All Forum Posts by: Neal H.

Hi Matt!

You are in the right place!  I have 7 rentals in the montgomery area. They do great.  The absolute key is good property mtg. I have one and would be happy to discuss. Pm me

Neal

Montgomery AL

You could, I looked into it. Depends on the cost of money? Will the deal pay off the HELOC in a year or so? How much do you expect to use after closing to rehab etc? There are other sources of money out there, just depends on what you want to do, and what you feel comfortable with. IMO, if you cannot pay off the HELOC w/in a reasonable time, say 1-3 yrs, then don't do it.

Typically they will not accept an offer first round at less than 85% of asking. That being said, after a price drop, everything goes out the window, and I have two ofers accepted at almost 40% off the initial HUD/Homepath list price.

I’ve had a lot of people ask how I buy most of my properties with cash, but not my own cash.First, I want to start with a typical lender parable.

A guy walks into a Porsche Dealership and finds the car of his dreams, it will cost around $80K and since the Porsche guys don’t negotiate on price, he pays $80K.He calls his bank, and within 30 mins is zipping around his community in his new car.Never mind, it will never be worth what he paid for it, and the bank gave his a 2.5% rate for 7 yrs…I kid you not.

Same guy finds a nice 3/2 home with hardwood floors in a "middle to working class neighborhood".The home needs work, the AC is shot, needs paint and general updating.ARV is somewhere north of $65K, and HUD is offering it at $41K.He calls the bank, and the same guy that gave him 2.5% for 7 yrs on his car, laughs.Citing numerous laws and bank SOPs, he finds out that essentially this home, because of its price point (below $50K) is "unlendable".

Now the “how to”-

The fact that you generally can’t get a loan for homes under $50K is a good thing for investors.Here’s why.These homes generally require much less than $10K in rehab.However, once the asking price goes below that magic number of $50K, it really means it can only be bought with cash, and that it will probably be bought for $25-35K.Yeah, that’s right.Why?Because most people in this market are first time home buyers who do not have an extra $5-10K to put into the home right after they buy it, even if they could get a loan on it.So the price and availability of money directly affect your ability to capture equity right from the start.

Back to the bank.Up until a year ago, I had no idea what a “signature loan” or a personal loan was?I was only familiar with collateralized debt.So when I was lamenting the fact that I could not get money for more homes an entrepreneur friend said, “call the bank and get a signature loan”.Having never heard of this before, I called, and sure enough, IF you have good credit and income, a bank will give you $25-150K just for your signature…to go buy cars, pools and pay for stuff you don’t need.Or, you can use it to buydistressed real-estate.

So, here’s where it could go bad.Don’t be stupid.Have your exit strategies.Then execute.My typical deals look like this:

HUD/Homepath/VA forclosure wants $41K for a home with an ARV of $65-75K.Let's assume it needs $10K.I start my bidding ridiculously low, so $24K, but eventually get it for $28.5K.I use "cash" and close fast and get it rehabbed in 2 months…could be faster, but that's the average.Immediately after I close, I am looking for ways to collateralize the debt…ie REFI.Because right now, I own the home OUTRIGHT, w/ no liens.I do have this other debt not associated with the home and I want to pay it off ASAP before I have to make my first payment.I can 1) use a portfolio lender (typically 80% of receipts, then I retire the rest of the loan w/ my cash).2) Wait 6 months and use traditional financing where I have the possibility to getting all of my money out of the deal since they go off of appraisals, not receipts, typically 75% LTV.While I wait 6 months, my payments on $35K are around $500/mo.Home rents for $850, so I can do this and still pay the bills.3) flip the property to a new home owner and make 7-10K after expenses or 4) do nothing and pay the house off in 7 yrs w/ the 9% signature loan.

I hear of people using hard money and the expenses associated, but for the smaller deals like these, IF you have good credit, they don’t make sense.Thoughts?

@Kerry Baird- Thanks for the kind words.  I'm working toward $200K in passive cashflow including my Military retirement which should be around $40K/yr.  So, divide that by homes/appartments or whatever and that's my number.  Then, I like your go "deep" by paying off the debt.  PS, if its the same "Hawk" from a few years back, he made the ultimate sacrifice for his country a while back, well before I got into the program.  He's memorialized in a painting in our "heritage room" back at Beale.

@Tyler Flagg- My favorite TTP is to use a line of credit to purchase as rehab homes, then collaterize the debt aginst the home with a REFI.  I don't know anyone else who does this, but sure beats hard money!  Sure, its my debt, but the rates and flexibility are great.  USAA gave me 75K on my first aquisition, and I had it paid off before the first payment was due.  Not hard, but you have to be disciplined, and have multiple exit strategies.

@Denise Evans- I do want to get into MHPs.  I'm looking at a few in Anniston, Montgomery and Prattville.  I like the fact that its something that scares people away...kinda like my buddy who made his millions pumping pot-o-potties.

@William Byrd-The jet is fantastic, the takeoffs and landings are nothing short of both terrifying and impressive.  The airplane practically stands on its tail on takeoff then climbs like a homesick angel.  Trying to get her to land is like putting my kids to bed...you have to fight it every step of the way!

I'm a U-2 pilot.  I love it, but know I can't do this for ever.

I fly airplanes for a living. One thing we do pretty well as pilots is debrief and critique each mission. It’s how we improve. So, I'd like to share my last year's efforts in hopes that I can get some good critiques and atta boys to help in future ventures. This might be long, sorry in advance.

In the fall of 2012 I was notified that I was going to be transferred to Alabama for a one year tour, and then transfer back to northern California. I looked rentals that fit my wife's requirements and found they were generally dumps. I wanted to get into RE, but really lacked the knowledge. I decided to buy a foreclosure (HUD) live in it initially while we were stationed there, and then turn it into a rental. These are the numbers:

#1) HUD-asking $236,000 I closed for $219,500. It needed about $4K to bring it up to my wife's standards. $60K equity capture. PITI come to just under $1200/mo for a VA loan @3.25%. Closed March 2013. Lived in it for a year, July 2013-July 2014. First tenants took possession July 2014 for $1850/mo.

#2) A buddy was buying turnkeys in Memphis, I thought why not, so I bought one too. Good that it was my first pure investment. Bad that I quickly realized I could do much, much better. $58,700, 20% down + closing $15K cash, PITI $350ish/mo + mgt fees rents for $725/mo and zero equity capture....I'm almost positive I paid too much for this one.

#3) Realizing that this was not the best, started looking local and went through about 6 realtors before I found one that had a clue about what an investor wanted. Walked through a home one day after work with my uniform on. Owner saw me, and I just happened to ask if he would entertain an offer w/ owner financing. He said maybe for a guy in uniform?. I bought it for $45K w/ 20% down, owner finance 80% @6%= $330ish PITI rents for $850/mo. Captured 10-20K in equity. Needed 1800 in paint, and cleaning.

#4&5) At almost the same time, I found two foreclosures I liked, both needed rehabs, both were substantially below market value. First was a 3/1 I bought for $24,500, needed $4500 in rehab. 20-25K in equity capture. Rents for $750/mo. Second was a VA foreclosure I got for $41,500, needed 5K in rehab, rents for $850/mo. I bought both with cash....not mine. I used a signature loan with 9% int, that I refi'd after the purchase w/ tenants in place w/ a portfolio lender @ 5.25% for 80% of my total receipts in the properties =$400ish/mo plus $60/mo taxes and Insurance for both properties. I retired the remainder of the signature loan w/ my cash, and never had to make a payment on the signature loan. btw, the payment would have been around $1200/mo if I could not have refi'd.

#6&7) Were almost the exact same process. I like doing my acquisitions with cash, just not mine. One is a 3/1 I bought at an estate sale for $28K cash right before Christmas :), and the other was a Homepath I bought for $33,5K. Both rent for $800. Both had great equity capture. Both required $3-5K in rehab, this time, however, I used a Line of credit from a bank I have a great relationship with. My great credit got me 8% interest only for 5 yrs...Don’t need that long. 6 month seasoning ends in May of 2015 when I will do a conventional refi and hopefully pull all my money out and get both on a 15 or 30 yr fixed. The goal is to have zero into these properties and still generate 400ish in cash flow.

Sorry for being so verbose, thoughts please.I’m now looking into trailer parks and MF.Prices have gone up about 20% in the last year where I “farm”.Probably switching tactics and investments.

Cheers!