All Forum Posts by: Matt Hurley

What's your long term plan, have you taken capital gains in mind? Live in the property less than 12 months your capital gains tax will be 10%-37% depending on your tax bracket, 12-24 months 0%-20%, 2 years nil. Would keep that in mind if you're thinking of selling anything any time soon. 

Paying your own construction company can be considered double dipping and lead into the range of mortgage fraud. If, however you pay your already existing employees outside of your company, you can skirt that line. 

If you’re going to do work yourself, then you cannot pay yourself market rates. Mortgage fraud again. For example, I just refinished the 100+ year old floors on a recent rehab. Normally this would have been a $10k job for a professional. Since I did the work myself, the costs were only $2k for all the stain and sander rental. I was only able to submit for the $2k. 

@Russ Marlborough good there’s no rehab with everything going on.

This doesn't sound like the opportunity for a partnership deal. You found a cash flowing turnkey multi-unit, the simplest approach to me (especially without an LLC between you) is to negotiate a finders fee, and just be the property manager. A partnership seems unnecessarily complicated with this situation. Grab your fee, he gets the property and you get paid your ongoing management fee.

Re: due on sale clause. To my knowledge, there is no “wait and see” with this. His lender will either call the loan due, or they won’t. Time isn’t a factor.

Recommendation #1, get an operating agreement and and LLC quick. This is not the time to rely on handshake agreements with so much change in the air. I've structured similar deals (though not multi-units) for myself and a partner, being in a similar position as you. I'm the boots on the ground, I find and structured the deals, walk the properties, write up the offers and communicate with our agent, my money partner and I split 50/50. Some initial thoughts:

• Property management and acquisition are two different things. You should get paid as a property manager no matter what the partnership entails. Whatever percentage you decide is fair, you get paid for it. Just as if you had a 3rd party property management company.
• Your income as a property manager should not be used to "pay back" your portion of the 50%. Your 50% is awarded to you by your contribution as boots on the ground in the acquisition of the property. By taking all the operational headaches off the plate of your money partner, you earn this percentage.
• COVID-19: The biggest question right now is, can you get contractors to work? Florida (as of midnight tonight) is matching the rest of the US by initiating a stay at home procedure. You can't flip apartments with this order in effect. You can maintain them, and make necessary repairs to already tenanted apartments, but not actively rehab or improve. What's your plan here? 

So, I took this approach with my first property. Hard money BRRRR that refi'd into a traditional mortgage. A few comments:

Do you know how much you can get approved for with a trad mortgage? This is extremely important so you don’t buy a house that ends up being too expensive for you to refi out of. 

Yes, a cash out is still possible. Your hard money loan will 99% be structured as a construction loan on which you pay interest only, with a balloon payment at the end of the loan term. How you pay off that principal doesn’t really matter. You could flip the property, sell it and pay with the profits. Or cash out refi and get your loan paid off plus extra for your next project. 

Your private money borrowed before the loan needs to be in your bank account at the time of the loan application. I spoke with over a dozen HM lenders and there’s not one I know of that would except a down payment from a third source. It’s showing that you don’t have skin in the game, and that’s risky for them. That being said, if you have an arrangement with a private lender already and the money’s in your account, they’ll be none the wiser. 
 

Two places you need to check out:

• Meetup.com: look for the Ann Arbor Real Estate Investors group, Brian Bundensen is your man. Very supportive group of people
• Facebook: The Metro Detroit Real Estate Investors Group. This group requires a thicker skin to participate, but there's great people here as well. 

@Kevin Romines definitely has the right path. Plan for 6 months or more if you want an easier refi, and yes it’s always going to be an interest only payment with a balloon payment of the principal at the end of term. 

Rates vary between lenders, but you’ll find they’re somewhere between 8%-15% with a point or two fee. A good thing to ask is whether they’re charging interest on the amount distributed or the total loan amount. My most recent HM loan was distribution only. My payments started only @ $400/mo. and scaled up to $1,200/mo. as I received my construction draws. Loan lasted a full year, so saved me a ton of money in interest payments! 

Best answer given to me by investor friends who survived that era, don’t over leverage and be ready to change exit strategies. Basically, don’t get a heloc for every available cent of equity you have on in a place. If you’re a flipper, don’t chase your property down as it loses value, just turn it into a rental or sell at break even if value plummets. 

@Jack B.

I’ll tell you what landlords are doing/have been doing here in MI:

- charge an extra $400-$700/month more In rent For the right to grow

- require all modifications to be done by a certified Electrician and HVAC dude

- require an inspection every month or a sooner

Grow operations use a ton of electricity, and create a lot of humidity. Do it wrong you’re going to have wires run by a grower who barely knows what a bus bar is, and mold all through the walls when they move out.

Do it right you’ll have record rents for your property and a grateful tenant who’ll never leave.

@Matt Ridenour yes sir, see you there :)