes, etc.) 

Profit at that point: $125,400 

OR

Lend hard money for 5 years at $220k at 10% annually:

W/ compound interest, this would be worth $354,312

Profit at that point: $134,312 

Additional Notes: 

Strategy #1 is riskier (assuming no major repairs to house caused by bad tenants, evictions, 5% YoY appreciation, locking in the money). 

Thoughts? 

Option 1 using leverage at 75% LTV, buy house at $220k at 75% LTV With closing costs, it at less than $65k. Plus $5k to get rent ready in at less than $70k. cash flow Calc will be different but let's go with cash neutral. $102k from appreciation on less than $70k investment. This far surpasses 10% annual.

RE benefits from leverage like few other asset classes.  

Good luck

 Hey @Dan H. Assuming the 75% you mentioned I’m assuming you mean put it into a 30-year mortgage? 

If I did that, I'd be losing ~$300/month after PM fees, vacancy rate of 5% and PITI.

Plus, I’d be leaving $

~$25k cash locked in the hom

All for the equity. 

Also when calculating the tax benefits, if I assume $15,050 annual net profit from rental income, my tax depreciation would be roughly $7,900/year on this property. 

So, I’d be taxed on the difference of $15,050 and $7,900. 

Is that right? 

Vs. lending hard money, I’d be taxed on the $22k earned from interest (lending $220k at 10%)? 

Quote from @Dan H.:

Quote from @Keegan Darby:

Thank you both @Corby Goade - 

This is the quick analysis I did from a 5-year perspective: 

Buy the SFH at $220k, $5k clean-up to get rent ready

Strategy 1 (hold as rental):

Worth $322k (assuming 3% increase in value each year)

Rent over 5 years: $83,400 (after PM, insurance, taxes, etc.) 

Profit at that point: $125,400 

OR

Lend hard money for 5 years at $220k at 10% annually:

W/ compound interest, this would be worth $354,312

Profit at that point: $134,312 

Additional Notes: 

Strategy #1 is riskier (assuming no major repairs to house caused by bad tenants, evictions, 5% YoY appreciation, locking in the money). 

Thoughts? 

Option 1 using leverage at 75% LTV, buy house at $220k at 75% LTV With closing costs, it at less than $65k. Plus $5k to get rent ready in at less than $70k. cash flow Calc will be different but let's go with cash neutral. $102k from appreciation on less than $70k investment. This far surpasses 10% annual.

RE benefits from leverage like few other asset classes.  

Good luck

Hey @Dan H. - 
How did you calculate the $102k appreciation? 

It’s my ignorance in not understanding all the clear benefits of RE. 

If you could please break this down. Thank you 

Thank you both @Corby Goade @Chris Seveney - 

This is the quick analysis I did from a 5-year perspective: 

Buy the SFH at $220k, $5k clean-up to get rent ready

Strategy 1 (hold as rental):

Worth $322k (assuming 3% increase in value each year)

Rent over 5 years: $83,400 (after PM, insurance, taxes, etc.) 

Profit at that point: $125,400 

OR

Lend hard money for 5 years at $220k at 10% annually:

W/ compound interest, this would be worth $354,312

Profit at that point: $134,312 

Additional Notes: 

Strategy #1 is riskier (assuming no major repairs to house caused by bad tenants, evictions, 5% YoY appreciation, locking in the money). 

Thoughts? 

Hello BP - 

Turned down the purchase of a home today with the following details: 

$220k purchase price 
$270k ARV (built in 2008, just needed to be cleaned)

Needs ~$20k in light work (paint, faucets, yard cleaned) 

Market rent is $1,850/month 

Why I turned it down… 

I’ve been lending hard money at 10%. It’s passive and relatively risk free.

So, my question is: 

When is it ok to purchase an investment single family home with no cash flow, but 20% equity?

Or, would you rather just lend that cash , that you’d tie up in the home, at 10% and have more liquidity (6 month terms)? 

Going to list a house for sale soon. 
During rehab on the house we converted an old sun room into an additional living area. 

The sun room didn’t count towards the sq footage of the home, but we want to be sure this area is now counted towards it.

We didn’t need permits as we didn’t add/change anything. 

How would we do that?