All Forum Posts by: Nicholas Lohr

hey there. I have a 4-plex under contract in Sacramento and my plan is to do another BRRRR deal on this one however the value add will actually be adding more units. There's wasted space in the back of the building and the zoning allows for more units to be added.

 My question is, since I am starting out with a 4-plex which is residential, and ending up with a 5 or 6-plex which is commercial, are there any differences I should know about the refi process before going into this deal?

Will banks still lend 70% of the ARV?

I assume the interest rate will be much higher on the refi loan right since it will be commercial?

Will I have to deal with a balloon payment?

Any and other things I'm not thinking of??

thanks all!

2 things...

1. I've heard on multiple podcasts real estate investors that have far more experience than I do that one of their criteria is to never buy and rent out a house with a pool.

2. My girlfriend rents a house with a pool and it is constantly a problem and a point of contention with the landlord. The pool maintenance people are there constantly trying to figure it out problems with it.  The landlord pays for all of that. 

Actually one more thing.  If you are flipping a house and don't plan on holding it as a rental that could be a different story.  A pool would be attractive to a buyer who is going to live in it as their home.

i just quickly looked at the prices of the other properties in that area and there is a wide range but 13k is definitely on the VERY low end.

My guess is 20k for repairs is too low.  Walk that thing with an experienced contractor that you trust before you buy it!

Also make sure it will really rent for what you are projecting and that it is in a desirable enough area to attract the kind of renters you want, or are ok with, in the first place.

also read this....

https://www.biggerpockets.com/renewsblog/2015/08/22/truth-30k-investment-properties/

find a realtor with investment experience to help guide you through the process. you can call around and talk to different realtors and just be honest with them that you are new to this.make sure to ask if they have investment experience themselves. 

also practice using the investment rental calculators that this site provides. they are a huge help to make sure that you don't end up with a money loosing investment. 

@David Dachtera  Isn't it true that he is going to have to take title and mortgage in his own name? 

I get it that having an LLC if he is starting a long term real estate "business" is a good idea, separation of expenses, etc... And he may have the option of transferring the title to the LLC later on assuming that doesn't trigger the due on sale clause. I'm just trying to make the point that having one rental property where the title and mortgage are in his own name doesn't necessarily need to have an LLC attached to it as it will serve no limiting of the liability in that case.

For his first deal he will have to control AND own it. 

Are you sure you want to create an LLC?

A bank will not lend to an LLC and you will have to take title in your own name thus making the LLC pointless. I learned this the hard way but at least I didn't create multiple pointless LLC's each with it's own property "in it" as others have done on here.

Your property insurance will take care of the limiting of the liability.

Does anyone know a good handyman in the Sacramento area?  I'm in need of one. 

~sigh~ i suppose everyone is eh?!

For my first deal I had to take title and mortgage in my own name as the bank would not lend to the LLC.

However I do keep all the property's income and expenses in and out of an LLC that I formed because someone told me that there is a difference between the "mortgage" and the "property" and that having the money flow in and out of an LLC would offer some kind of protection from my personal finances.  Is this true or untrue?

I just now asked a lawyer if my second property should be in its own individual LLC again even though the mortgage and title will again need to be in my name and he informed me that this would really be pointless as it's who is on title that counts and that there really wouldn't be any limited liability at all. Is this true or untrue?

No , Cap rate is assuming an all cash purchase, it does not take in to account debt service and PMI is part of debt service. (mortgage payments)

However, when you analyze your properties, definitely include the PMI in your numbers calculation so you don't end up in a negative cash flow situation.

also as to your 2nd part of the question, yes it may happen that some months you are going to have to spend the whole budget for other things on cap-ex if it comes up.  that's why you come up with an annual average.