All Forum Posts by: Curtis M.

@Matt M. Appreciate that

@Victor S. that’s my thought too unless I keep finding deal after deal and keep the money in play nonstop.

@Bill S. My concern is the stringent process some hard money lenders require, releasing funds as milestones are met, etc. Plus the points and the percentages are high. If I have the equity already, I feel like it makes sense to use it. I’m not against using Hard money if a ridiculous deal pops up and I’m not liquid enough to take advantage. But I kind of want to be prepared to make cash offers quickly. Thanks for your thoughts!

@Matt M. I was going to start the heloc process at BBVA but what do you like about Elevations? I want to build a relationship with a portfolio lender, someone whose underwriter is in the same office, who doesn’t sell off all their paper right away, or have to follow strictly Fannie Freddie guidelines. BBVA seems to fit that. It’s important because I’m not a W-2 earner and banks who have to follow the guidelines aren’t fond of that, no matter how much I have in the bank or show for last year’s taxable income. Let me know what you think about Elevations and if you have a contact for me.

Over the past 6 years we have purchased and still own properties in Denver. Even crappy real estate is expensive in Denver now and inventory low, so things have slowed down. Most of our money is tied up in higher-end rental properties, But we want to keep investing. A decent enough flip property pops up on my radar every few months but we are not always quite liquid enough to make cash offers. Typically we have about $300,000 in available funds. But that’s not enough to do any decent shopping plus rehab in Denver. In the neighborhoods we prefer, you really need around 600,000 available in order to buy a 400-500K rehab house and put $100k+ into it. I don’t really want to go through conventional financing so I want to leverage our primary residence and be competitive with a cash offer when the next opportunity pops up. We probably have about $450,000 equity on our primary.

We would primarily be using the money to buy flip properties only, selling again within four months of purchase. So I'm leaning toward HELOC. I thought about Hard money for a minute, but if I can just use my own money and keep my interest rates below 5%, that would be my preference. But I'm curious if any other investors have found themselves in a position like mine and figured out a strategy (Heloc, cash out refi, other?) that worked best for you.

In September I purchased an up/down duplex in Denver. It was built in 1895 as a large single family home, then in the 50's it was converted to a duplex. It is still zoned as a multi-family lot. A multi-family home in Denver means if you want to get a traditional loan you are required to put 25% down. I decided to get an FHA loan at 3.5% down and put my budgeted cash ($45,000 ish) into upgrades with the goal of having the house reappraise for 100k more than when I bought it so I can have 25% equity and then be able to refinance out of the FHA and into a traditional loan (thus eliminating the painful $400/mo PMI fee). And it would be nice to get a home equity line to do some additional work on the house, such as converting the garage into an apartment as well.

When I found the duplex initially, I was able to negotiate a great deal with the previous owner, but when it came time for appraisal, it was impossible to get a good comp. The duplex appraised for 100k less than every other comparable single family home in the neighborhood that had the exact same square footage and footprint! There were no other duplexes in the neighborhood that had sold recently, nor could the appraiser find any comps for a property where both sides were owned by the same owner. Therefore my comps were old beaten-up duplexes that were ultimately bought and then scraped for new townhouse construction…so their purchase price was low. There were many more half-duplexes that were appraised and sold at solid prices he could have used as comps but he didn't/couldn't.

So the question is, in order to get a great appraisal value so that I can refi out of the FHA loan, should I divide the duplex into separate properties and set up a party wall agreement? Can I do that with an up/down duplex rather than a side by side? In a conversation with the zoning department before I purchased, they made it sound like it wouldn't be an issue at all to get the second unit assigned a separate address. I have been told this will increase my annual taxes though? Are there any other downfalls to doing this? Will I then need two mortgages when I refi?

My assumption is that if there are half duplexes that can be used as comps, I will have a lot better appraisal than in it's current scenario. I would love any advice anyone can offer.

Lastly, I'm living in the bottom unit right now, but later this year I will be moving out and renting both units. Right now the upstairs rent payment covers the mortgage. When I rent out the bottom as well I will have great cash flow from the property, nearly double my mortgage payment. Will anyone appraise as an investment property and look at cash flow and not just square footage comps?

Thanks in advance for reading my long story and for offering advice!!

Getting closer to a solution! I think this post will be beneficial for future readers as well.

So...it appears I have two options for her. 1. She loans money, she gets interest in return (similar to her being my bank). This is clean and requires little more than an agreement outlining terms. Or 2...JV with her, house by house; she provides money and receives a percentage of profits.

TWO QUESTIONS:

1. What is a fair percentage range to offer if all she plans to do is provide money for purchasing the home? (I will do the finding, fixing, selling, etc)

2. What considerations are there for a JV relationship? (I.e..Are there any special rules for a JV so that we don't break any security laws, does she need to be more involved than just providing money...any other disadvantages or considerations I need to be aware of?)

THANKS AGAIN!

She is providing money ONLY. Are you saying that perhaps I talk her out of a profit share because it could be construed as a security? I never looked into that, but it makes sense since she's offering money and expecting me to generate a return.

So if that is the case, CAN I offer her a portion of profits in addition to the interest, just to appease her. Or in all scenarios, since she is not actively involved, is that impossible to do due to Securities law?

Nice observation!

Or do I only use her investment for property A, then give her a return. Then she can roll it forward into property B. But if property C comes along, she can decide to add more money or not be involved in the profit share of property C? Is that a possibility...to tie her investment to specific houses?

Hi guys, talked to the investor. She is leaning toward wanting a percentage of profit rather than straight interest. She realizes this means no guaranteed money. She likes the risk. What is a fair offer?

Second question, at what point do I determine I've outgrown her investment and don't want to pay a percentage of profits after a bunch of houses have been flipped?