All Forum Posts by: Michael Seeker

Matt,

What is the outstanding loan? $900 seems a bit high given the current interest rates. Have you guys considered refinancing? This would lower your monthly payment and probably end up with you paying down more of your mortgage every month.

As far as renting to break even, that's a bad idea. If your mortgage is 900 and your rent is 900, what are you going to do when the water heater goes out or the roof needs repair? You'll have to dig into your own savings (which from the sounds of it will be a little tight). If that sounds bad, think about what kind of situation you'd be in if you had some sort of repair on your new place when you move in the same month as a repair on your rental...that is a recipe for disaster.

As a rule of thumb, you should dedicate about 50% of your rent to expenses (repairs, insurance, taxes, etc.) The remaining 50% should be enough to cover your principle and interest payments and hopefully leave a little extra for you.

Don't place too much faith in the tax assessment. Find a good real estate agent in your area and explain your situation. They should be more than happy to run comps for you which will give you a real idea of what you can sell for. They might also know what it could rent for, which would be an added bonus!

-Mike

I love VRBO! I've only used it for renting, never listing. One thing that you may or may not have considered is that these types of rentals don't typically require a deposit (at least not in my experience). So are you prepared to replace the felt on your pool table, clean all kinds of disgusting things out of your beautiful pool etc? You may be able to get 200-300 a night, but it's a risky endeavor especially in an area that is more or less "rural".

I think you'd be better off selling the place and on the occasions you want to stay there, just check out VRBO or a 5 star hotel instead.

Just some thoughts, I wish you luck either way!

Anthony G - Your approach of butting the tiles up might be time saving, but it isn't a good idea, especially for a shower. If the tiles are butted up to one another, you either won't be able to grout at all, or there will be very little grout. In either case, it won't be long before you get water seeping between tiles and causing all kinds of trouble!

Just Don - What Anthony recommended about cutting is a good point. You can either pre-cut the tiles you need OR what I have found to work well is to just lay all of your full tiles, scrape off any excess mortar. When you're done with this, you can go back and measure all of the tiles you need to cut based on the exact space they will go in. I usually number the back of the tile and the spot on the wall/floor that it is going. Then you cut all of the tiles at once. If you try cutting and laying at the same time, you're going to waste a ton of time running back and forth between the saw and the bathroom.

With some practice, you should get the hang of slapping the mortar down, combing it, then laying the tiles. I usually mortar for anywhere from 2 to 5 or 6 tiles at a time, depending on the size of the tiles and the area. If you are only putting down the mortar for one tile at a time, the process will be much much slower! Also, the first time I tiled probably took 10x as long as if I were to do it now (I'm probably about 5 or 6 jobs deep), so the more you practice, the better you'll be.

I've used a mortar mixing agent to get a stronger bond and reduce flexibilty, but I've not seen/used a grout agent. I would still seal the grout in the shower and definitely caulk all of the corners for easier clean up and better longevity.

Hope this helps!

Originally posted by Nathan Emmert:

Michael, when you see you will have the required money up front... are you referring to Down payment or Income (Debt to Income ratio)??

If you already have the down payment, what do you need them for? My understanding was you didn't consistently have 20% for down payments?

I did not really clarify this, I will have the required $ for the down payment (as well as the income to guarantee the loan). I will only be buying when I have enough $ to do it myself. At the same time, I'll also be flipping or looking for flips and/or other deals that I can do. So I'd like to maintain a certain amount of liquid funds in order to keep my options open for other deals as they come along.

So basically the rental property is just a way to secure the loan for an investor to give me $ at an agreed upon interest rate. I could go the unsecured route, but I would feel more comfortable asking/marketing to these people with a secured loan.

@James Vermillion - You're right, these people have all been around me since I started investing in real estate and have seen what I've done so far. With that in mind, coupled with my well paying "fall back" job, it is a much less risky proposition for them than if some Joe Schmoe came and knocked on their door asking for 20 grand or something.

You attended a wholesaling class and the teacher recommended another class or to buy a product??? What class or product will the teacher of the next class tell you to buy??

If you got into real estate to buy books or attend classes, you should spend your time and money going for an MBA or PhD. If your goal is to buy and/or sell real estate, talk to people who do that and then do it yourself.

Originally posted by Jake Kucheck:

if they find out that you've pulled off this kind of swindle

Please explain how this is a swindle? I am offering them partial ownership in a tangible asset with good return. These are not people who are hard money lenders that expect 15% or real estate moguls that know 25-50% returns. These are people who are either hoping for 8% by investing in mutual funds or sitting on the sidelines with cash in a bank account at 0.00x%.

I am bringing RE knowledge and experience to the table that they do not have and don't desire to acquire.

Originally posted by Jake Kucheck:

I don't see the upside here, but it is both legal and logical (but also flawed).

I believe I pointed out the upside to both me and the investor. I can provide a more detailed example if you aren't seeing it, but it's already there.

If you feel it is flawed, please point out the flaw(s), otherwise your response is of absolutely no value to me or anybody else.

This is all about perspective. I've already run the idea by people who feel that the terms are either acceptable or generous, so I don't want opinions on the numbers. If it makes you feel better, replace the 8% number with whatever %-age return you would feel comfortable with. If you want to critique this, please come at it from either my point of view or a potential investors point of view, not your own (I don't want your money). I know damn well I'm not going to get Donald Trump to throw me a bone on something like this, so no need to come out of left field and tell me why he wouldn't be interested.

Anthony/Jack - Craigslist is very popular for buying and selling things, but as was mentioned before...people do not (or at most, rarely) go onto there looking for somebody with a posting requesting to buy real estate.

The bulk of users are there for 2 things.
1. Post something they have for sale
2. Search for something they want to buy

This topic doesn't fall into either of these categories as it is somebody posting something to buy.

Posters are sellers, browsers are buyers. The OP is attacking it from the wrong angle.

To the popularity point, Craigslist traffic may be increasing, but the increase in "popularity" seems to be mainly due to an increase in spam. I've been using CL successfully for 6+ years and have noticed over time that the usage has gone up very dramatically, but the number of good posts and good, real responses has increased at a much slower pace.

At this point, on my local CL, I'd say over half of the postings on CL (for real estate) are also listed on the MLS and they are reposted every day or every other day. It makes it almost impossible to find a good deal on there.

Originally posted by Nathan Emmert:

If I were to do it, I'd want some upside from appreciation beyond just the 8% return.

I agree Nathan, however I wouldn't do it in the first place. I'm mainly looking for family members and/or coworkers who have large sums of $ just sitting in bank accounts earning 0.0000025% interest. This situation helps me and it helps them.

To your LTV point, for purchasing the properties, I will have the required $ upfront on my own. As far as the bank is concerned, I can afford it on my own and I am responsible for the monthly payments. I know they could call the loan if they wanted to, but I think they have higher priorities then that right now and will for a long time.

I do appreciate the feedback, I'm looking for people to pick holes in this idea!

I've been running over some ideas to raise capital and have come up with this...let me know what you think.

Note: This will only work as long as I can get investor loans on properties, so for potentially 10 properties (realistically it would only be 8 or 9 since I'll have a primary residence)

These dollar values are all made up and for explanation purposes only.

Pitch:
So here's the deal, you (the investor) put up (roughly) 50% of acquisition costs for a rental property. In this case, acquisition costs will range from 20-35% of purchase price since I will be getting an investment loan. I then purchase the property (with joint funds) and quitclaim deed into an LLC. The LLC will have an operating agreement drafted by an attorney that outlines ALL of the details below to a "T".

Details:
You (the investor) will get stake in the property for your initial investment amount. This will be the first money paid out upon sale/transfer. You will also receive 8% annual interest, paid monthly on your initial investment. You may also have the option to purchase upside in the property for a lower interest rate. (This means in exchange for paying 7% instead of 8%, I'd be willing to cough up a 10% of any capital gain on the property.)

There will be additional details about holding time and early exit penalties etc. included in the OA.

Here's a hypothetical example: $100,000 single family house. 20% down requirement. $10,000 outside investment, $10,000 my money, $80,000 bank loan.

The cashflow is the same as if I were to purchase the property by myself with $20,000 of my own funds, with the exception that I would be paying the investor a monthly interest payment (in this case it would be about $67).

The goal of this setup from MY perspective is to put less cash down up front allowing me to purchase more properties or obtain my desired # of rentals more quickly. In order to do this, I am sacrificing a bit of the monthly income.

From the INVESTOR's perspective, they get a great rate of return and a possible upside if prices increase significantly. They sit back while I do all the work and get their monthly interest payments. I have a vested stake in the property so I would not just take their money and turn the building into a slum. If property prices fall, they would get first claim on proceeds of a sale (I would prefer to cash investors out based off an appraisal rather than selling, but selling is an option).

Potential downside for me...there could be a "run" on funds...so multiple investors could request an early exit at the same time, leaving me haning (this would be deterred by early exit penalties and long notice times).

Potential downside for them...if the property drops in value significantly over the investment period to where there is no equity in it, both they and myself will lose all initial investment money (likely due to foreclosure or short sale).

Please don't focus on the percentages or dollar amounts, just the idea in general. I've determined numbers that I think will get people interested, but not kill my profit. The numbers included here are simply for illustration.

Any thoughts are much appreciated!!!

If your husbands current income will support you guys moving to the area you want to move to, and you have enough money saved up (plus potential equity in the house) then you need to sell for a loss and go buy where you want to be.

This is a common theme among sellers today, you THINK the house is worth X and buyers think it is worth Y. The truth is, it's worth Y. It doesn't matter a bit what you paid, spent or think it's worth. The true value is what somebody will pay for it.

That being said, if you think your house won't sell for what you think it's worth, the bright side is that the houses where you are wanting to move are probably in the same situation (sellers THINK their's are worth more too). So when selling yours it sucks, but when buying the new place, you should be in luck.

ABSOLUTELY, POSITIVELY, DO NOT RENT YOUR HOUSE OUT WITH AN ARM. You are just begging for trouble if you do that.

Ask the realtor what the house will sell for, tell them your time frame, and get it listed/sold.