All Forum Posts by: Paul Gomez

Let me know if you find anyone. Also need to build a team in this area. 

By the way you can always reach out to local property managers. Chances are they have trades on call, maybe a GC. From there you find your way to construction teams. Also, search thumbtack as well. Learn how to trust your gut!

Richard, you post has the wrong date in the title just FYI...

Good for you man, keep rockin.

I have been running some numbers on a deal that utilizes a hybrid SubTo/Seller Finance deal into a wrap around mortgage. Please follow along and be brutally honest with feedback.

Property: 

Motivated Seller Listing on MLS. Sale price $355,000. Can't sell house on open market due to comps being in nicer condition, high interest rate environment, house needs updates.

Underlying debt: 

$169,000 remaining principal. 2.8% interest rate, 240 month original term. -> Debt payment $1006 /month

Assumptions: 

-Seller is motivated and does not need proceeds from the sale of this house. 

-The house is overvalued by around $25k when comparing with MLS comps. Goal is to use this in negotiating seller finance terms if necessary.

-Initially, I would assume I could do the hybrid, sellfi portion of it at a 4.5% rate at 360 months

     ->Principal value: $169k 

     -> Delta between asking price and remining principal ($355k-169k=$185k) , at terms above -> $940 /month

-2% Seller agent fee  -> $7,100

-2% Closing cost -> $7,100

-Seller pays closing cost and commissions

-I pay attorney/title fee - $3000

Acquisition Strategy:

Offer full asking price -> $355k using hybrid terms

-SubTo remaining debt ->  $1006 /month

-Seller finance delta (from above assumptions) -> $940

Total Debt Service: $1946

Disposition Strategy:

-Sell home on wrapped mortgage, 360 months, 8%, $355k, 10% down ($319,500 principal)

     Payment  -> $2344 (local rental comps about $100-200 above this amount, so feels justified for 8% rate)

Profit:

Upfront cash from the deal => $ 35,500 down payment -$3000 attorney => $32,500

Cash flow => $397.51 per month => $4770 /year

Note a few assumptions were made here. 

Positives: Owner gets full asking price, no money down, cash upfront, cash flows, do not own the property so no rental management.

Caveats: No equity play, assuming seller would do 4.5% or less rate, assuming there is a buyer who will accept higher wrapped mortgage payment in this area. assumes seller does not need proceeds from sale of the house.

I know this is a long one, any thoughts? Does a subto deal always have to be an equity play or can you capitalize on the loan arbitrage between underlying debt and a wrapped mortgage? What am I missing that kills the deal?

@Cory Manoogian

I'll answer what I can from a newbie perspective as well. These are just my opinions and much more experienced investors can mitigate the risk much better based on practical knowledge.

1. If your South Dallas numbers don't work, well than that tells you everything you need to know. Not a lot of desire to be in those locations coupled with not the best schools and more crime leads to you should just avoid it unless you know how to work that area.

2. BRRRR is risky because you've never done it before and you don't have a lot of capital for unexpected costs in rehab, hard money fees, unexpected repairs, etc...

3. Hard money fees will put you in the red if you don't acquire a house with a good price AND the ARV isn't high with respect to your rehab budget. You'll end up leaving money in the deal and you don't have that much capital to begin with.
4. If your house has appreciated, perhaps you could put a HELOC but if your down payment was low plus little appreciation, it may not be worth it.

5. Your mortgage seems high, which I assume because it was your first house so you put a little less down (5-15%?). Again, if your house is appreciated maybe you could pull some money out of it with a refi. Closing cost may end up being a was for the money you're able to pull out BUT if will give you more capital to use on a rental. 

 In general, maybe go to more meetups and talk to people . Only by conversing will you know what your target it. There is no perfect target, everyone's situation is different. So be open minded and soak up all you can. That's the phase I am in.

To answer your questions, $25k is not enough to but a rental property in this market. I've been looking. You're either going very far outside of the main city or to south Dallas, which won't really get you much rent at least enough to cash flow a good amount. BRRRR as someone mentioned above would be risky, but a better bet because you could use hard money to buy and rehab.

Hi @Marissa Perez I'd recommend getting a meetup.com account if you don't have one. Tons of local REI and meetup groups. Should give you a nice little start. I am going to start going to more of these as well.

@Andrew Thompson

Nice to meet you. I will keep your name in mind if I run across anything in Dallas in general.

@Tim Herman

Thank you for your help and suggestions.

@Richard A Young

Hey Richard. So there are current tenants and that’s why no rehab will be done in the first year. I’m using the hard money loan with 80% to basically fund the entire deal. I am sure I can get a refi within a month. If I could find the deal with something other than a hard money loan and their high fees I would.