All Forum Posts by: Nathan H.

@Misael Carlos Vera

An advantage of LLCs that I don't believe was mentioned here is privacy. In most counties, it is easy to look up the property owners and their address if they 1. Are their own registered agent or 2. Own their primary residence. Not all states are like this, but many allow the owner of an LLC to be anonymous.

If you don't want your tenants to know who you are and where you live, an LLC can offer that additional benefit. Admittedly, most tenants won't know how to find this information anyway.

I also want to reiterate that wether under an LLC or in your name, taxes will be the exact same. As a matter of fact, a Single Member LLC is what is known as a "disregarded entity". It will appear on sch. E of your personal tax return, as if it doesn't exist separately from you in any way.

@Mario Lopez like @Steve Morris alluded to, the big advantage of S-Corps as far as tax savings is that they can save you on SE tax. 

Here’s the thing... You will get heavily scrutinized by the IRS if you take much of the net income as a distribution rather than as a W-2 employee, depending on the nature of your business. If your business is capital intensive, and it requires you to have a large amount of money invested, it’s justifiable that a portion of the income is not generated by you, rather it’s generated by your capital investment. That is where you can play with the amount you pay yourself vs. take as distributions. There are other nuances, but it gets complicated. 

@Rick Pozos

I agree Rick. Sometimes it makes sense to just liquidate and rebuild in a way that you can get a better ROE if you’re not leveraged and can’t leverage. 

I’ve been through it before. It’s a mental block, it seems counterintuitive to sell when you’re trying to build a portfolio, but sometimes it makes the most sense and/or is the most efficient. Like you alluded to, selling paper is not necessary a easy or a fast task.

@Tashina Taylor if you end up taking this advice, remember debt is not taxed, but gains are. These would be S/T capital gains, you’ll have a hard time doing a legitimate 1031 exchange due to the short holding period, but if you don’t end up having much income for the year, above and beyond the 60k, your tax will likely be immaterial. 

@Courtney Francis

“Creating paper” is just creating a promissory note secured by the property. She would stay in title. Selling the paper would have the same net effect as getting a loan against the house.

@Tashina Taylor Another option is offering up some equity or cash to a partner with a strong signature and just have them sign on the loan. With all that equity, there is some way to make a problem solver feel safe helping you out in a creative way. 

A lot of people (myself included) don’t know the first things about getting a property at auction. Maybe let your problem solver in on the next deal. You have a lot to offer, it’s just not cash!

@Brent Mowery

Hey Brent. Sounds like a nice investment. I'd consider turnover costs. Even though the tenants have been there for a while, if they leave you're probably looking at several thousand to get it rent ready, enough to wipe out a year of cash flow. Also, I'd calculate in some vacancy. 

I'd pay 40k for a house that rents for $600/mo with long-term tenants all day though! Nice find

@Steven Walker

If you have a real deal on your hands, any conforming loan is going to be nothing but a hassle, plus you would need to live in a house purchased with these loans for at least 12 months. These types of loans have so much red tape, they kill deals, they leave little opportunity for "sweat equity" and ignore nuance of the deal. I know the terms are attractive, but it is 100% worth finding a reliable hard money lender and just paying the extra money. You lose so much control with those other types of loans, it will cost you ultimately. 

Additionally, there are problems with turning around and renting these places right away with these types of loan. Also, the next step, refinancing, is pointless since you already have good loan terms and the rehab included in the loan.

My best deal ever happened this year. Anytime I meet someone new I try to bring up real estate investing in the hopes of stumbling on a deal. 

I was buying a desk off craigslist and ended up talking to the seller (who I found out was a financial advisor) for a couple of hours about investing in general. He told me he has an aging book of clients who are sometimes looking to unload real estate. 

A couple of months later he called me with a 5 house portfolio in Northern Colorado. I got a deep, deep discount by making the seller's life easy. I told her I would take everything as it is, no contingencies, I'll deal with the tenants, any repairs, close with cash (hard money in reality).

I bought the portfolio for about $1m after going back and fourth with the seller for almost 6 months! I had instant equity of about 600k. Thus far I have 1031 exchanged 1 of the houses into a mobile home park and flipped another one. I still have the other three and will be refinancing out of the hard money this month. What this portfolio is now is about $4,000/mo cash flow from the trailer park, $3,200/mo cash flow from the 3 houses and about $140,000 cash from the flip. 

Moral of the story is to tell everyone who will listen that you're a buyer for real estate. If you find a killer deal, finding money is the easy part.

As a disclaimer, I did put some additional cash up for the trailer park. It wasn't purely funded by the one house that I traded into it. 

I see a lot of people mentioning confusion when it comes to ARV and projected market rent.

My advice is put yourself in the buyer/renter's shoes. In the ultra hot markets we're seeing right now across the US, things change fast and shortage of supply causes a lot outliers in the data. 

In my opinion past sales aren't the most pertinent piece of info in the current climate, when trying to determine ARV. The question really is, "What are a buyer's/renter's alternatives?".

For example, if you own 1 out of the 6 houses for sale priced between 350k-400k and everything below 350k lacks in finishes or will be a bedroom smaller, and everything above prices out your target market, you just might be able to get 400k when the past sales say the place is worth 370k. The same logic applies to rent amounts. 

Basically ask yourself, "if I'm in the market for a house similar to what I'm selling, what are my options?. In most markets the options are scarce. 

@Tashina Taylor

Got it.

If you're wanting to buy something at auction, obviously that involves paying all cash, so your thoughts on doing a cash out refinance make sense.

Here is the first thing I'd do assuming there is no bank or private lender that will work with me:

- Create paper against your house, market the paper for sale. There are a lot of note buyers out there that are interested in buying notes at discounts (or perceived discounts) secured by real estate. Create a note for 60k, 6% interest only payments, with a 2 year balloon and there is someone who would buy that. It's just a matter of finding them (craigslist and investment groups are a good place to start).  

- This is a lot more challenging, but the next thing I would do is create paper and use it as the downpayment and ask for seller financing for the rest. This would involve a lot of searching for the right seller though and being able to articulate the benefits to that seller. 

I think the biggest hang up with finding people to do creative deals is that they 1. don't understand it and 2. don't want to deal with it anymore. I'd make the maturity of any private financing short, betting on your ability to refinance once you get rental income on a tax return or two.

PS. There is a group of brokers that are highly sophisticated in this stuff. It's known as equity marketing. The group is called the National Council of Exchangors.

@Tashina Taylor

Hi Tashina. In my mind this post is missing a important piece of information. That is, what do you need the cash for?

I know that your goal is to cash out refi, but the much more important question is...What will you use the cash for?? There are many ways to get from point A to point B without cash, it just takes some creativity. I can offer better advice if I know this piece of the puzzle. 

For example, if you want to cash out to raise money for down payments to buy more real estate, the answer may be creating paper and using that as the down payment, as just one potential solution.