All Forum Posts by: Lee Carter

All,

I have been trying to educating myself over the last 6 months or so on ways to maximize some investment funds I have. They started as company stock options when I was hired and have now converted and full vested stocks. I now have access to 200k all currently resting in a single stock and i'd like to cash out and invest into real estate. 

I've already cashed out 75k and used about 50k of it to purchase my first rental property. I found an individual just before Christmas that had to sell in a hurry. I was able to leverage that to purchase a 70k house that needs cosmetic work for 47,500 cash. I now own that property and just got the tenet to sign a lease till 6/30/2020 @ 815/mo so it's cash flowing immediately. the tenet has been in place the last 5 years. 

i'm now looking for best ways or new ideas to continue this investment process... 

a new option just brought to my attention from a local bank commercial loan offers has got me thinking...

1) Use my cash to purchase two more properties (I think i want to keep about 25-50k cash reserves for any unknowns on my current rentals) so lets just say I spend 150 of it and get 3 houses if I can get this lucky... all three houses would then be technically valued @ about 210k if I was able to find similar deals two more times like I just did... 

2) take out a line of credit on the houses for a total of 178,500 (85% o 210) for possible cash...

 - now I turn my focus to slightly higher end houses and traditional financing (cash-out refi I should really say)

3) have access to 175k  to start making cash offers on larger homes looking for motivated sellers that want to move quick so I can get them under market value (shooting for 85% or 75% of market value if possible but may be hard... not sure) 

 - once a purchase is made I have two options (dictated by how good of a discount I got)

1) If I find a house for 75% of market value then:

   - use my line of credit to get the cash to purchase and then make interest only payments for 6 months waiting for the new home to "season". once it's seasoned, cash-out refi at 75% of market value pulling my initial vestment back out and paying off the line of credit.

2) if I find a house for 85% of market value then:

 - commercial loan (5 year fixed rate, 20 year adjustable and slightly higher interest rates) on this new house as they will give me 85% market value with no seasoning, pay off my line of credit immediately then start making aggressive payments for the next 3 years on this new home with positive cash flow from all my other 3 rentals. 

 - the reason for making aggressive payments is to build up equity by paying down the loan faster... as soon as I get to 75% of market value then I'll refinance using a traditional 30 year mortgage and back off on the aggressive pay down as i'm now out of the adjustable and higher interest rate commercial loan.

thoughts on this? anyone ever do something similar or any other ideas? I'm using a property management company to handle these for me as well I should add as my goal is to scale this to 20+ homes before I retire. I should mention that the cash I'm using for this start is not nearly all the cash I have on hand but it's cash the wife and I feel was a "gift" and therefore we are more willing to be somewhat risky with it. i'm suspecting real estate will prove to be less risky then the stock market as it's easier to understand for me than stocks. If we are successful with this investment path we will start using our other finances to really grow this out. 

thanks everyone for your thoughts / opinions. 

@Jaysen Medhurst yes the personal guarantee is fine and from what I’ve found so far with the two banks I’ve talked with they would do that under a commercial loan into my LLC with no issues. They say the rates are competitive but that they adjust (up or down) every 5 years.

@Stephanie Irto thanks so much for this link!

@Jaysen Medhurst thanks for the advice. Something feels off which is why I posted. So in your experience Some banks will offer residential 20-30year fixed rate loans to LLC’s when personally backed? I just feel like I’m being told that it’s simply impossible to do. Thanks!

Do most investors buy property in their name to qualify for financing then transfer the title after the fact to their LLC ignoring the due on sale? Or do most investors use commercial loans? I’m being told from a broker that most investors purchase in their name and transfer the title later and that banks never call those loans due because they are more interested in the interest they’ll get. Thanks Lee

All,

I'm just getting started into REI and my accountant mentioned Real-Estate Professional. I have a fulltime job already so I wont be able to hit the 50% rule but my wife is currently staying home with our kids my accountant said she could qualify if she spent 750+ hours a year with the business.

My question is: 

How difficult is it to track hours?

Is there any requirement her name be on properties purchased? I'm asking this because the property I'm planning on closing on Friday (My 1st one) is currently in my name only. Will that impact possible tax benefits if she were to track hours and qualify as the real estate professional?

Great job! @Greg Grant

@Richard Sherman thanks for the input! Market rent is around 800 in the summer. I’d probably need to drop to 775 if looking this time of year. That’s why I was thinking offering them 775/mo if they go on a proper lease and cover their own electric. I’ll want them to have a lease that is about 15 months so it comes due at a time the market is good for renting. Honestly the main motivation for fixing it up is to force appreciation and cash-out-refinance to get my initial investment back out. I don’t think that extra money invested would raise rent much. If the current tenet left I’d need to do some work to get it rent ready for sure though. At that point I’d likely dump 15-20k into it with a cash-out in mind. I was told to get a “subject to” appraisal after getting a scope of work bid from a contractor to lessen my risk on calculating proper ARV. Again this is only really important if the current tenet leaves and they have expressed interest in wanting to stay. I just don’t know how they’ll take going onto a lease since they have been there 5 years and are month to month.

@Nathan Brooks thanks excited to see if this spreadsheet math works out ;)

Found what I believe is a good deal in Kansas City, MO area from a motivated retired seller. 5 year tenet paying 920/mo (owner pays electric and last 12 month electric bills average to 135/mo). House is a small 2bed, 1bath, 1100 sq foot house. it's not pretty but looks like good potential. looking for thoughts on my strategy. (this is my 1st property!!!) 

I'm paying cash, just under 50k. home value is probably about 75-80k. House next door exact same size and # of bed's bath was flipped last year and sold for 88k in October so 1 year ago. houses in 1/2 mile all seem to be selling between 75&115k. This is on the smaller end for the neighborhood. Next door had a basement, this house only has a crawl space so i'm dropping off 8-13k in value due to that alone. I drove the neighborhood in a 4 block radius and noticed several basketball goals & small kids bikes in driveways/front porch which is telling me relatively safe and comfortable neighborhood. Cars parked in driveways & streets all appear to be newer as well so i'm liking the general surroundings. 

roof is 15 years old, heater, 5 years, AC & water heater are unknown in age. seller has owned for 15 years so at least 15+ years. 

here's my thought: tenet is paying 920/mo and owner pays electric on month to month (electric averages $135). Offer tenet two options:

Opt 1) sign new lease with my property management company and cover their own electric, I'll drop rent to 775/mo.

Opt 2) sign new lease with my property management company and I continue to cover electric, I'll drop rent to 900/mo.

market rent in this area with similar size is about $750-800 but again this house is rough around the edges. 

i'm considering a delayed financing to pull 75% of home value back out in cash if tenet accepts longer lease. if not, i may hold my cash in the property and when the current tenant leaves and expect to spend 15k in renovations to bring value up and cash-out-refi 6 months in... reno would likely be roof (only if necessary), water heater, refinish existing hardwood floors, paint inside (outside paint looks really good seller didn't disclose but i'm assuming it's been painted recently) maybe newer nobs in kitchen and newer counter top probably 15 liner feet today so not too big. 

thoughts or other suggestions? if this goes fairly smooth i'm planning to buy a little higher end house (110-120k value), Jan or Feb time frame and just continue to build my portfolio rather aggressively over the next 24 months.