All Forum Posts by: Terry Burwell

 I hear people doing deals with OPM all the time, and here I am trying to do one and I'm finding some speed bumps. I'm not looking to do anything criminal, just creative. Being professional and legal are very important to me. 

How would a partner relationship work? Would they then be on the mortgage and deed, or can they be a silent partner that shares in the profit & loss of the property but isn't on the deed or mortgage? Essentially my question is how can I use a partner to acquire the property with the opportunity to buy them out later? 

I think this could work. If that were the case, I presume they will want to do a complete check of his credit and finances, would they not?  Would his name be on the mortgage and the deed in this case? 

I came across a hiccup. I spoke with my lender to see if receiving a loan from a friend would cause any problems and he said I could not receive a loan from a friend as it would require repayment. I would however, be allowed to receive a gift from a family member or domestic partner.

How do I make this work? 

I am currently looking at a duplex deal that will require a $50,000 down payment. I have $20,000 liquid now, and I recently sold a business for $30,000 however I allowed the buyer to make $5,000 payments over the next 6 months. Therefore, I will not have the entire $30,000 for six more months. 

I reached out to a friend and allowed him to come up with the terms (we are really good friends.) We decided to not complicate it with interest calculations and I would simply pay him $3,000 for the loan of $30,000, making payments of $5,500 over six months. 

I will be receiving $5,000/month for the business and the duplex cashflows $625/month, so I wouldn't/shouldn't need to use any extra money from my W-2 income.

My question is; how to I make it legal and/or professional. Yes, we are friends and I know this agreement would work just fine without any paperwork, however I want to be as professional as possible with this deal in hopes that it may lead to more collaboration in the future. 

I'm also wondering how the mortgage lender and the IRS will look at it. Will there be tax implications? Do you see any hiccups that might occur?  And if the answer is 'Go talk to an attorney.' What kind of attorney? Real estate attorney? Tax attorney? Estate attorney? 

Sincerely, 

Terry

I have been investing in Memphis over the last 5 years with Midsouth Homebuyers while being out-of-state. I keep wanting to branch out to other areas more local or familiar to me, but the numbers keep me coming back to Memphis. I can share my numbers with you if you are interested. 

 How do I estimate that? 

I calculated $625 x 12 = 7500 / 50,000 = 15%  But that doesn't factor in expenses or vacancy. (Although, it also assumes I keep the property management and current insurance (I think I can get a better insurance rate and self-manage.)

How would you factor the CCR here?

I received the 2017 numbers for the duplex today. 

Total Income: $28,230

Total Expenses: $17,299

Net Income: $10,931

Apparently, they had a rough year last year with a major water line bursting. They said the insurance reimbursement check didn't arrive until this year. My agent said the roof, HVAC and water heaters are all new. Both units are updated with new laminate floors and new windows. It appears as though the tenants are long-term as they both signed new 1 year leases at the end of last year. 

Rent last year was $1,900/month and is now $1,950. I estimate my debt payment to be $1,130/month leaving $625 (accounting for 10% property management which I might eliminate and self manage if possible.)

I will need to put $50,000 down, making my CCR right at 15%.

I think this would be a great addition to my small portfolio of rentals and it would be the first multifamily and first local deal I've ever done. My wife and I plan to be in this town for three more years, at which point we could hire a PM or sell it. If we were to sell it, my plan is to raise rents $450 over the 3 years as long as the market allows and then sell it for $245,000. 

Any thoughts? 

Sincerely, 

Terry 

I drove the property and neighborhood this afternoon. The neighborhood is mostly single family homes with a handful of duplexes lining the same side of the street as the target property. It looks nice! The front yard is clean and appears well maintained, the windows have been updated and the blinds are in good condition (no aluminium foil, bedsheets or flags in the windows.) Access for the bottom unit is via the street side and the top unit is accessed from the rear, with parking in the back via the alley. The stairs, roof, yard, ect looked in good condition. My agent will have the answers to the questions I asked by tomorrow. 

My wife and I are looking to house hack by owner occupying a duplex or doing a live-in flip. 

My agent sent me a duplex to look at today.

$200,000 purchase price

2/1 upstairs 3/1 downstairs 

Leased till Nov & Dec 2018

Rent of $1,950/mo

Out of state owner

The Zestimate is $234,000 and I'm confident rents could be $2,500/month. 

My questions to the agent were:

-are the units metered separately for utilities?

-can I see the rent roll for 2017, including operating expenses?

-may I view the current leases?

-was a background and/or credit check done on the current tenants and may I see it?

-is there any preventative and/or deferred maintenance I need to be aware of (i.e.; HVAC, water heater, roof, flooring)

The owner requires a letter of intent to buy before it can be showed. There are very few multifamily properties that come to market here and even fewer that have 3 bedrooms. While our plan was to live in it, we would rather keep it rented to offset where we already live (which is a nicer property in a nicer neighborhood) and keep looking for that live-in flip property. 

When the current leases expire, we could raise rents to $1,500 and $1,000 (or more) depending on the market. 

Our market is ridiculous right now and the pool of renters is huge. 

Does this sound like a good deal? Are there any other questions I should ask of the realtor?

Thanks!

Terry