All Forum Posts by: Michael Ramirez

Thank you both so much for the advice, the circumstances we're all in have changed the trajectory of this deal. I'm sorry to have not gotten back to you, lifes been a bit hectic. 

I will provide updates as this deal progresses, until then stay safe and be well!

You're absolutely right that I have a lot to learn. I tried running with a base of 5% in the calculator for vacancy, cap ex and maintenance, which is still leaving some out. Thank you for pointing that out.

What would you put to conservatively evaluate those 5 areas? Seeing as how you're very close to the markets I'm in I'd be interested in your opinion.

My question is what youre asking, but I wasnt entirely clear on this. The work I've been doing with this person is what is creating the deal she is considering. She is willing to take the work it will take to clean her property up and helping her move into another place while getting her stuff into storage as a down payment and potentially as a few months payments.. She also has property taxes I'm going to address so the sale can actually happen with a clean title. So all those things combined with everything else I mentioned is my sweat equity in this transaction.

The hitch to this all is that she will not accept a deal where someone refinances the property because she doesnt want a lump sum. It has to be a long term low payment because she doesnt want to push herself into a different tax bracket to qualify for long term care assistance.

I dont know enough about taxes with seller financing to know if her concern is warranted though. Which creates a grey area for my suggestions with her.

For instance would 250k of the sale/payment be tax protected if it's done through seller financing? Shes lived in this house since 79.

If so, would that cover a lump some were we to refinance the sale and pull out the equity to pay that exact amount?

I dont expect you to answer these questions because there lots of them, but any info or opinions on them would be such a help with understanding these things better.

Thank you for your input and replying in the first place.

So I made another post asking questions about a hoarding house in San Diego.

my concern now is finding a partner for the capital side of the transaction.

These numbers are not concrete as Ive not had a home inspection or contractor walk through the property with me. So let's consider this an example. 

a home that after the rehab will be worth about 610k conservatively

The seller has a need for long term payments with a 40 year term. This is necessary to supplement her income and not cause a large tax implication. No balloon in sight because of it.

The price we have discussed has been a 300k seller financed mortgage with 3.75 interest.

PMI would be about 1200 a month.

the plan for the property would be to convert the two car detached garage into a 2/1-1 1/2 roughly 750-800 sq feet ADU. With it's own parking spots and 1/3 of the backyard privately fenced in. (Theres a fantastic hospital less than a mile away so maybe travel nurse housing is an option here for more income)

Market rents for the 2/2 house would be between 1900-2200

For the ADU its be about 1500-1800

Total rent range 3400-4000

Property taxes are 500-550 a month

Rough cash flow 1100-1250 (year one)

The inside of the property would need to have: 

-All the flooring replaced. 

-The ventilation system would need replacing. (Indoor smoker)

-Either paint or replace all the drywall (again because of the smoking)

-Replace the water heater.

-Replace the heater/fan.

-Bathroom remodels

-Would prefer to remodel the kitchen because of its layout but also isnt the end of the world to not. 

During this process I'd do all that is needed of me that doesnt require a tradesmen (flooring, painting, drywall work, installs, running materials, etc) 

After all this preliminary info I'd like to know the communities opinions on how this may be structured to benefit; the capital partner, the seller, and myself. I'm new to this process and am open to all the pointers,  criticisms and concerns you all have thank you!

The need for counsel is becoming clearer and clearer to me as im learning more and more.

I thought so too, just really needed some confirmation on that, silly as it seems to some. As I'm learning more about refinancing I get the jist of why that doesnt align with the goal her and I share for her. 

This would be my first deal, and fortunately I may have access to private money for a large chunk, if not all of the rehab. On that note, I plan to do as much work in the property I can to keep those rehab costs as low as possible. I've got a flexible schedule and am no stranger to hard labor. 

the second half of what you're suggesting with a partner for permits and that side of things is the weak link in all of this for me. I know some folks in the trades of construction I just dont see them running their businesses professionally and that worries me. My family had always used family friends for stuff and it bit them in the behind down the road. 

Any and all connections would be so appreciated, I'd gladly reach out soon too, thanks so much Kenneth! 

Hey there BP, hope you are all safe and healthy.

So this is my first post, and it just so happens to be with questions about this potential deal I am developing for a rental property.

I've developed a relationship with a woman willing to take a lower payment for her property with higher tax rate to keep her tax implications low and have residual income longterm. This is from a property she owns free and clear except a few years back taxes. Those taxes next year will pass almost 30k

The house has really solid bones and a few upgrades have been addressed already like the roof and some plumbing issues. The downside is this place is trashed. All the floor boards are swollen from pet droppings and theres a stench from it along with her being an indoor smoker. All in all she "cant handle the tax implications" from lump sums, and has some non family members shed love to help. Anything past this I'll will answer as best I can in the comment section.

-Where: San Diego CA

-What: 990 sq ft 2/2 with detached garage intended to be made into a 2/1 ADU (adding up to 800 sq ft)

-Unappraised realtor.com value: 500k

-Her word of appraisal from who knows how long ago: 640k

-Breakdown of price per sq ft of neighborhood is 343 median

(343x1790= 613k)

I'm not sure how it may effect the appraisal but this property is 1-200k cheaper than its neighbors.

When I divided the price by square from from realtor.com it came down to $504 per square foot

-Offer: 300k at 3.75 for 40 years =579k after interest and principal.

-Monthly PMI: $1207.58

That's what I can think to share so far but will gladly share any details I may have left out that can be helpful.

What I'm wondering are a few questions on the possibilities.

1. After entering into the seller financing deal, can I use the equity in the property to take out a heloc or home equity loan to cover the repairs and improvements beyond our finances?

(We will have enough to cover the cosmetic stuff between savings and sweat equity)

2. As the buyer in that agreement can I then deduct my operating expenses, mortgage interest and property taxes?

3. If I needed an investor to fund the rehab can I refi out enough to make the lender whole plus interest, and maintain the original payment agreement with the seller? (The thinking was private money to fund the rehab get it appraised and then refi out the lenders funds plus some safety net money then pay them at the same time)

4. Can you setup the seller financing terms to become inheritable? (After the person passes the non family members she wanted to care for recieve the payments from then on)

I'm sure ill think of more but for now this what I can put together.

Thanks everyone