All Forum Posts by: Shafi Noss

I've got a property to sell that's sub 200k and rents for $1500. 

Quote from @Donald Hatter:

Quote from @Shafi Noss:

I am interested in building rentable SFHs in Houston. Currently under construction on 2. 

You actually want to build them, or are you also looking to buying ones that are already  built?

We are building 2 and are interested in more. 

I am interested in building rentable SFHs in Houston. Currently under construction on 2. 

#2 also applies for refinances

Yeah and I'm handsome too!

@Dalton Foote I think this is the key point. 

Large projects happen slower. When I have done new construction between $500k-$1M in cost the contractor asked for 5% upfront, to be reimbursed at the draw that completes framing, and this was fairly standard in its market. 

I also have ownership in a general contracting company in Wisconsin that does single family restoration where a $50k flip job can be done in a few weeks. Here customers happily pay 20-50% up front.

One piece of that is that the 'profit' on each draw is not distributed but used to purchase the next round of materials so the project goes quickly. Without this speed the project is much less economical for the contractor and the client. But what that means is that contractor profit is still 80% backloaded even with the deposit and draw 'profit' (it is getting used for the next round of materials). 

Without the deposit the contractor may have funded 50% of the materials by the time they request the first draw, so the cash exposure is very high. I think each combination of job speed, size, margin, judicial vs. nonjudicial foreclosure, transparency level, etc. each turn the dial up or down on the appropriate deposit size. 

Quote from @Jon Kim:

Hi all, 

New to the group, but happy to be here! 

Hoping for some advice - I'm trying to buy some real estate property out of state with 2 other friends (3 in total) and we're having a hard time figuring out the exact order to get going. 

1. Should we create an LLC to start? If so, does it matter if it's in the state we're trying to buy property in?

2. If we do create an LLC, it looks like we get worse rates than if we buy through a personal loan. This would ruin any of our chances to take advantage of a 'first-time home buyer' program, correct?

3. Any other general advice is greatly appreciated! 

Thanks in advance,

JK

You can share ownership with friends by holding title through an LLC, a 'tenants in common' structure, or 'joint tenancy' structure. Look those up and see which you prefer. 

If you go the LLC route, the state you chose depends on the states you're looking at. More detail would help. 

It would be useful to know what state you are in. 

Separately, if you're getting $1400 a month on a 230K house with very low vacancy, there may be room to increase rents. 

You said you were short by $50k a year? If you could optimize by $200 a door over 25 units, that would be over $60k a year. That might get the job done. 

But like Jay said I would not underestimate CapEx and unit turn costs.

Alternatively, you could cash out a little bit, say $500k, and do private lending on your area of expertise, single family homes. You can earn $50k a year doing that, even after paying 7%, and you'll earn even more as rates go down. Again, would be helpful to know the state. 

The name 'due on sale' is misleading, it is usually a 'due on any kind of transfer of interest clause'. Unless the lender is small and inexperienced, I would assume the due on sale clause would trigger if you purchased the LLC.

Have run into those unique seller carrybacks before as well, generally not something lenders like but may be possible with the right setup. 

Quote from @Brett Wright:

Quote from @Shafi Noss:

DSCR won't allow this, the property has to be non owner occupied at all times. There are legal ways to get close but has some tradeoffs.

So what's the penalty IF someone gets a DSCR loan and ends up occupying that home at some point?

A lawyer would best answer that. One thing that can happen is the lender calls the loan.