All Forum Posts by: Sean Howell

Agree with @Brian Garrett above. Once you get into buildings over 4 units, value is no longer driven by comps but by the income that the building is producing. NOI and cap rate will determine the value of the building.

@Rahul Gupta You can find banks that are willing to do the refi as soon as you are finished with your project (no seasoning period) but you may have to look around a bit. As far as how much you can cash out, some banks will do it so that you cash out refi whatever is on your HUD and some will allow you to do 75% of the appraised value. Just make sure you're specific in your questions when you approach the bank so that you know exactly what you're getting into.

Well you'd look for properties where the rent will cover the mortgage/insurance/taxes/maint etc even after the refi. The 1% rule (where you look for rent to be at least 1% of the ARV) typically helps in filtering out a lot of properties that will not cash flow after the refi. I've found this to be generally true at the $1,000 and over rent mark.

@Jonathan McGee @Jonathan Oh I thought that the taxes seemed a bit high as well but these numbers came from the county. The insurance I need to actually call and double check on since this was just a rough estimate. Even still though, I actually think my capex number is low at $100/m. Should probably be more like $150-200? Seems hard to save for a new roof and water heater at $100/m. 

@Mike Roy Thanks man. That's what I seem to be getting from my analysis as well but being a noobie I wasn't sure if I was just doing things wrong. Based on these numbers, the sweet spot definitely seems to be in the higher priced houses around $150k like you mentioned. 

Hey guys. I've been analyzing some deals in Memphis that appear to be over the 1% rule but do not appear to cash flow? I just wanted to make sure I'm doing this right or if I'm overestimating some things here.

ARV of the property is $75,000 and rent is $800

Mortgage ($60,000 loan with 5% interest rate over 30 years): $322

Taxes: $106

Insurance: $100

Capex: $100

Maintenance (lawn care/small repairs): $100

Property Manager (10%): $80

Vacancy (5%): $40

Total Expenses: $848

As you can see, based on these numbers the cash flow is negative. Would it be safe to say that at these lower rent amounts the number needs to be more like 1.5% or higher for rent? After analyzing a few deals, since the Capex, taxes, and insurance don't appear to scale proportionally with the cost of the house, the higher rents say 1.4k+ appear to cash flow better using the 1% rule. I'm sure there are tons of people making these lower rent houses cash flow, but I don't understand how they are doing it. Am I overestimating my costs too much, or are they getting such a ridiculous deal to the point where they're paying like $100/m for mortgage? I don't get it.

Ok I have an LLC for all of my real estate investing. How does making them a preferred investor protect them through the LLC. What exactly does that mean? Or do you mean opening up a separate LLC just for a certain project?

Hello all! I just had a quick question about private money and how to reassure potential investors that their money is secured and we will not take their money and run off with it. A little back story. Me and my partner have started gaining traction with raising money from potential investors and would like to start using their money to fund deals. For some of the deals we would like to use all private money (and not have to pay lender fees), while for other deals we would like to use their money to leverage a down payment. 

My question is this, how can we basically reassure them that their money is safe with us and give them the confidence to invest with us by making sure that they know their investment is protected. If it's one person putting up all the money, we could give them a first position lien on the house correct? But what if it's multiple people combined which is funding the house/rehab.

Also, if we're using their money for a down payment, the hard money lender or bank will typically have the first position lien on the house. In that situation, how would we be able to show our investors that their investment is secured? What type of things are you guys doing to give private money investors the confidence to give you large sums of money? 

 Wow. That's really really good! Let me know how that goes.

Definitely shop around. I think you should be able to do better than 4 points. When I was looking for my lender I called a bunch of different places. Try to shoot for around 2-2.5 points with 10-12% interest and no early prepayment fees.