All Forum Posts by: David Moore

@Account Closed

On the amortization, I guess I was confusing this with my other private loans where I do amortize over 5 years and make regular monthly P&I payments. But since this is interest only, the balance isn't changing and that is why term doesn't apply, correct? But is the concept the same in that an interest only loan is still calculated on a 12 month basis (unlike "simple" interest calculated on a daily basis)? For example, 10% on $100k would be $10,000 annual interest / 12 months = $833.33 interest per month? I am also assuming the last month would be pro-rated on a daily basis, for example if closing is on the 7th of the month I would pay ~$27.78 per day or $194.46 for that final week.

@Daniel Dietz I really like the idea of building in the 1% per month incentive, it helps make the lender feel more comfortable and gives me some built in wiggle room if I need to extend the time a little (not for too long though!)

From the responses It sounds like I am on the right track with this setup, I.E., interest only loans or complete payoff at sale or JV are the most common structures.

What is a typical way of structuring a private loan for a flip, specifically on the repayment side? I am the borrower and want to approach some individuals I know about investing with me. I want to be ready to lay out exactly how the loan would work. It seems the best/most common method is to sign a Promissory note, they will wire the money to the title company prior to closing and receive a Deed of Trust at closing placing a lien on the property.

I would also want to borrow additional funds for the rehab above and beyond the purchase price. Would they pay this directly to me after closing? Or should it be part of the closing so it is part of the DoT? How is their money secured or is this typically just based on our trust relationship and the Promissory note at this level?

Next I am wondering how actual repayment works? My thought was to essentially amortize the loan at 10% with a 1 year term and make interest-only payments during rehab, then repay the principle upon selling. Even better would be to not make any payments during rehab and pay Principle and Interest in full at closing, but I don't know if this is standard practice? Is this adequate earnings for the lender on this type of loan or am I still missing a component?

If I cannot cannot rehab and sell within a year I would refinance and pay off the private money lender and rent the home or continue to try to sell. I've done a few searches on BP and can't seem to find some of this more specific information. Thanks for the help!

Thanks Derek and Michael, that makes a lot more sense now. I was just using my own property as an example of how one would calculate the proper Cap Rate. Based on your responses, I understand now that it varies depending on the cash you actually have in a deal. So using my example, my own Cap Rate would be based on the $60k while a buyers Cap Rate will come out different if buying for $80k.

Hi everyone,

So I understand the Cap Rate concept of annual NOI / value = Cap Rate. However, what I cannot seem to find is an exact description of what "value" I need to use. Should this be the ARV / Comp value of the property or the actual amount I put into the property (my cash & loans combined)? For example, I have a duplex I own for $60k after purchase and rehab, and my Realtor ran comps and shows it's value as $80k. Do I use the $60k or $80k to figure an accurate Cap Rate?

Thanks Mike!

Michaela, I agree, from what I read PMs seem to be a lot like contractors - sometimes you have to try a few before you really know the true outcome. Better to find others with experience you can glean from!

Phillip, thanks for the tip, looks like he still has a listing out there so I will put Rick Rhea on my list.

I, too, would be very interested to know of anyone that has experience with a reputable property management group or individual in the Indianapolis area.

Nick, now you have me curious, do you happen to know the name of the mountain you hiked? Was it Bong Ui (Bong-ee)? As you saw, the city is in somewhat of a valley with mountains circling it. But there is a lone peak just north of downtown. We lived in the Hyundai apartments right at the base of that mountain. Since it was essentially our backyard, we hiked it many times during our stay.

I found a Korean paragliding group and was able to join them on a few outings. They say on a good day you can take off from one of the mountains, circle the entire rage around the city and land right back where you started. Pretty awesome!

Hi Clay, I'm from Indy also, here's my take. I have 2 SFR homes located in "ok" areas. Not good areas but there are certainly far worse around town. I have a much harder time finding good renters there. If you screen properly, you find you don't have the high quality tenants looking to rent in these areas. So you end up lowering your standard a little and have to settle for folks who ride the line.

I am fortunate in that I currently have people who keep the places clean. But I am always wondering if the next set will trash the place. I also have the most "hassle" factor with these. Though the homes are in great shape, I get calls regularly from these tenants for maintenance issues, asking to pay late on the rent, etc.

When you finally do get someone who trashes the place, the extra rehab cost and the increased vacancy rate begins to erode your returns. I believe your risk exposure is much greater in general. It might be quick, easy cash now but in my opinion, if you are in this for the long haul, you will get burned out managing properties in problematic areas as you have to fight much harder for that money.

Very cool, thanks! Sent you my email address. What is the investor map exactly and where did you get your information to build it?

Hi Nick,

Interesting story there, my wife and I also lived in Korea 6 months 2008-2009 while she taught ESL at a girls highschool. We lived in Chuncheon, perfect sized city for us, about 250k population, set in the mountains 2 hours east of Seoul (unless they completed the new rail, then 45 mins). In her off time we toured the country on public transportation. Did it with a 2 year old boy and 1 year old girl too, it was one of the best adventures of our lives!

I live in Indianapolis and invest in buy-and-hold RE. Just have 2 SFR and 1 duplex so far. The duplex is my favorite and best performer, I think it's a great route to go. Since I also work full time, my strategy is break even on the cash flow (true NOI so everything is covered) for the first couple properties as I pay back the private loans aggressively in 3 years, allowing me to snowball the funds and double up on the next properties. Hoping to achieve even greater cash flow sooner that way. Indy seems to be a great investing market so I've never had to look elsewhere. I feel fortunate because I see Indianapolis come up on the forums as a desirable location quite often. Good luck!