All Forum Posts by: Scott Byer

I realize I'm responding to a 2 year old post but I noticed an important nuance missing from the discussion. DOS insurance provides comfort to the Seller that the Buyer will pay off the mortgage when the DOS clause is enforced. This policy directly addresses a Seller's objection to the deal. Of course, it's better if you don't have to pay for it, but if it's the only way to do the deal and there is room in the numbers, it's a great tool in the toolbox. That's how I've looked at it. It's more "Sales" than "Protection."

Quote from @Account Closed:

Sure I can flip, was hoping to hear some other insight as flipping it will not serve my long term goal of building cashflow. 

@Account Closed, take what the universe is giving you.  If you don’t want to flip it, wholesale it to someone for a small portion of the great deal you’ve found.  I’ve found that my good rental areas are not my good flipping areas and vis-versa.  More of a guideline than a rule for sure.  Man, you work with big numbers in Cali.  

@Account Closed.  Great question.  It’s great reading about the experience of other investors in markets alien to mine.  I live and invest in the Houston area, focusing mostly on single-family sh@#holes…that’s a technical term.  

BRRRRs still work here at the class of homes we invest in.  We locked in a contract today on a house in Richmond, Texas (suburb) that we named Smelly Crepe Myrtle.  If only pictures came with smell so you could get the full experience.

Some details:

$57,500 Purchase

$50,000 Rehab

$5,000 transaction fees and miscellaneous 

Refinance at 7-8% (fingers crossed) in 6 months amortized 30 yrs ($775/mo)

ARV $135,000. Cash-Out Refi $110,000

Property Taxes $3300/year

Insurance $100/mo. Budgeting for vacancy, CAPEX, maintenance about $125/mo for each.

Projected rent $1600/mo. Only 1.4% of the 2% Rule. GRM of about 3.0. Cap Rate 8.19. Debt Coverage Ratio of 1.28%

Not getting rich but it should cash flows about $200 mom and the area hopefully appreciates over the next decade and rents increase faster than cost inflation.  We have people on our team we trust and proven to be loyal.  We pay them fairly and on time.  We only negotiate win-win deals and believe in relationships with people.  And when someone violates our trust and whether they make amends or not, we forgive them but never give second chances. Business is not charity and we try to not make other people’s problems our problems.  Life is hard enough, right?  

Everyone thinks I’m crazy for buying it.  But it just needs some love.  Clean it out.  Give it a makeover and haircut.  It’s going to be a nice home for someone in a few months.  

@Genny Li sorry, Genny. I feel for you. I once had three medical student tenants in the Houston Texas Area not understand how to test a popped kitchen GFCI so I had to call an electrican. $150 service call later, the 3 brightest bulbs in the future of our healthcare system were once again able to resume their education and toast.

I need advice. I am building three new construction single family homes at the same time with a contractor. Cutting to the chase, the contractor put in a draw for $23,000 for framing lumber. We paid him as requested. Months later, we were notified by the lumber yard that the contractor opened a line of credit against our projects and after at least one hot check never made a single payment to them. They have since put a lien against him and each of our projects at approximately $7500 each. 
We feel trapped with him between our contract (which he violated multiple times), the $23k he owes us, and his builder’s warranty. I’ve become utterly aware how naive It is to think this guy will repay us or honor his warranty. 

My main questions concern the line of credit he opened.
1.  Is this fraud on the contractors part?
2.  The lumberyard never contacted us to okay the line of credit. We never knew about it until the lien was being processed. How is this legal and legitimate?   If I take my car in to a mechanic and pay him cash to fix my car he couldn’t use my car as collateral to buy parts, right?  

Any advice or similar experiences out there?  Looking for hope of success getting this resolved. 

@Jhoana Olarte and @Vijaianand Thirunageswaram:

Thank you for your posts and opinions.  What are everyone's thoughts on mortgage lending and trends?  

I purchased a rental, single family home with cash in late April and am finalizing a cash-out refi now. While home mortgages are at or below 3% the best I found for an investment property was 5% with 3.2 discount points (quiet expensive) for a 75% LTV loan. I also experienced one lender backing out of the investment loan space after making an initial offering while Covid19 news worsened.

Do you see mortgage suppliers withdrawing or becoming more restrictive and is that having a large impact on real estate demand? If so, people will need take extra precautions when going into a BRRRR strategy and ensuring the refinance leg of the plan is possible.

All great responses guys. Thank you. Bigger pockets is such a fantastic resource. And it’s because all of us take time to help each other with ideas and experience. I have in the past used agents. A couple of them left me feeling as though they were super heroes. Others left me feeling like I got ran over. The more I learn in my investing career the more I realize how much more I have to learn. Thus, this discussion forum... Perhaps my question isn’t so much “do agents provide a valuable service” as its “does the old relationship structure and pay scale make sense today?” Sounds like a few comments point out that a lot of brokerage houses are adapting for volume customers/investors. This is a great thing and I’m going to have deeper discussions with a couple realtors I like about a special arrangement. Couple other thoughts: 1. The idea that I would have to pay many many thousands more to sell a $600,000 home than a $225,000 just seems unfair to an investor. Flat fee (not necessarily $500) seems better. 2. The argument I hear often, “if the fees are too much for your deal your deal must be bad” is a poor one in my opinion. We’re investors. We are looking for ways to maximize our returns on every deal. I try and always pay fairly for the service provided. This is subjective I know but I will say this. If the listing agent thing wasn’t a historically standard practice, and a broker pitched me what he would do for me, I don’t think the current “% of sales price” pay structure would ever be entertained...by any of us. Payment should be for services rendered. Not size of the investors risk/profit margin.

I invest in Houston, Texas. After a few flips and being forced each time to pay the, lets be honest, VERY expensive brokerage fees to gain assess to the local MLS service and for preparation of a few standard (and freely available) contract forms...in addition to the warm and fuzzy feeling you get from knowing the transaction is being executed uniformly and professionally. But come on, 6%? I understand there usually is no way around paying a buyer's agent...which can be the subject of a future post. My question is, in this modern era where MLS offers so much direct information to consumers, services for flat fee MLS listings for as low as $500, why would a seasoned flipper who knows the process and needed forms pay 3, 2, or even 1% of their investment profit to a listing agent? My last project sold for almost $600,000. At 1% the listing agent would make $6,000 to put on an open house, fill out a few forms, and post the house on MLS. No offense to agents out there, but this seriously feels like a unnecessarily expensive service for most standard real estate deals. It feels like we're all trapped in an antiquated mode of "this is how its always been done so this is how we have to do it." Has technology and services moved on enough to say that the legacy fees of realtors should be amended. 6% of a transaction for the actual services provided to the seller seems to me very unfair.

On our current two flips I was going to use a flat rate $500 shop to get the listings on MLS. I would handle all calls, contracts and showings. Then a friend and fellow investor offered to represent us for the flat rate but the situation is basically the same. This will result in a net savings of $5,500-17,500...I mean, if we aren't concerned with saving that type of money, how can we call ourselves investors? Please agents don't take this as an attack. I'm concerned with value for dollars spent. To be honest, when I read posts about the importance of hiring an agent I'm reminded of Mugatu in Zoolander, "I feel like I'm taking crazy pills!" Am I the only one that sees it this way?

Thank you, Mike and Christina for the comments. I'll use your questions and information when interviewing the architects tomorrow and relay what they say.

Aaron, I called an engineer and two architects this afternoon who were referred to me by other investors. I was quoted $300 for engineer stamps that are required by the City of Houston when doing significant structural changes like removing load bearing walls. The architects quoted from $500-$700 for simply transferring drawings into CAD. If they needed to go to the property for their own measurements that number would go up. It's an extremely long way from the first $4500 quote. Tomorrow I plan on calling the the initial quote and finding out why the difference. I'll report back.