All Forum Posts by: Michael Seeker

@Justin C Huggins - this is typically handled on the closing HUD. As an example, if you are buying a $1M property with 80% traditional financing, the HUD would show $800K coming from the bank and $200K coming from the seller. This is almost always in the form of a 2nd position mortgage on the property. If the seller's cost basis is $500K, then they would net $300K in cash and receive a note (and the corresponding monthly payments) in the amount of $200K.

In my experience, most banks will not allow this.  You may be able to find one that will work with you, but you should be very up front with them about it to avoid any surprises/delays/cancellations at closing.

Hey @Edgar Martin - you must have owned and lived in the home as your primary residence at least 2 of the last 5 years to be able to forego taxes on $250K single/$500K married of capital gain.  Given what you've described, you should be fine renting the house out as long as you sell within the next 3 years (so last 2 years count towards owner occupancy).

https://www.irs.gov/publications/p523/ar02.html

@James Sargent - I've only used one HML, but they required the interest payments on a monthly basis. In this case, you would pay $1000/mo every month until you repay the balance of $100K. I've seen where lenders don't require the monthly payments and just collect lump sum at the end. If this were the case, then you'd need to see if/how the interest is compounded to know exactly how much would be paid back. You most likely do not have to pay interest for the full 12 months if you pay back the balance early.

These would be good questions to ask the lender directly and make sure everybody is on the same page.

@Peter K. - there's not enough information to reasonably answer this question.  For example, if this property were new construction or recently remodeled and in a very high-demand neighborhood, then I might be interested in it for only $50/mo net.  If it is a rough/older property in a mediocre neighborhood that takes a while to rent then no way.

@Forrest Garner - there are 2 ways that I've seen this handled and both have pros and cons.  There may be other options, but these are probably the most common and easy to execute.

1. Conventional mortage (i.e. 30 year fixed) - You would have one of the 5 people apply for the loan and they would be the only one with the debt.  All 5 partners (not sure if this many is allowed as I've never seen it) would then be on the title to the property but only one would carry the debt.  Usually in this sort of arrangement, the partners agree to alternate who takes out each loan as additional properties are acquired.  Again, I'm not sure if this would be feasible with 5 people, but it is definitely feasible with 2.

2. Commercial mortgage (usually 5 year fixed, 20 year amortization) - You would form an LLC with each of the members being a 20% owner. These loans are very doable to a brand new LLC, but they do require one or more personal guarantees. Several banks I've asked have a cutoff at 25% or 20% ownership (meaning if you own less than that %, they do not require you to sign a personal guarantee). In this case, you may be able to get a commercial lender to accept the personal guarantee from just one of the 5 partners. Given the limited track record they may require more though depending on other factors.

As a side note, with 5 partners investing equal amounts of money, you definitely want to designate a decision maker or even a decision making hierarchy.  If you have to get the opinion of 5 people and agreement of at least 3 every time something needs to be done you'll be wasting a lot of time and effort.

@Evan Bell - yes, a loss on a flip is a short-term capital loss (or long-term if held for over 1 year) and should be accounted for when filing taxes for the year in which the loss occurred

I'm not sure where you're referring to crumbling malls/parking lots/etc., but I don't see any reason for such companies to buy expensive property in an urban core of a major city when they can easily go a short drive out of town and buy cheap farmland to build out exactly what they want (similar to how Amazon builds out their distribution centers today).

I think there will be a small percentage of people that own their own driverless vehicles but not a lot.  I'd expect one or more large companies to roll out fleets of vehicles with programming to maximize/optimize usage, similar to Uber today.  The biggest downside to Uber is the wide range of drivers/vehicles that are used which creates an inconsistent experience.  That can be completely mitigated with a fleet of identical, driverless vehicles.

@Jennifer Appelman - when I was rehabbing houses, I generally presented hard money loan backed offers as cash offers.  There was often confusion about this, so my agent (who was very familiar with the process) had to often explain how it worked.  You and/or your agent can describe it as a cash offer if it has cash-like properties meaning that you can close quickly and do not have any financing contingencies.

You might get hung up on a couple of things:

1. It isn't a cash offer, you have to get somebody else to give you the money and that usually requires an appraisal and at least 5-7 days turnaround.

2. Seller/Seller's agent may want a proof of funds.  I've gotten around this by having the lender provide a generic letter indicating that I'm in good standing with access to capital up to $X, filling in $X with the offer amount.

You definitely want to make sure you or whoever is representing you knows the differences between cash and hard money and can explain them to somebody who has no clue!

@Shane Mcc - this is an interesting question that I've given some thought to but never really had a fruitful debate on.  Hopefully this thread garners some interest...anyhow, here are a couple thoughts:

1. Self-driving cars are a solid 5-10 years away and maybe another 10 years from a more wide-scale adoption that might start impacting real estate decisions.  So I wouldn't foresee any major trends starting to take shape for at least 10-20 years.

2. In many bigger cities there has been an urban revival in the past 10(ish) years.  You see a lot of people starting families inside the loop instead of out in the burbs.  There have got to be a lot of factors that play into this, but the biggest two for me have been convenience (want to be close to downtown, restaurants, bars, etc.) and architecture (it's impossible to find beautiful turn of the century homes in the burbs that were built between 60's and 00's).

Given 1 and 2, I would expect to see a sort of suburban revival in 20(ish) years.  Once people can dial up a car and then play with whatever the trending smart gadget is at the time while they commute, the appeal of being a 5 minute drive from everything won't be significantly better than being a 20 minute ride away.  The pricing dynamic between urban and suburban should be disjointed enough to encourage people to spend less for more moving out of town again (just like the arrival of the car and cheap gas).

It might also lead to more suburban sprawl, i.e. building outside of the 2nd and 3rd loops of cities.  Cheap farmland within an hour of major downtown cores might appreciate quickly if this occurs.

That being said, people generally want to live somewhere safe that is close to where they work and where they play.  Driverless cars should reduce or eliminate the pain points of a long commute, but it's not likely to push major commercial development out of the urban core as aggressively (after-all, you need people/traffic in a close proximity for brick and mortar businesses to succeed).

I imagine driverless cars will bring about some changes to the RE market, but I don't think they'll happen all that quickly.