All Forum Posts by: Skyler Smith

That's a fantastic idea! It's currently occupied, but I'm sure we could work something out.

Yeah, this is a great candidate for lease option or a wraparound mortgage. If you do a wrap you should work with a mortgage originator or title company, they'll help you get all the right docs in order.

Sounds like a great lead!

$449,000

6 bed / 3.75 bath, 3656 Square Feet. Tons of living area. Nightly rentals would give the highest return on this property.

This vacation rental is in one of only a few elite neighborhoods in Garden City, which hugs the shore of Bear Lake in Utah where overnight vacation rentals are allowed. With lots of living space, this cabin is a good candidate for a great investment as well as an enjoyable getaway. The views of the lake and valley are beautiful, and it's also close for beach access. There are a number of rental pools in the area, so you could join one of those or take on management and maximize profit. 

This would also be a great 1031 exchange opportunity for individuals that don't need huge cash flow and are ready to transition into stable value investments, especially investments they can enjoy if they wish.

Get something like Quickbooks to track your expenses and income, your tax guy might even give you a deal if you have everything ready for him at the end of the year. 

If you do decide to get an LLC, make sure not to commingle your funds between business/personal expenses and income. Depending on what type of investing you do, having an LLC or an S Corp might protect you from a higher tax burden than just reporting all of the income under your own name. Some food for though. I'd talk with your tax preparer during the off season, they might sit down for free with you and give you some advice for moving forward. In my jurisdiction you can have your CPA set up your LLC for you all in one shot.

I keep wanting to write a response to this but it keeps stressing me out! Good luck on finding a solution.

Might be a good idea to add "per pet" or some other verbiage to the clause in your contract to avoid this in the future

Cool, I'll let you know if it looks like they might be interested

The fact that you guys are sitting down and thinking about this alone will probably help you find the best answer for your situation. Not everyone gets that far in their thought process!

First define "usable cash." Do you want to issue dividends to your stockholders (you and your partner,) or do you want to use the cash to invest in fresh acquisitions? The ROI on cold hard cash is pretty low right now, though if your goal is to avoid market swings, cash is a good way to go. For your purposes I can see two schools of thought:

1) Track your equity exposure to avoid losing during market shifts

2) Maximize return on your invested equity

I would for sure not make the trigger at just a certain amount of equity, but what your ROI is on the equity invested, or what the exposure is of your equity invested. You could easily have your system or spreadsheet throw off a report every month that shows what sort of return you're getting off of your full equity position in each property, and you could run a Monte Carlo or some other walk forward calculation to see how your exposure is effected during market changes.

Do you want to...

Avoid market shifts?

If you're scared of downturns in the market, you'll want to stay close to two extremes - 100% equity and 0% equity. In a crappy market, those that have 100% equity are unlikely to lose their investment, and you'll have more options than other investors if you need to wait it out, or liquidate the asset quickly. The next best position is 0% equity. If the market turns and you're left holding the bag, at least you aren't losing too much of your own equity if you have to split. Not an ideal situation, but better than leaving thousands on the table. For your purposes, you'd probably be either paying off assets as quickly as possible, or refinancing once you get x amount of equity.

Maximize the return on your equity?

This is the most exciting reason to have a trigger point. Say you have a 12% ROI on your invested capital in property ABC today. 5 years from now, if you've had 10-20% appreciation and you've been paying down your note the whole time, your ROI on equity might only be 5-10%. Do you see how I got there? The calculation would be:

Net Annual Income / (Current Market Value - Mortgage or Debt) = Return on Equity

Be sure you're using the current market rate and NOT the price you paid for the investment. You need to make sure you're maximizing your equity, so keeping track of how you look based on the market changes will show you where to move your equity and keep it moving farthest.

I've got a few investors that that I could run this by. How much LTV do you plan to ask for? What is your timeframe - 90 days? 6 months?

I would get out of bed right now and call your agent in the UK and get him to list it today. $20k is enough to at least break even, and you won't be hemorrhaging money every month just waiting for a disaster, or to be saved by some unseen market event in the future. Way too much risk with what seems to me like little to no upside. I'll bet you there are SFR's on the market in Edmonton that you could put what's left of your equity down on and have a cash flowing investment out of it. You could wait either property out till the bitter end, but even just a little bit of positive cash flow over time will make a HUGE difference if you're not pulling that out of the account over the years. It's fine to invest hoping for appreciation, but counting on appreciation as your sole business model is gambling with all the risk but none of the fun.

If you want to keep it, I'd consider using it for a vacation rental. How far outside of London is it? I'd hop on Airbnb and see what you might be able to rent it out for - that could turn your cash flow situation right side up almost overnight. You might have the perfect solution for a backpacker that doesn't want to pay downtown London prices!

I'd find a lender that knows how to work investment deals, especially house hack style deals. They will likely know the underwriting requirements in your area like how much you'll need in reserves. My loans have typically required ~3 months PITI (the full mortgage payment.) You'll want to have reserves anyway, putting every dime you have into a deal is way too much exposure - you're just one emergency from broke in that scenario.

Regarding the commission split with your agent:

It's not unheard of in my market for agents to give a "brother in law" rate to an investor or friend that will be doing more deals down the line - this can come in the form of kicking back some of the commission at closing to the buyer. If you're just using your agent to write the offer, there will likely be many that might be willing to do this to establish a longer term relationship. I'd avoid making them drive you around too much, calling them for research, and then hoping they'll give you the first crack at a great deal when they see one - all knowing they only make half the commission working for you. You will certainly not get a chance at pocket listings or their other off market opportunities if your unique selling proposition is paying them less for their work. Now, will the commission split work for MLS deals you find yourself? Absolutely.

Lastly, I'd be weary of counting on the commission split to make the deal work. If your deal is tight enough that you need to have one hand in your vendors' pocket for it to go through, you might not want that deal. You want the type of deals that will encourage you to give your vendors a raise! The ideal lender / agent / accountant to have on your team is the type that can get you access to deals nobody else sees.