All Forum Posts by: John Shultis

They have this article about the multifamily aspect, but I don't see where they have the multifamily limits; the previous link I posted is only for SFRs.

Here's a website with information about the loan limits in each state:

http://www.valoans.com/va_facts_limits

Does anyone out there in BP land have any experience in the Belhaven, North Carolina area?  I'm looking at a house there, but I'm not familiar with the area, market, rents, etc., so finding it hard to do due diligence and evaluate the potential deal.  Thanks!

Greg,

What types of properties?  (I have two lake lots that I'd like to include in the five.)  Can there be a mix of property types?

Are you going with ARV based on comparables sales, or appraisals for the properties?

If later I want to sell one of the properties in the blanket, how does that affect the loan and the other properties? 

How long are you offering this product?

Thanks!

Darrell,

A quick correction: I made reference in 1) to "2) above"--I actually meant 3) below! Sorry for the confusion. Good luck!

@Darrell Jones

Darrell,

A lot of folks here have given you good advice--even if they might have been a bit harsh in some cases; but, hey, didn't we just have an international economic meltdown created by bad real estate investments, bad banking practices, etc., causing the nation, as a whole, to lose somewhere in the 5-10 trillion dollar range in accrued wealth?! It's no wonder some folks are touchy about this subject. Your best bet might be to go to the seller, hat in hand, and beg out of the contract. But let's explore a couple of other options--you still have time to get something done if you're willing to work hard, fast, and also be teachable/humble towards someone out there in your market area who can help you.  

My first observation is that you seem to have a decent rapport already established with the seller, and the seller seems to be very motivated, as evidenced by the agreement to reduce the already agreed-upon price. The first rule in negotiating is don't stop talking; keep at it, 'no' doesn't mean the end, it simply tells you where boundaries or pitfalls lie. Second, you need to determine what makes a win-win scenario, and steer towards that--nothing else matters. Don't appear to be a wolf; be a sheepdog instead. Protect the seller's interest, as much as possible.  Here are some ideas:

1) Find out what the seller needs--this really ought to be the first thing you do every time. Listen, ask questions, find out the why. Solve a problem for them. Maybe they simply need cash--would they be willing to refinance, take cash out, and let you take over the payments, with a little extra each month, same scenario as 2) above. Do they need credit help? Although not usually a good tactic, since you're already in a pickle, maybe you can help them with your credit to get the refi loan, for some consideraton on your deal's terms. 

2) Do you have funding in place? If you're able to buy the house, why not hold onto it and rehab it yourself? Or rent it?  You said you're getting it at better than 70% of market value. You need to find a partner or a private lender fast; sweeten the deal by giving them the lion's share of the potential profit for the benefit of saving the deal and also mentoring you.

3) Find out if the seller has to sell immediately, or can they provide more time, if you make it worth their while.  One method might be to pay them an option to allow you to control the property for 1-3 years, and give you permission to sub-lease the property.  Then you pay the seller enough each month to create a modest cashflow, but not too much to hurt your own cashflow (for example, if the mortgage payment is $1200, offer them $1250, plus $500 to $1000 per year for the option to control the property).  Then market the property as a rent-to-own or lease-purchase option. Don't make the same mistake of not actually having the property under control, so that you'd be marketing something you don't have; but if the seller is willing, then you have a property you can market. (I don't know your numbers, so these are all just examples.) Place an ad like this: "Rent-to-own. 3BR/2BA, 1/2 ac, fenced yard, good schools, great neighborhood. Darrell, 212-123-4567." 

Find out what the realistic rents are for like properties in that locale, because banks will insist that you charge a fair rate at a minimum, plus the additional amount over that for the eventual down payment from your lessee-buyer.  Do some research on rent-to-own/lease-purchase options here on BP to determine how you want to set up your deal.  But the basic idea is, ask for an option payment (for the option of renting-to-own) that would apply towards your buyer's down payment (some folks don't apply it; I always do); then your lessee-buyer pays an amount above fair market value each month, which overage is also applied to the down payment. So, if you had a $100,000 property, you might ask for $3000 for the option; if the rents in your area are $750/month for that property, then you might charge $1000/month, and $250 goes each month toward the down payment.  You set the time period, and let the lessee-buyer know that these funds are not refundable if they do not exercise their option to buy, since they've taken your property off the market.

4) Inform the seller that you cannot make the purchase, but you'd be willing to help them find a renter and manage the property for them to ensure they get a good deal. (This is the least preferred, but it's a possibility.)

5) Ask the seller if they'd be willing to give you the option to purchase the house at said price in the next three to six months, and you'd be willing to pay them $5000 to $10,000 for that option, a non-refundable purchase, regardless of the outcome.  Half of said option will go towards your down payment. Essentially, you're buying time so that you can go do the work needed to fix your deal by finding funds, buyers, a mentor, all of the things the previous posters excoriated you for not doing in the first place. You need to close your deal fast or make it worth the seller's while to let you control their property and take it off the market.

1) Classified ads in newspaper/Internet -- searching them for deals

2) Called by a previous seller/developer I'd worked with in the past

3) Classified newspaper and Internet ads -- writing and posting them myself

4) An outstanding Real Estate Broker named Sheila Jenkins working in the Shenandoah Valley

5) Driving for Dollars

Rose,

Yesterday, I bought $165 worth of clothes and gifts at my son's volleyball tournament in Columbus, Ohio, and drove back to Washington, DC, only to realize I left everything in Columbus for some stranger to inherit.  Now that's screwing up!  

You did a lot right, and it sounds like you know pretty much what to do and how to do it.  Stuff happens.  You are running a business, which requires capital and resources, and you will face a lot of expenses, errors, unplanned contingencies, and people who will disappoint and let you down.  Guess what?  With the proper perspective you'll realize that in the long run, it's all good.  Most of your expenses are deductible from your bottom-line, reducing your federal and state tax bills.  The property sounds like a solid investment, and a good way to start building your portfolio.  You have real estate and personal property costs that can be depreciated for tax purposes, even as the property appreciates and the cashflow increases--talk to your real estate tax attorney or accountant to get the details for your situation.

I heard an experienced real estate investor say that people who do their own work don't have a real estate investing business, they have a hobby.  Not to denigrate rehabbers and do-it-your-selfers (my Grandpa was a carpenter and a real estate investor and did everything himself), but if you are being stretched by the demands of full time jobs and your family and all of your properties, you might want to consider maximizing your profit per hour of time invested, and the best way to do that is by wholesaling houses.  You are good with numbers, so analyze this: 3-5 (sometimes maybe 8-10) hours per deal for $5-$8 thousand each versus 2-3 months (or longer) per deal for $40-$50 thousand each.  If you can do 3-5 deals per month wholesaling, your income will exceed what you can do rehabbing by yourselves, for much less time, headaches, and risk.  As your wealth grows, you can buy better properties for your portfolio, and you'll also likely gain back some of your time for those re-hab jobs you just can't pass up--and for much bigger profits per deal!

I also recommend that you find a good real estate/family business attorney to help you bullet-proof your business and your investments. If you can, put a privacy barrier between you and your properties and tenants. A good property management firm is worth the relatively minor cost; but if you are going to do all the maintenance and repair work, collect the rents, etc., do these actions as employees of your LLC or corporation, and tell the tenants you work for the property manager or owner; they don't need to know you are the owner, nor technically would you be if it's under your LLC and/or corporation. I have a very good property manager handling an out of town rental property, but I made the mistake of contacting the renter personally because my handyman told me the renter wanted to purchase the property. The next thing I know, he and his wife are calling and texting me at all hours, complaining about problems with the property, the handyman, and the property manager!

A good rule of thumb for emergency savings is having enough on hand to cover all of your costs for 6-12 months if your other sources of income dry up. You probably won't be able to get there all at once, but figure out what those expesnes are, determine the level you want to prepare for, and then take consistent small steps towards that objective. Having this emergency fund available will cover most of the types of expenses you mentioned in your posts. Remember that all of those costs are deducted from your bottom-line before you have to pay taxes. The post by Roy N. about NOI covers it better than I do here.

Best wishes for your family and your business!

Although not possible in the current situation, you might want to set up an LLC as the owner of the property, and work through that and possibly even a property management firm to collect your rents. You can be a fair, honest owner/landlord, but maintain a wall of separation and anonymity. If you use a property management firm, let them follow their proper business practices, which you've already reviewed with them. Run it as a business and protect yourself from being manipulated by personal relationships. If the tenant consistently is late, and you apply late fees that he pays, remember that that's additional revenue. I had multitudes of good relationships with soldiers throughout my military career, and they were always predicated on clear rules, regulations, lines of authority, and discipline. There were expectations of responsible behavior, and consequences for breaches of discipline, and there was always an audience awaiting the outcome. "Good fences make good neighbors"--within Cook County law and your contract, set the boundaries immediately and clearly, and don't budge, or you'll regret it. One other tactic might be to offer the guy help in moving somewhere else, especially if things start going south. $2000 to defray moving costs might save you a lot of hassle within your rental business and your job.