All Forum Posts by: Richard McCaig II

Very interesting stuff. This site has been a wealth of knowledge and information for me. Thank you all. My wife and i were looking last night at a few apartment complexes for sale locally, and she actually seems interested (let's be honest though, we probably wouldn't qualify for financing) however the door to other venues is open and I actually believe we might be upgrading from this one house to multifamily buildings within a few years. Still doesn't mean we need an llc at this very moment, but its still something we're looking into for the future.

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Originally posted by @Patrick Britton:

@Richard McCaig II What advantages are there (to you) if held in an LLC? Keep in mind, while there are some benefits to owning property in an LLC, those benefits vary significantly from person to person, from deal to deal. Most "regular" investors, such as myself, receive no NET benefit from an LLC.

If you buy and hold a property in an LLC, you'll be FORCED to use a commercial lender, and they will NOT allow you to live there. Your interest rate will be much higher, there will be a pre-payment penalty, and the lender will charge excessive fees, points, and will likely make a number of mistakes YOU will pay for down the line.

Even if the property is truly worth $150,000, if you're buying it for $110,000, the FHA appraiser will say that it is worth $110,000. I'm sure there are some exceptions throughout the course of human history, but I have never known an FHA appraiser to give the property more worth than the purchase price in as-is condition. And I've been a part (as an agent, lender, investor, homeowner, etc.) of over 100 appraisals.

"With the fha part, the house is worth 150-160k as it sits, so i was i guess kind of hoping that the loan of 130k could be split, 110 towards the seller 20k for me for repairs."

If you are going to use an FHA loan, the minimum down payment is 3.5%. so in this instance it looks like this:

Purchase price x 3.5% plus closing costs minus seller credits (if any) = total cash to close

This means that a good chunk of your $20,000 will be going mostly to the cash to close assuming the following rough numbers: $110,000 x 3.5% + FHA upfront mortgage insurance premium (1.75%) + $2,000 (depends on local customs)
= $3850 + $1857 + $2000

= $7,707

So you're left with about $12,000 for repairs in this instance.

And I'm very sorry if this is not what you want to hear. But it's the truth. And it's better to know now, before you get too eager and excited about this place.

Lot of good info here, thanks for posting. My closing costs were going to come out of pocket, as my mental plan goes.

As far as the llc goes, I was hoping for 2 things to get out of it. First was tax incentives as, if I'm being honest, I did not know if those could be claimed If I did not own a business or llc. I am completely tax law illiterate and don't claim to know any of that, so that was (still is) my assumption on taxes. Secondly but most importantly for me is to not lose my house in the event of Any lawsuit. My house is paid for and I would very much prefer to NOT lose it for any reason, and my understanding of an llc is it provides protection from personal property vs commercial property if it is set up correctly.

So youre saying that I still receive tax benefits for having a rental in my name without having a llc?

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Originally posted by @Patrick Britton:

@Richard McCaig II In short:

There is no real advantage to using a lender local to your area, unless you're getting residential financing from a credit union.
You should really start contacting a number of Realtors as soon as possible, all of whom should be able to explain to you exactly how things will play out
You should also have some conversations with licensed loan officers. Considering the purchase price and the required down payment, you might have a little bit of difficulty finding a lender who will work with you. Lenders are paid based on the loan amount and unfortunately, most lenders are more interested in big loan amounts and commissions than in helping new investors such as yourself.
If the property is priced at $110,000 and requires $20,000 in work, it's very likely that FHA will not give you financing at all. FHA loans are decent ideas on paper but fall apart when you actually try to utilize them, especially if the house itself isn't 110% absolutely perfect. And if it needs that kind of work for that kind of purchase price, I'm guessing there's a lot going on with that property the FHA will have a problem with. Sure, there's the FHA 203(k) loan, but the restrictions and issues you'll have with that terrible program will cause you enormous suffering.
Lastly, and I cannot understate the importance of this, avoid using a commercial lender at all costs!!! There are plenty of very good residential lenders out there and commercial lenders are not bound by the regulations and restrictions of Frank-Dodd, and frankly are in existence solely to take your money.

But also know that in any real estate transaction there are going to be a whole number of people to assist you. In no particular order, they include:

-Your real estate agent - try to find some agent in the top 20% in your area who is also investment minded and familiar with all forms of financing
-Your loan officer/originator - please use a residential lender. Your future self will thank you.
-A title officer - depending on your jurisdiction, this might be a real estate attorney
-A closer/escrow officer - these are the people who helped coordinate closing and should be able to clear up any confusion about the process
-An appraiser - this will depend on your financing but most likely an appraiser will be involved at some point
-A home inspector – optional, but always a good idea to use one

What typically happens is that you will find a property with the help of a real estate agent, submit an offer, get it accepted, deposit earnest money within two business days of the seller accepting your offer, secure financing over the following days and weeks and you will be notified well in advance about who gets your down payment, when, and how it is to be handled.

If I were you, right now I would focus on trying to find two people in particular: a real estate agent and a licensed mortgage loan originator. The rest is pretty easy 😊

With the fha part, the house is worth 150-160k as it sits, so i was i guess kind of hoping that the loan of 130k could be split, 110 towards the seller 20k for me for repairs.

I'm in the process of getting my llc stuff thru the state now too, can an llc get a standard mortgage, not a commercial? Or should I put it in my name then try to transfer it to the llc....?

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Originally posted by @Scott Wolf:

Originally posted by @Richard McCaig II:

Billy,

My overall goal was to try to pay down the loan asap by using the cashflow from the property to make extra payments, which if my research was correct isnt the best if I had a commercial loans as theres typically fees associated with doing that. Just to clarify, my first couple years my plan is to save all cashflow in order to have a nest egg for cap-ex, etc. Then make extra payments. The cashflow, dependent on a few factors should be between 200-450 a month. The biggest factor of that is property taxes, which I cant predict but I have done the numbers from way too high to what I think they should be, and that's where I lie.

With all that being said, I dont have to do that of course. I have not done much research at all towards the commercial loan aspect of things, but will dig in today to see how it looks. Never too many options to look at

Have you looked into a 203k loan? It lets you roll the reno (upt to 85K I believe) into the loan. Matt Porcaro is an expert in this.

Not until you mentioned it. But after researching it today I found the attached pics which won't work for me it seems... unable to rent for 12 months, unless this is old znd maybe it changed? Have you used them before?

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Billy,

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Thats still up in the air, but fha would be my top pick

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New guy here looking to get into my first rental and a thought popped into my mind that I have no answer for.

The house I am looking at is $110,000. I am planning on using 20k to update the house. When I get a mortgage loan and we're at closing, do I just tell my agent whats happening and they'll have the check of 20k ready for me, and the rest of the money would just go to the old owner? Basically my mind doesn't know or understand how I would get my rehab money as I've never rented before and usually at closing all of the money goes to the seller...

Sorry for the basic question. Thanks for your help!

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Newer guy here. This is my second thread, and I have a lead on a house across the street from me. It appears to be in decent shape from the outside (havent been inside yet) and the owner is moving out of state late December. Ive talked to her and she knows that I'm interested in buying. One of my main concerns is that they have an oil burning furnace with (im guessing) asbestos pipes. She also stated that they don't have gas lines at the house at all. I know that it can be done as we're very much in the city, so i know she has a tap at the street but it would need to be brought to the house.

I'm going to guesstimate that replacing the furnace and getting a new line brought in is going to run at least 10k. Im sure I could rip the old one out myself and save a good chunk of that which I am contemplating... but how do you go about making an offer on the home? From what i can see from my house its a little bit dated, so would you subtract any and all repairs from the market value and offer that? Low ball the heck out of her and try to get it as low as possible in order to make an extra buck? I dont know her that well so I'm not opposed to low ball but I dont want to piss her off and have her not want to sell either..

any help would be greatly appreciated! Thanks everyone!

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Originally posted by @Richi Brown:

@Richard McCaig II

Like Drew said, it really depends on your endgame. I wouldnt say that cheaper means less risk necessarily. Because one could argue that even though the property costs less, the fact that it is in a worse neighborhood with potentially worse tenants could subject you to more and worse problems. Which would greatly raise the risk factor.

Which markets do you know best? If you know within the City and what neighborhoods are smart to invest in then by all means go for it! But if not, then there are plenty of suburbs around the city that meet the 1% rule that can still cashflow, and are selling for half of the price that you mentioned. Personally I am focusing on Macomb County, if you are in that area or just want to talk real estate feel free to message me whenever!

Thanks Richi! I lived in sterling heights for 5 years before moving back into Oakland County. The cheaper house listed above was in Warren, im not too familiar with that specific area as I only drive thru there, never had a need to stop. I wouldn't mind sterling heights area as its still close to where I live. I dont want the drive to be too far just in case I have to make frequent trips out there for some reason. However its nice knowing someone's having luck out there, might have to take a gander. Thanks for your advice!

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Originally posted by @Drew Sygit:

Lower class properties have more headaches, but greater cash flow, not much appreciation

Higher class properties don't cash flow as much, but appreciate more, with less headaches.

Yeah, In my mind im thinking it makes more fiscal sense to start with the cheaper homes, then move up to better homes as cash flow increases and the business can afford to take on more risk with a bigger more expensive house. But then again, I'm a noob! I've done a bit of reading both on this site and internet wide on the topic and am man enough to know when and what I dont know. So posting the question here was a no brainer for me just to try to get some more input from you all

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All Forum Posts by: Richard McCaig II

Richard McCaig II has started 3 posts and replied 11 times.

Post: BRRRR question... funding

Post: BRRRR question... funding

Post: BRRRR question... funding

Post: BRRRR question... funding

Post: BRRRR question... funding

Post: BRRRR question... funding

Post: BRRRR question... funding

Post: Deciding on price / oil burning furnace

Post: how to decide how expensive of a house to invest in?

Post: how to decide how expensive of a house to invest in?