All Forum Posts by: Tom S.

@Marcos De la Cruz  Echoing what other have said, both pros and cons.  I added 2 section 8 units to my rental mix over the past 2 years and in general, no issues.  Rent is paid on time, and no problems with the general inspections at the beginning.  One unit passed immediately, the other unit they asked me to professionally clean the carpets.

Slow on the paperwork side, but for both tenants, I can see them staying for many years.

Depending on the state, they may have a one time incentive bonus to sign up.  Mine (in VT) was $1,000.

Hope that helps and good luck!

@Fara Heath  Just curious, how did this deal work out?

@Jorge Liang I believe in CA the LLC fee is $800 annually, so factor that in too.

I would say if those are the true numbers, the place would have sold instantly already.

Purchase of $179k and rehab of $150k to get a value of $735k is almost unheard of.

Main red flag is that something else major is wrong with the property.  

I've done a number of seller financed deals as a buyer.  In response to your questions:

Biggest q i still dont really understand is:

- what happens if i refinance before 7yr term or sell

As you'll be the owner, you can refi or sell before the 7 years.  There may or may not be a pre-pay penalty, obviously I would negotiate for no pre-pay.

- at year 7, can i extend balloon or not

No, unless it's in the contract or the seller agrees to it.  You can put in language for an extension for a certain payment amount.  Gives you more options.

- at year 7 if value appreciated a lot, can i do a HELOC on it and use that HELOC to pay off the balloon - probably not due to lien being secondary etc on heloc

Yes on the HELOC, but it would probably be easier just to refi and pay off the seller, and cash out more money too.

Hope that helps and good luck!

@Jesse Simmons  I did a similar deal as this in the past.  It was a learning experience but I made it work in the end.

Mine was a 5 unit commercial building that needed a gut renovation, similar to yours.  It was on the market for a long time because it didn't qualify for conventional financing will it being unlivable.  The seller offered financing with 20% down, which I used to buy the place.

After starting construction and realizing it was going to cost more than expected, I approached a small local bank that knew the property and would offer the rehab financing.  However, I had to subordinate the sellers note to 2nd position (hint: set up that language in advance to streamline the process, if that's the direction you're going to go).

Since the ARV was high enough, and the potential income would support the mortgage and expenses, it all worked out. The advantage with the bank was minimal closing costs, a good interest rate, and a draw system so I could get funding as I completed each rental unit. Required good credit, adequate reserves, full doc commercial loan with a personal guarantee.

Hope that helps and good luck!

@Enrique Toledo  Any update on this potential deal and what you wound up doing?

@Antoine Black In general, yes, it goes off your personal credit. Also the ability to repay - your source of income. Other factors as well of course: DTI, the LTV, primary residence vs investment property, etc.

@Jacqueline Wright  Every auction is different so the first items to check: do they allow financing if you win the auction?  Can you get access to the property in advance to verify the condition?  I looked at a few auctions  in the past, but they were cash only.

Good luck!

@Aj Green  Did you sign and close it?

I was going to add, as posted above, it's a great rate and stick with that local credit union for the future business.  I did all of my loans with small local banks in my area and was always happy with the rates and service.