All Forum Posts by: Kenneth Garrett

Fred,

It sounds like your strategy is working on flips.  There is potential for great profits with this strategy.  Having the ability to perform the rehab work is a definite plus.  Check with your area to make sure if you need to be a licensed contractor to work on projects that are not owner occupied. 

Private lenders v. hard money are definitely very different distinct loan types. In simple terms hard money in general will loan up to 65% of the ARV. They also like to see a track record as well as decent credit. Interest payments are due each month and they typically will do an appraisal which could be someone from there office. Percent could be as high as 15% or so plus points sometimes 4 or so. Its expensive money and the terms vary widely. You can get 12% plus 2 -3 points by me but you need to have a real strong project, good credit and experience.

Private Funding is usually Self Directed Retirement Funds that are being invested.  Could be cash but more rare.  One big advantage is you can borrow 100% of the money purchase and rehab funds.  No credit check and the investors will want to know how you are protecting there funds.  Experience will also help.  No monthly interest payments.  Interest paid at closing of the end buyer.

You may need to partner with someone who has experience to start building your own criteria. 

Good Luck.           

Sebastian,

I have my tenants mail the rent payments to a specific address not my home address.  I created a business address where all my mail is sent.  You are correct if you take partial payments it does create an issue for eviction procedures.  You need to check with your state on there procedures.  Another resource you may want to check out is MrLandlord.com it is run by Jeffrey Taylor and has a ton of great information for landlords.  It is free to sign up for his emails/newsletter and you will gain a lot of good information.  He also recommends a couple of sites that collect rent checks on line for a small fee.  You can probably set the parameters for accepting payments.  

Good Luck.

I agree with Jack definitely have your attorney review the document. There are many structures you can create to protect yourself. First of all you should have a comfort level when you are partnering with other people. You could create a separate LLC for this project where you are in first lien position. You essentially are the bank and could foreclose if your partner failed to perform. I have also created Joint Venture Agreements in the past, Limited Partnership agreements, etc. You want to protect your interest. Make sure you check out your partner that he has a track record of projects. Due diligence is essential.

Good Luck.        

I always provide a three page "Opportunity Investment" for my investors. It describes the project what I plan to do to the Building(s) (Rehab) and all of the cost.  I give them information on the neighborhood, the community, rental market and revenue and expense report.  It is very detailed so it gives the impression, this is not my first time and I have done my own due diligence.  Most importantly how their funds are protected.  Even if I know them I still provide the three page "Opportunity Investment".  I invite them to look at the project so they can do there own due diligence.  I work with a few investors and I think it is important that they have a very high comfort level with you.  At the end of the day they are investing in you.   Also make sure you provide them status reports on the project, so they are well informed on how things are going.  If there is an issue with investors or for that matter in any business application it is a lack of communication.  Keep everyone in the loop.

Good Luck.

You are correct you would be going against the due on sale clause by transferring the property.  I can only say on this point very few banks have called and instituted the due on sale clause for this.  I would refer you to your attorney for direction on this matter.    

Nolan,

The LLC is the best Asset protection for rental properties. A couple of things to note:

When you put property in your own name you expose your personal assets to a lawsuit. This could include your home and any other assets you may have. If you do use a LLC you must separate your personal funds from the LLC. The LLC is a business no comingling funds. Separate bank account and treat it like a business. If you do not, then the LLC is a sham and your assets would be exposed potentially by the litigant piercing the corporate veil.

There a lot of opinions on this topic.  One important note is that the issue only arises if your insurance could not cover the liability.  I think if you are going to be landlord than it is a business and you should treat it as such.  Plus once you create the business you can take advantages of the tax benefits.   

Check out Mark Kohler on youtube.  He is an attorney and CPA and does a great job on explaining asset protection.  He also has a weekly podcast that is very informative and fun.  As fun as taxes and legal issues can be.

Good Luck.  

Hi Kenneth,

The length of a rehab varies quite a bit depending on what your project consist of.  The more extensive the rehab, the longer it will take.  Based on your question, this is a buy and hold project and typically will vary from 3 - 8 weeks.  The variance depends on the complexity of the project and finding the right contractor.  My rehab in general are kitchen and bath rehabs, paint, flooring, etc.  A bad contractor will cost you time which is money.

I manage my own properties.  I utilize the Zillow Rental Manager (its free) to advertise my rentals and it usually takes less then 2-3 weeks to find a renter including screening them.  My last unit took 2 weeks to find the right tenant and screen them.      

Hope this helps.

Hi Juan,

Great question. Romeoville is a great rental market. Start looking at properties and use Redfin, Zillow, Trulia, realtor.com, MLS etc. If you become an expert in your market it will become easy to weed out the ones that are not a good deal. Watch other flippers or buy and hold investors.

When I started I went to numerous REIA Real Estate Investment Associations to learn. I picked a market and watched what people paid for property and then they would reappear on the market 6 months later. If you look at pictures you can see what they did to the properties and you can estimate the rehab cost and profit. I looked a t a lot of properties to get a good idea of what people were doing.

If you become an expert in your area your comfort level will increase and will lower any apprehension you might have. 

A friend of mine does a lot of buy and holds there. He currently buys most at auctions, but in the beginning he used the MLS. He was able to acquire about 18 units within 30 months.

Good Luck.

Wow! Those are pretty good terms. I have been getting 5% @ 25 Year Amortization with 5 year balloon. I have been able to get 80% LTV on some of them instead of 75%. Makes a big difference.

I am assuming the rents have been assigned to you and you have taken over the lease agreement.  It may be month to month if there is no lease.  Cash for keys is a negotiating tool.  You have to decide whether paying two months rent for them to move out is worth it.  I've seen people pay up tp $3000.  If you have to evict them Illinois is not a favorable state for landlords.  The judges will give them plenty of time especially in the winter (welcome to the judicial state).  If you are in Chicago look at the Chicago Tenant/Landlord Ordinance violating this could cost you fines. 

Having family members could be an advantage.  I would want to know how long they have lived there and were they good tenants at one time.  They may just be milking the system.  Do not give them any money until all of there belongings have been removed from the unit.

You may want to check out the Chicago Creative Investors Association (CCIA).  They have a lot of good information on there website.