All Forum Posts by: Jeremy Karja

Hi BP,

Quick on, How can I find the listing RE agent.  Trying to direct to them without going through my RE agent because the deal did not come from them.

@Brent Coombs thanks for the advice and thoughts. I agree. It can be very risky. I will be using IRA money and other money like that first. I know I need to be very careful HELOCs and your home.

Hi BP team,

My question is simply: Should I do my HELOC at 100k at 6% or 75k at 4.5%? I have two credit unions that would give me either option but I need to decide today because the 100% at 100k (equity I have in my home) will change to 90% on Monday which is about 75k.

I assume the answer is more money is better because that is only about $100 a month more in carrying costs at 6% vs 4% for access to an extra 25k.

Of course your next question is, it depends on what your doing. My plan to use BRRRR strategies mainly but my wife is getting her RE license now and wants to do 2-4 flips a year while I do 2-4 BRRRRS a year. Long term goal is many rental properites.

I plan on mainly using my IRAs and HELOCS to fund deals until I have a track record then I want to raise money.

Thanks for any thoughts.

UPDATE: I am not doing the deal as it is today.

The wholesaler/mentor wrote up the deal with him making 6k... which is not a problem at all.  But my other mentor/friend pointed out that he wrote it up as earnest money going to his company which I guess is a no-no.  Maybe not legal.  Does anyone know this?? He also said he did this on standard MN PA agreement but it was not and my other guy pointed out quite a bit of holes.  So I am not signing the agreement as is.  I may still do an appraisal and get a construction bid done to see if the values are a lot higher and then I may come back in or if they accept 80k plus the 20k I get down from Rick (the contract for deed buyer) cutting my risk WAY down then I might come back in.

But, my other guy said the PA and earnest money issues are red flags and like you guys said the margin is thin but more importantly too many moving parts for first deal.  

We wrote up the PAs for the 100k and I think the value is at least 125k but probably 150k and ARV of about 150k maybe more. But it being on a major highway near construction area it just does not look good if the contract for deed buyer flakes if I can really wholesale it or flip it.

It is hard walking away from 57,000 dollars but like you more experienced guys said.  There are always more deals out there.

Huge thanks again to all who commented, your advice was priceless! @Jeff Filali and @John Leavelle

@Alejandro Flores what did you go with? I am looking into both options right now as well. But for me its more is a business line through my new business going to get much or should I go with my Dad's business who has been operating 500k + revenue for 40 years. Also, should I just use a personal line of credit or does this void my LLC and cross the business and personal side too much. I assume not because I was going to use HELOC and IRA's before I looked into this.

@John Leavelle first off, thanks again for your response and knowledge.

Where the middle man comes in is... he is my new mentor, but also a wholesaler.  He set up the deal and just brought me in to be the bank and start teaching me how to do the deals.  It was his idea for a contract for deed.  Then I mentioned my concern about this and he said we could rent it to him with an option to buy as well with less risk but less monthly cashflow.  I think I prefer this over a contract for deed.

There is no renter at all.  Just the seller, the two middle men (me and mentor) and the end buyer if we do a contract for deed.  But the end buyer will be the renter if we do a lease options.

If we do a contract for deed the end buyer/renter will do his own rehab on his own future house with his own money.

Exit strategy if this plan fails is we flip the property after getting him out.  If we got the 20k from him we can use most of that to rehab it then we should be able to flip it for around 150k or worst case 125k.

Or the basement is structured with two egress windows and a start to kitchen.  So i would think with the land I should be able to rent the upstairs for 800 to 1000 and downstairs around 500.  This would be about a 1.5% rule if I can make that work.

Your ideas, questions and concerns are helping a lot.  Thanks again!

Thank you @John Leavelle @Tan Mehedi and @Jeff Filali

All your points are SPOT ON.  

The problem with answering some of your questions is some of the numbers are in negotiation between the seller and buyer/renter.  

@John Leavelle

@John Leavelle - Sorry I was not clear. I will simply be the bank in this scenario meaning I will not have a renter just the end buy and I am the buyer holding the deed in between for 1.5 years until he cleans up his credit. Also, unless I am mistaken this is not a BRRR strategy because the end buyer will assume the deed in 1.5 years so I can t run it on my BRRR calculator. Correct?

However, if it was a flip I would need to put only 76k down.  But with this strategy if I get 20k down now and sell it to him for 125k on the back end (minus his 20k down) I would still make 25k total minus loan fees correct?

Also, would a lease option be better?  Because if we agree to 125k and the market crashes in the next 18 month he can just walk away right?  Then I am left with the garbage and only made 600 a month for 18 months.  But that would give me 10,800 profit over 8 months plus his 20k down which is total of 30,800 which would still make the deal good right?

Balloon: 1.5 years

The other problem is the comps are VERY difficult to find.  This is a location right off the highway in a rural community.  This is a very beat up house (inside) and the closest comps I could find were in the 150-175k range.   This is factoring in it is also up against an abandoned junk yard and right off of a major freeway.  Rehab based on it would need all new windows.   

ARV - 150-175

It had multiple D level renters in it that built a tub in the middle of a room in the basement for example. Pieces of sheet rock missing, 2 bathrooms and kitchen need a complete gut etc. New roof and siding. Propane heating and septic tank both seem to fine.  So rough estimate is 30k.  But I did not crunch all those numbers yet.

Rehab - Approx 30k

I will post the specifics when I get them later this week.

I hope this all makes sense.  Thank you so much for everything again.  This dialogue and information will also make my wife A LOT more comfortable if we do the deal at the correct numbers.

Jeremy

HI BP,

This would be my first deal.  We are looking for mainly rental units but willing to do a couple flips a year is our long term goals.

Our mentor we met recently is VERY experienced nice older gentlemen.  First deal he knows the owner for many year and his kids and the potential buyer/renter.  We would be the person buying and doing the contract for deed and giving him some wholesale cash etc.

He mainly wholesales now but does it all.

Here is the deal right as of now:

Price: Hoping to get it for 100k but could be higher depending on negotiation

Current Tax Value: 125k

Rent/payment: We are trying to get him to pay 1200 a month

Property needs about 30-50k of work on the inside.

Comes with about 4 acres and a shed.

Down Payment: We would like to get 20k down (still in negotiation)

Strategy: We would use our cash to buy with a balloon in 5-7 years

Our money will have about a 4.25% cost to using most of it unless we use 50k from our IRA.

The Money: So assume 100k at 4.25% = 355 a month interest.  

                      If he also pays insurance that is our only other cost then correct?  If so we cashflow 845 a month

                     When we take a loan against it for 100k and use the 20k down we pay 735 a month and cashflow 465 a month until he buys it from us.

The rest of the story:

He is a mechanic and this is on a major highway so he operate the business from here.  He recently went through a divorce so he needs some time to clean up his credit.  Older guy that is a little rough around the edges.  He seems to have a pretty strong business.

The risks:

This guy bails and I am stuck with trying to rent or do a contract for deed on the property

He trashes the place even more then leaves and we have to put 50k into a property and hope we can flip it and probably break even or rent it out and we probably break even.

The agreement will be written so current renter/buyer in the home will have ALL responsibility for the property and if he defaults will need to give the property back and lose all down payment and other payments.

My Questions:

1. I don't know contracts for deeds, is this a good deal.  Is my mentor correct on this?

2. Is there too much risk for 4-500 a month

3. Can I refinance in 6 months? (I have a good income, job, and 800 credit score)

4. Did we factor in all costs?

5. What other risks am I not thinking about?

VERY THANKFUL for ANY TIPS

HI @Cole Hagen ,    I work in this field as advisor to the advisors in retirement vehicles.

1. Yes, you take the match. This does not hurt your REI investing it DOUBLES it for the future.

2. Call your 401k Administrator and see if they all "in service distributions" meaning can you move this money while still working at the job. If so you can roll it to an IRA (no tax hits) and use it for investing. That is what I am doing.

3. Your 8% is a far cry from reality.  Another large factor is something called "sequence of returns" which means if you buy at the top of the market (like right now) and your investment drop by 50% out of the gate then you need a 100% gain to get back.  Our saying is losses hurt you more than gains help you.  But since you are young you can ride the ups and down easily over time.  

4. If they match 100% and it costs you a 10% penalty to take it out before 59 1/2 and you pay 30% and taxes on 10k withdrawal that means your still up 60% on the free money your company gave you to invest in real estate.

5. Long term a rental purchased right will beat a traditional investments.  Because they allow a guaranteed 4-5% withdrawal which means on 1Million it will give you 40k a year.  Can you make more than 40k a year profit on a rentals if you had 1 Million to invest.  Answer? Of course you can!

So essentially @Scott Trench is correct these are just some specifics on how to do it.  
Feel free to reach out with any questions Cole.

Jeremy

Also, has anyone attended this program and how good is it?