All Forum Posts by: Kyle Dutson

So, I am trying to get in the REI with little funds. So I am resorting to what Bigger Pockets refers to as creative financing.

I have some potential partners lined up and a property with a seller financer. I was going to propose to the seller carrying a note w/ a second pos. on deed for 30% of purchase price. Or whatever my partner can not cover. This may allow me to get a bank loan. Maybe!

If he goes for it I am unsure if I would qualify. I am a seasonal employee and am out of work at the moment (getting my real estate licence, but that's another story) and a credit score around 700 (2 late payments, shame). My partner (the old man) has exceptional credit, a six figure salary, and plenty in liquid assets. He offered up gis credit last we spoke. Just kind of hinted "you know Kyle, I have great credit." 

Is it even possible to use a cosigner on an investment property? Commertial residential at that (6 units).

Just got off the phone with Wyotec housing. A total of 232 units will open up if they shut down. These units are mediocre at best and have no common areas. The 60 units previously mentioned were said to be "not very nice" and in need of repair.

Thanks for replying @Bill S. 

Yes, Wyotech is a concern that I have thought about. But concerning this, Wyotech has been in decline for some time and is now down to 400 students at the time of this writing. Down from 1,085 in 2016 and and 1,800 students on 2013. So, the market should, in theory, have already made most of its adjustment. On that though, there are at least 60 units I know of that Wyotech has under contract for lease to their students that sit empty at this time. 

On the other hand, UW saw a 9.3% growth of freshmen to total 1,696 and an increase of transfer students by 12.3% to total 1,086 this fall.  That is 265 more students enrolled as compared to last year, over half of Wyotechs student population. Also, UW is projecting more student growth for fall 18'. Will Wyotech affect the market? Yes, but not as much I believe people expect. I have found in my experience not to try and "time" markets. You may end up in a worse situation. But hind sight looks clearly both ways I suppose. 

As for rehabs, you are most likely right. It will probably cost me more than expected. But I am going to be conscience of not overspending due to the area and potential market influences. It is in a high density of rentals (N9th and Downey) so competition may limit my ability to raise rents much, if any considering the Wyotech variable. If I can't raise to my target I do expect to at the least be able to keep a lower vacancy rate than the surrounding units.

The idea of getting a contractor's licence is intersting. My plans for my own work would be simple but not sure if this is the type of work you mean. I plan to just update mainly. i.e. Counter tops, bathroom vanity, 2 units need shower tile, paint the exterior, new appliances etc... Things like that. All of which I was hoping to pay for with cash flows over the next several years. So, if the market reacts to Wyotch as you seem to think it may, I would be in a bad spot.

As for price, I think you are right. The market seems to be pretty inflated price-wise. Especially down by you. Being new to the REI world, everything I'v read in my research on investment shows instances of people buying 9% cap rates or higher. And paying around $60,000 a door. That is just unrealistic in this market IMO. Even up here in little ol' Laramie.

I know I'm playing devil's advocate here. But I don't want to not get into the market based on fear of something that is uncertain. I also don't want so be brash and jump into a bad deal. So, I am proceeding with caution and doing as much research as I can. I am touching base with the listing agent from time to time so she knows I'm out there. But if it goes before I'm ready, I won't hurt about it.

Thanks @Caleb Heimsoth. I've thought about that as well. But I was going to give this a shot before I went and found the 45k or so. Worth a chance I think. And if it doesn't work out, well, it was a good experience non the less

@Joe Villeneuve I forgot to mention that I would try to get the seller to take a 2nd position on the note, knowing this is the only way I would get this financed. The ifs, I thinks, and assuming I could basically reflect my my green status. This would be my first deal so I am very unsure on basically all of it. But I have heard that it has worked for people in the past.

Okay, so I have a perspective 6-unit property I may buy. It has been on the market for a while (9 months) and through communication with the seller he seems ready to get out and move on.  The property is in fairly good repair with a new roof 5 years ago. The area is surrounded by other multi-unit rentals of equal to worse condition, so I expect competition to be stiff and may not be able to raise rents as much as I would like.  The rents are currently a little below mkt for the area. I have a potential partner, but I believe he would be better suited for a different property. That said, I am still interested in the property and believe I may be able to get it with some creative financing. 

He is willing to do a seller finance deal so I am hoping he will be open to another proposal. I plan to offer his ask if he would take a note for 25-30%, in hopes that I could get financed traditionally. If I am able to acquire the property this way, I plan to use the cash flow to rehab the units as they come available and make the exterior more aesthetic. I think about $35-40,000 should do if I do most of the work myself.  A conservative estimate puts me at about $12,000 per yr if the seller is willing to forgo payments and just take a bubble when I refinance and take out the equity of the added value. Assuming I could borrow enough.

He is asking 450,000 for the property and I believe that after the improvements I can increase the cash flow by approximately 30-35%. I estimate the value of the property would increase to around $660,000 give or take. 

All excess cash would go into mortgage payments, paying the sellers note, and or improvements to bring in more cash and increase equity.

So, I know I didn't give you too much info. But is this even doable?  What considerations should I take into account? What might impede my strategy? The risks? Does anyone have experience with this? How, did it work out?

Thanks ahead of time for the feedback.

@Bill S. your input on this would be very helpful and appreciated. Seeing as you grew up here and all.

Hello BP community! Well, I am exited to possibly have a property worth an offer and am once again turning to the expertise and experience of this wonderful community. 

I have a 6-plex with 2x3 beds and 4x2 beds in my area that I am getting ready to put an offer on. The ask is $450,000 and the seller is willing to finance. His asking terms would be 15 yrs at 4% with 20% dn. After walking the property and through the units I estimate it is going to cost me around $60,000 and a lot of my own sweat and time to get the building to where I want it and pulling the revenues I want. right now the current tenants are living cheap at $620 for the 2 beds and $675 for the three. One 2 bed just rented for $725 last week and the available 3 bed is going up for $850. These are market for a property of this size and condition.  After the updates and improvements I have planned I believe this property could potentially pull between $65,000 and $69,000 gross scheduled income.

I am here asking people's thoughts on price and terms for this deal. I have since lost one of my partners and may only have about $40,000 for a down payment. So, this deal may be a lesson on creativity and negotiating skills. If of course, it actually gets that far.

last year the seller report operating expenses of $9,570. I think this is very low. But may be truthful considering he has managed EVERYTHING himself. All be it not very well, but it did keep expenses down. The vacancy rate was 6.8% and is typical for the area. But I expect rents to continue to be depressed in the area due to the closure of a technical school and the large number of new units built in the last 5 yrs. Not sure of the numbers on that but I do know that it has had an obvious affect on the market.

After applying a management fee and a 10% vacancy rate I brought operating expenses up 50% of GSI for rents expected after current leases expire ($56,400). This gave me a value of $331,632. This is calculated using an 8.5% cap rate, which is what the county assessor uses for properties in this area.

I plan to write the listing agent an email explaining my valuation to justify my offer. I am thinking an offer of $350,000 would be appropriate. It is higher than my valuation in hopes that it may spark some negotiation for flexible terms. I am hoping that I can negotiate a deal that will keep my debt service at or below $1,900 per mo. The reason is so I will have room to use cash flows to make the improvements I have planned. Knowing that I will be managing this property myself, I think this would be doable. 

Having stated my goals with the property, I also don't want to overpay but know that I may have to be flexible to get the terms I need. I was hoping he would take the lower down payment and a mortgage amortized over 30 yrs with a bubble at 10.  Or, take a note to cover the amount I would need down to get a traditional bank loan. I believe this would give me the flexibility in cash flows to accomplish what I want and have enough equity through increased value to refinance into a shorter term loan. 

So, let me have it. What are your thoughts? What suggestions do you have? I'll take anything you got and stuff it in my toolbox. Some constructive criticism would also be much appreciated. 

I was just curious if anyone could clarify something for me. Hypothetical, say I want to buy an income property but have no to little money.  I have searched out another investor to help me but this investor wants to do a debt investment and not an equity partnership. I come up with enough money for the down payment on the property via the private loan. How do I secure this loan for this investor? The mortgage lender (bank, or seller) would hold the 1st deed of trust if I am not mistaken. What form of security would the private lender have? A second deed? Excuse my ignorance

Newbie here, Just starting out and have general questions about equity investors I particular. But first a tidbit on what my business is all about. Well, future business. I plan to start a real estate investment business to create wealth for my investors and, of course, myself. I have a business plan in the works but is not complete at this time. Right now I am in the process of finding multi-unit properties to create a good base of cash flow for which to operate my business on. I have some prospects but most of my proposed investors are looking for equity.

This brings me to my question. First off, I have not hired an attorney yet to guide me into what type of business structure I will need. But I am leaning toward llc. I do believe that the attorney will answer most of my questions but I wanted to check here first. So, my question to you is this. How do I structure a deal using money from an equity investor? I am not talking the deal between me(buyer) and the seller. I am inquiring about my company and the investor. Do I set up a Limited Partnership with EVERY deal, naming my company as general partner? If so, how do I protect my investor from law suits and the like? How do I separate his/her other assets form this investment? How would this type of arrangement be typically set up?

I may be thinking way off base here. But these are thoughts that I have. I don't want this venture to be like a blind man walking through a maze. I want to be as thorough as possible. I want to instill trust and confidence in my investors and any other relationships I have regarding my business.