All Forum Posts by: Mehran K.

Not sure about the the answer to your first question, but I would 100% hire an attorney to draft that promissory note instead of using a cookie cutter template that might not cover all your bases. This attorney will be answer the first question for sure as well. 

I'd make sure I get a copy of the current LLC's operating agreement and see how decisions are made and all the details of their agreement with each other and potential new members.

I would definitely hire a lawyer/title company to handle it.

A title company or a lawyer that deals specifically with real estate investors, should be able to whip that up for you pretty quick. I would imagine it's going to be a cost to you, but you can always offer to split it with the buyer since you're helping them out.

To your last question: California is a deed of trust state (if this property is in CA, this applies): a deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The equitable title remains with the borrower.

Not sure about your market, but the market I operate in doesn't command that I do a flip-quality rehab if I'm going to rent out to tenants. You may want to look at the rental competition and see how those units are fixed and what rent they are advertising at. Go on a few showings as if you were a potential renter to see up close, take notes!

If it ends up you do need a high-finish, flip-level rehab just to rent it out, maybe you can take on a partner for the deal so you don't end up being stuck?

Those terms aren't that bad actually.

My take on it is, they can raise the rate every 5 years at a max jump of 2% each time. 5% max over the initial rate. 

It get's tricky because it's not clear to me whether or not they can refuse to refinance you at one of the 5 year periods IF the rates jump significantly higher than the 2%. You might want to ask the lender for clarification about this via email, so you have documented proof.

If the most it can raise is 2% every 5 year period, for a total of 5% over the life of the loan, AND they can't refuse that refinance on those terms, I'd be comfortable with that.

If they have the right to refuse to refinance you after 5 years (even if your credit/financial profile is solid & the property is still meeting the LTV requirements), just plan ahead as if it were a 5 year balloon just in case.

Joel, what costs are you factoring in to your having potentially $700/month in cash flow?

If you're obtaining FHA financing, you're going to have to live in one of the units also. How much are you putting down?

Check out this quick video on the 50% rule to see some costs typically factored in:

Wow, awesome Josh!

We provide appliances for an extra fee like @Account Closed mentioned above. 

You don't have to go high end and install a $1300 combo though. Used appliances will do just fine. This can be market-dependent though.

Big welcome to BiggerPockets @Elizabeth Maille. If you're planning on living in the multi-family property, FHA is the way to go. It's actually required that you live/intend to live there for as an owner-occupant. Transferring the property to an LLC later down the road isn't illegal, but it violates the Due-On-Sale clause and the lender "could" call the note due/force correction. Do some research on the forums about the DOS clause.

I wouldn't use a hard money lender for a buy & hold without a few exit strategies to get into some other type of long term financing.

@Chris M.

If you're holding it long term, be mindful of the fact that your HELOC @ 3.5% isn't fixed and it's highly likely the rate will go up in the future. Maybe you can fund the down payment and repairs with the HELOC and finance the rest of it with a mortgage? Just throwing out an idea.

As far as vacancy, I like to use 8.3% of rent (1 month a year). For repairs I used 10-15% of rent for maintenance/repairs/capital expenditures combined. 

Those are some high property taxes! 

Agree with @Frank Jiang. A 100% financed deal along with a 15 year amortization makes for a VERY difficult positive cash flow situation. 

I use 8.3% for vacancy (1 month), and 10-15% for CAPEX+Repairs combined. It can't hurt to be more conservative like you're being, just throwing out what I've used to evaluate deals. Time will tell about how accurate those assumptions are though!