All Forum Posts by: Rafael Mercedes

Seller financing can be a good solution in this market if you are motivated to sell. However, you'll need to have a good equity position in the property for SF to work. Without that, the buyer's down payment won't be high enough to pay off your existing mortgage. Don't do a wraparound Note - the structure needlessly puts you at risk. You'll need to find a local RE attorney who can help you draft a bone fide Promissory Note and Deed of Trust and you'll need to think about the repayment terms of the SF Note. On the latter, I'd recommend a (slightly) lower than market rate (to incentivize the buyer), monthly P&I payments, a 30-yr amortization, and a 2 or 3 year call (meaning a balloon will be due). You'll then need to vet the buyer to make sure that they can afford to make the monthly payment. Get 2 years of tax returns, a credit report, W2s, a personal financial statement (showing liquidity, other assets, and all debts/debt payments) at the very least. The buyer should be amenable to providing these docs as you'll be completely circumnavigating the bank - so the process will be quicker and less painful. You'll also need to get title insurance. 

Sub to works well for buyer, but for sellers it is a massive, massive risk. You are trusting someone else to make the mortgage payments for you. Other than your agreement, they have no obligation to the lender themselves. If they don't pay, it's your credit that gets hit. It also transfers the title out of your name, so other than your agreement, you lose control of the property. Perhaps you can do a lease with option to purchase instead? They might be "hesitant" to take on a higher interest rate mortgage, but their gain puts you in a really precarious situation with respect to the mortgage and control of the property. Buying on sub to terms is wonderful, but I don't think most sellers really understand the risks they are taking. 

I really like the advice you are getting here with the Wrap loan. But I want to address the SUB2 option. There is something to be said for that type of deal, but as the seller, you need to make sure you have a plan from the day of closing through to when you will have that debt off of your ledger. I can understand the desire to help a friend out, but I would consider writing the terms of the SUB2 with an end date where they will need to pay off the loan either through cash or with a refi. This way, 15 years from now, you are not wishing you could have that debt out of your name with no way to make that happen. With the interest rate being a concern, I would put a 5-year timeline on the sub2; that way, they are incentivized to refi as soon as the interest rates become acceptable, and if they don't, they will be in default. But you, as the seller, at least have an end date that you can mark on your calendar.

@Meghan Rusen Do Not sell on a straight sub2….sell with a Wrap Around mtg…same due on sale risk but you now have a mtg to foreclose on if they stop paying. Use a loan servicer to collect/distribute payments.

 Hi Rafael - I understand what you were mentioning, but what something that will add value in another market will not add value in the posters market which is Cleveland. The best thing that will add value, is buying it at the right price. It's a cashflow market for a reason.

 Not sure how familiar you are with the Cleveland market but I would highly advise against everything you mentioned doing for a value add. Adding appliances, etc, you're opening yourself up for a headache (lightly put) with the tenants because if anything goes wrong, you're on the hook. Cleveland tenants aren't your typical tenants. Utilities are paid for by the tenant, unless its a duplex then you as the landlord have to pay for water and sewer. Last but not least, self managing in Cleveland unless you are a very seasoned investor is a big no no. You need boots on the ground to do all the dirty work for you. 

Fellow investors, 

I have a deal analysis question. 

My plan is to house hack and I'm having trouble getting numbers to  cash flow AFTER I move out. It's almost impossible to get a property to cash flow while you live there but I'm also having trouble seeing cashflow after my departure. 

Market rent in my area for duplexes is about $1,300. My plan is to go 5% conventional financing. 

Here is an example: 

Home Type: Duplex

Purchase Price: $200,000 (in my area, this would be purchasing a property at a pretty decent discount. My plan is to walk for dollars and call potential distressed landlords)

Loan Amount: $190,000

Loan Details: 7% interest rate amortized over 30 years 

INCOME

Rent: $2,600 (assuming both units rent for $1,300) 

Total Income: $2,600

EXPENSES

Monthly P&I: $1,264

PMI: $158 (1% of loan amount)

Homeowners insurance: $100 (estimate for my area) 

Vacancy:  $130 (5% of rent) 

Capex: $260 (5% of rent)

Taxes:  $450 (monthly estimate for my area) 

Total Expenses: $2,362 

Total Income - Total Expenses = $2,600 - $2,362 = $238 

This is excluding future property management, potential lawn care, snowcare, utilities that I'd have to pay etc.

There are some properties that rent for upwards of $1,400 in my area but all have extra features like central air. It's highly unlikely that I could purchase a property with central air at a significant enough discount to make the numbers work.

Would love to hear your thoughts. 

I'm pretty new to REI. I did my first deal six months ago on a duplex house hack that's gone great so far. I'm eager to do more deals but capital is my biggest issue.

I was notified today of a family member of mine who is going to be forced to sell due to health & financial issues. Based on what I was told she wants to sell for, it appears to be a great deal on the surface. It would need about 10k of rehab to be rent ready— she wants to get between 70-90k out of it and Based on market research, it would rent for 1200-1300, so well over 1% as well as sell on the market in the 150k range. I’m very interested but couldn’t buy it traditionally for 25% down because I simply don’t have the capital after expending mine earlier this year. I thought seller financing would be a great idea. I just have no idea how to go about that. Also, she still owes $66k on the mortgage so I’m not even sure if it’s possible to do seller financing and, she needs the equity she has in the property upon selling.

My question is, is seller financing even an option if she still has a note on it? And if so, how should an investor proceed who lacks the experience?

Hi Rafael!

I hope your exam goes well!! 

For brokerages, I'm slowly interviewing a few, large and small. A lot of people end up changing brokerages after their first year or so, but most people I talked to say joining a large brokerage, in the beginning, helps a ton. Just make sure you join one where they give enough mentorship/training/leads that match the amount of commission split they take.

For meetups, I have been going down a rabbit hole of following people on social media, and there just seems to be a lot once you start looking! Bigger Pockets podcast and Instagram have been great resources overall for finding people and ideas.

I'm looking to purchase my first rental property, ideally short to medium-term, for the larger monthly cash flow.  I'm okay with the work involved because I want to learn as much as I can first. 

What are your interests in RE?