All Forum Posts by: Rivers Plowden

It sounds like they want a balloon payment plus 18% of the profits at then end of the 6 month term. Which means you would have to refinance it at that time in order to hold onto it. Hard Money Lenders (HML) typically don't do anything over a year at the most.

I would look around at other HML for your area. Most of the time the terms are anywhere from 10 - 15% for a 6 -12 month interest only term. At the end of the term, you have to pay it off with either the proceeds of the sale or a refi.

@Upen Patel  Thanks for the correction, I didn't mean to imply that all lenders would have the requirement.  I just know I've run into it before. 

I think that depends largely on what kind of strategy you're going for and how much rehab you're willing to put into something.  If you want something rather turnkey, you're going to pay more than for something that needs loads of rehab.  Things like A/C and heating, roof, and foundation are several of the big ticket items that can add up quickly.  However, they are great negotiation opportunities if you are willing to correct the problem. 

If the inspection comes back saying something big needs fixing/replacing, negotiate with the seller appropriately for the cost.  You could have them repair it (if it's not selling "as-is") or just demand a lower price or you walk since you should have a contingency dependent on the inspection.

With the two homes being rented out for less than two years, the lender will not count the incoming rent as income.  Which means your debt to income ratio will likely be too high for a conventional mortgage on a new home.  I think that's pretty standard for most lenders.

Doesn't hurt to call around and ask.

Not sure if I can answer all of those questions, but what I've run into is the 2 year rule that lenders look at.  So, if you're trying to get a new mortgage and you have a property that hasn't been rented for 2 years, then they don't count the incoming rent to offset the mortgage payments when calculating your debt to income ratio.  I did this and even though I have low debt and good income, it wasn't enough to offset the rental house that hadn't been rented for at least 2 years.

Most banks allow up to 4 mortgages I think, so that shouldn't be an issue.  I think the issue will be your debt to income ratios.  Maybe look at some smaller local banks that will be more willing to work with you on it instead of the big national banks.  You could also refinance that 15 year to a 30 year to reduce your monthly payments and decrease your debt to income.

As far as taxes go, it probably mostly depends on your long term strategy.  Are these properties cash flowing properly?  You have a lot of option here to include selling soon enough to avoid the capital gains, holding it, selling and rolling proceeds into the 1031 to buy another invesment property, etc.  Others will be able to give more advice in this area.

Air conditioning / heaters aren't cheap.  I think of it more like I'm saving up for whatever big comes along, not so much thinking of one particular item.  Unless I know the roof is due in a year or two, but mostly just saving for rainy days.  If it's an older home that you're not initially doing much to, then maybe budget on the higher side.  Conversely, if you're rehabbing it and replacing a lot or several of the big ticket items and you know they won't need to be replaced for a while, then you can probably aim lower and benefit from higher cash flow.

Why wouldn't a traditional loan not be an option?  Have you called around to any small local banks to see what in-house products they have?  Many of the HMLs have some stringent requirements themselves, but it's as easy as going to their site and seeing what their terms are.  Many times if you email them, they will call you back very soon thereafter.  

Hard money is a great resource if you plan for it properly.  Plan for the costs associated ahead of time and make sure you have an exit strategy should a property not sell by the time the balloon payment is due.

Hope this helps.

I think at first glance it seems like a good deal, but still depends on some things that could kill it.  Are the units sub-metered for utilities?  What are your insurance costs?  What are your loan terms? What are your goals?  Do you want to make $100 per door or more?  How did you calculate repairs, ie. did you have a contractor walk through with you?  

Try out the rental property calculator under tools. I think you get 5 free uses.

Is there room to raise the rents?  Can you appreciate the property considerably?  There's a lot of information to still be filled, but it looks like it could definitely be doable.

Is seller financing an option?  Someone may need to back me up / correct me, but you may be able to find a small local bank or portfolio lender that will focus more on the deal itself and your management experience than your financial situation.  It's definitely a tough one without the personals to back it up.

I would suggest finding a good CPA and schedule a meeting. Just had my meeting this morning and signed my LLC paperwork this afternoon. However, we are in Texas and every state has it's own ins and outs which makes every case different. That's why I suggest seeking professional guidance.