All Forum Posts by: Anish Patel

Hi All,  Looking for a little advice on a possible transaction.

Basic Deal Info

1. Bank has issued foreclosure notices on group of investor properties.  Single, Multi and Commercial

2. The deal would be to buy all the notes ahead of the foreclosure and foreclose on the properties ourselves.

3.  All first position leans, Outstanding Balance on the whole portfolio is about 1.5 million

Questions.

1. What type of realistic discount has anyone seen banks accepting.  I'm think of offering 65% of Outstanding Debt

2.  What are some key points I should be looking for or considering in this type of transaction.

@Paul Rogert  I've learned the heard way early on.  Converted a house and garage into seperate units.  The garage was used for office and I just added a bathroom and tiny kitchen.  Put the second mailbox out showing unit 2 and the township calvary started sending letters.  "Not allowed in current zoning"  So instead of the $1300 (450 and 850) I was getting, I"m now only able to get $1000 for both units to single family who shares the space with extended family.  Lesson Learned - check and confirm zoning :-)

@Blair Boan I do not have an answer to your question of which choice you should make, rather I would like to persuade you to an alternative path.  I would persuade you to waive the dream house now and continue on your reinvestment path.  You have built up equity and a great positive cashflow investment.  I would rather see you invest that cashflow for the future and not use that in any calculation to offset your wants for a nicer home now.  Make the choice to buy something that you can afford with your current income.  Rent out your current house and invest that money by paying down the mortgage of the rental house or finding a new investment vehicle for your future.  Now I'm not sure where you are in your life cycle, but i think one should always continue to invest and reinvest in their future until at least the point of reaching retirement at any age (which is where the income from doing nothing covers all the expenses from doing what you want)

@David Dachtera I would highly recommend that you check out cozy.co  I'm pretty sure they have a  great system for this and I think its FREE!

@Lisa Lincoln The rules are a guideline,  they can apply just fine to Vacation Rentals as well.  The goal is to account for all the income and all the costs and make sure that you expect a positive return of some sort based on what you are looking for.   The BP calculators are a great resource to analyze the investment and you have one home in the area so you have an idea of what you can expect.  Use sites like VRBO and AirBNB and see what the rental rates are throughout the season.  Look at their calendars and it will tell you what kind of rates you can expect.  the 30% management seems too high, but the vacation rental market in that area could be totally different.  Final thoughts is to make sure whatever community you buy in that they allow the vacation rentals and the rules for these type of rentals.  Good Luck!

Hi @Jesse Mistretta If, i were advising you, I would first ask for the complete numbers and how you did your analysis of the deal. I would want to know the taxes, insurance, down payment, pmi, who is going to pay the HOA fees for your rental etc. to get a complete picture. I would suggest posting the numbers here and you will get more feedback from the community. Off the cuff, i don't think this seems to be that good for a rental. You have the advantages of great conventional mortgage and at these historic low rates, I'm glad your taking action! The biggest mistakes newbies make in the beginning is usually not accounting for all the costs and buying at a price more than they should have. But every great investor that sticks it out probably has the same story. The BP calculators are great for analyzing the investment so try them out. Good Luck!

@Vlad M. Not a CPA, but at the end of the day everything will eventually get to your personal return based on who owns the LLC. Single member LLC will probably be directly on your return as you are 100% owner. If your a multi member LLC than the partners and owners will get a K1 which will eventually flow through to your return as well. I think if you wanted total separation you would need to create a c-corp. The C-Corp will be taxed as its own entity according to corporate tax laws. But be mindful of the double taxation when your C corp distributes money to you. If you are in a growth strategy and reinvesting the money back into the company and do not need to distribute I would talk with a CPA and organize now based on your long term strategy.

@Shay Reddy The conventional mortgages are the cheapest money you would get. You seem to be maximizing that money well. I would pick 3-4 properties with the highest equity and least advantageous loans in place and refi those out with a new LLC. Than use conventional mortgages to acquire more properties. However be mindful of the tax consequences. I think your on a growth strategy so at some point you will have to cross the line and create a business if you don't have one already. Maximize expenses inside the business as the tax code allows. - Anish

@David Zheng The quick answer is No I believe. All the banks I work with for LLC financing give me 15 or 20 year mortgages with fixed rate for 5 years. Currently for me between 4-5.5 percent based on quality and risk of the deal.

@Jonathan Johnson  Trailing 12 just means the P&L for the last twelve months.   So you would want the most recent financials from lets say August 2015 to August 2016.  Don't let them just give you the 2015 numbers as you want to see how its doing now and the best predictor of future performance is its current performance.  Also ask for the rent roll (current tenants, rent amount) and copy of the leases so you know for instance the commercial tenant on the ground floor isn't leaving soon etc...