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All Forum Posts by: Matt Merkel

Matt Merkel has started 3 posts and replied 10 times.

Post: Minnesota subject-to family strategy, legal?

Matt MerkelPosted
  • Investor
  • Rochester, MN
  • Posts 11
  • Votes 0

Thank you Brian and bill. This information has been very helpful! 

We will figure out the best course of action here as long as things fit in line with what they are looking for in their future as well.

Post: Minnesota subject-to family strategy, legal?

Matt MerkelPosted
  • Investor
  • Rochester, MN
  • Posts 11
  • Votes 0

hey BP community!

I have been sitting here thinking about ways to fond money for future investments. I am new and am currently in the process of my first approval for a duplex and am really tight on cash. My brother and I will have to wait 1 year to purchase our second (we are taking things in stride in order to learn and utilize our own resources at first) and buy a quad. We both have full time jobs and I have 2 jobs atm to raise capital to invest. 

So I moved back home with my parents as well until this first property is in our hands and I began asking my parents about their house. It's in a very small town, valued at 90k about 6 years ago. During this time they rehabbed the entire main floor and 2nd level (kitchen, dining, family, and 3 bedrooms) they owe 20k on the mortgage and took out 28k line of credit for the rehab 6 years ago, so they owe 48k for the loan still.  350/m for credit and 450/m for the loan. 

I'm guessing the house would be valued at 130k at least if it were appraised today. 

Would it be possible (legal) for my brother and I to take over the loan, get the house appraised, have our parents still live in the house and not continue to the payment or pay rent in any way (living rent free) and us using the equity of the house as our own little bank so to speak? That way we can pull out a high amount of equity tax free (right?) throw it into our next quad and our new "loan" on the quad would be this houses payments + the loan we would aquire for the quad. 

Assuming at 130k value on the house with 48k left in payments lets just say we pull out roughly 50k and use it as a down payment for a 200k listed quad. IF THE NUMBERS work could this hypothetically make sense to do and is it legal? 

Help me out everyone!? Are there laws that are out there where I would get in bug trouble if this happens and or what would the process be to do so? 

Thanks everyone! 

@frank jiang

I thought that,  but I am new and who am I to contest your knowledge heh, but yea. Ideally that would be nice.  

@ frank jiang 

Currently the appreciation for this property is average. We feel the general market will increase a few years down the road for multiple reasons.  If something happens where the value goes up sooner we would just refi then and take advantage. We are also prepared if for some reason it goes down,  but that hasn't happened in a very long time in this area.  

@nick right

That is useful information regarding the FHA loan. Yes I plan to make this my career so planning ahead is key. We want to aquire two more properties (with our own money and creative thinking to fund our investments) by the 2nd year. This may seem difficult, but I'm sure we can pull it off and will promote creativity and education in the process.

If I do recall this lender said the down payments for next properties could be lower than what you have stated, at least for me at my lender unless this is a law? I have more questions to ask her anyway regarding the future for what me and my brother are pursuing. 

@Bron bohlsen

I went to my hometown local home federal bank. I told her I only wanted to do 5% down and we looked into seeing if I qualify to do so. Like I stated in my last response this person I'm talking to knows who I am outside of the bank.  I'm not just a client.  This fact alone has made a tremendous impact in my loan process. The other banks told me I need at lest 15%-20% down. I was being told a lot of different information and the lenders at the national banks we'really basically trying to gauge me, probably assuming I know nothing.  That's why I went around and set up meetings.  If they told me something that I knew waany true I pretty much wanted to get up and leave right there. 

Everywhere I read you can start out with little down and still get good deals.  You just have to do the work and time to find them until I had my "ah-ha!" Moment with going to my local bank in my home town population of 2k :) 

thank you very much sawyer and travis. With this lender I know someone as a personnel childhood friend who works there along with my daughters friends mother.  The fact this bank is in my hometown is advantageous due to personnal relations regardless of the bank.  They have helped me tremendously educationally and helped the preaaproval process a great deal.  The other banks basically said "give us x% in down payment or here's the door. They didn't really seem to care about helping me even after my whole schpeel. Had every single thing they needed and came pepaired.

Hey there BP community,

I'm just starting out as an investor and I've never bought a property before, so this is a very exciting time for me. This is my dream and its going to come true! 

So to jump into things as I've been educating myself on everything. I have listened to many podcasts, got about 8 books, some from biggerpockets and I have to shout out to J. Scott as I seem to have naturally gravitated towards his style. I am also seeking buy and hold with a partner, my brother, and I have learned an incredible amount. 

My question lies with mortgages. I have had meetings an a few banks, wells fargo, think bank, a credit union, and I went to my local bank in my hometown called home federal bank. They have been the most helpful by far. I was informed to simply stay away from national banks for a plethora of reasons. 

The property is up for 130k aND it is a duplex. I will be living in one unit for primary residence along with my brother. It's a 3/2 unit for us that rents out for $800 (probably even more) and the 2nd unit for $650 that is a 1/1. These rates are typical for our market (except for the 3/2) The rented out unit will not cover our entire monthly costs, but we are both living in the unit, splitting costs and saving from a 75% reduction in our monthly living costs by doing so, our savings will actually be $1000 combined and this is what we are using to build capital, taking a % out for vacancy, maintenance, property management, which is ourselves, but also a backup fund. The rest is going to be deposited into a joint bank account to invest in our next property after a year of saving. We want to use our own money and do things appropriately, smart, and to also educate ourselves in the meantime. After we move on to our next property to make our primary residence we expect a $150 profit per door. That is our rock bottom expectations. Soooo now you have the background of the property and intentions for the lender portion of this deal. 

Originally I was going to go with an FHA loan because of how easy it is to start up; however, as I talked to the lender she brought up conventional mortgage. Let's look at the rates and differences and what I'm trying to make my decision on:

FHA

3.75% interest

3.5% down.

PMI through the life of the loan.

Higher insurance premiums.

A little higher mortgage payment.

Conventional fixed rate

4.25%

5% down.

PMI drops at 20% loan to value.

Lower insurance (me and the lender calculated nearly $100 month difference roughly)

Slightly lower mortgage payment.

Now with this information I was provided the conventional is a no brainer as over the long term and beginning costs are less. 5% down is my max for down payment I can do in order to cover all other fees to seal the deal. The interest rate nearly cancels out because of the increase in down payment. The real kicker here is the PMI that I am just not all to familiar with.

My worry here is I'm not educated well enough to know details about the two loans. What if something happens later down the road where I start losing money because of the loan I chose or I missed out on saving money because I was simply unaware of a perk from the other loan? My selling point to go with the conventional was the premium for PMI is nearly $100 less then the FHA and after the 20% loan to value is reached it automatically drops. That's an additional huge savings.

Ive read multiple times to get an FHA as a starter, but this seems better is it not? Help me guys! Thank you for reading my lengthy post :)

- Matt

Post: Funding my first rehab project.

Matt MerkelPosted
  • Investor
  • Rochester, MN
  • Posts 11
  • Votes 0

@Scott green thank you for the advice. I was looking at a duplex recently as well and searching for financing through this. I found out to not use national banks as their deals don't particularly favor my desires. I have yet to talk to the smaller banks in my region, but I intend to do so! 

From what I have read the FHA 203k can be tricky and it has a longer closing process not to mention all the requiring guidelines, but nonetheless it seemed like my best option.

Post: Funding my first rehab project.

Matt MerkelPosted
  • Investor
  • Rochester, MN
  • Posts 11
  • Votes 0

hey there BP community! 

I am new to real estate investing and my true passion would be rehabbing to flip and rehab buy and hold. I love the aspect of distressed properties  of working some magic to make a home go from ugly and inhabitable, to a place where a family would want to live. 

So my question is, if I got say around 5k of my own money to work with. The property is up for sale for 47k ($20 square ft) 3 bd 1.5 ba and the value of the properties around this one are worth 110k-120k where could I get a loan other than an FHA 203k/streamlined to buy and rehab this property? Or would the FHA 203k be the best route? I have no access to investors yet as I am just strating out.

My intentions with this property is to be my primary residence and have my brother living with me to split the cost of monthly payments until I find a new property or I may just live in this one for a while.  

I hopersonally this is good enough information and thank you for your thoughts and guidance!