All Forum Posts by: Jesse Vipond

@Zachary BettersI appreciate the words of caution. As I've mentioned, I've done a few buy and hold deals on multifamily properties using conventional financing, but I am definitely a newbie to rehab/resell opportunities like this (I hate the word "flip," it seems soulless to me). To our knowledge the seller has not put any work into the place, and only closed on it 5 or 6 weeks ago. He had an inspection performed by a well respected home inspector whom I trust before he bought it, and said he'd be happy share any info from the inspection (which we will definitely look long and hard at before we come to any agreement). 

Our plan B is to offer to buy the property outright using the LOC and using those funds for the rehab as well, but our offer price might have to be lower than he'd be willing to take right now. If he were to partner with us in some way, he could still carry the note while we did all of the work. Then we could split the money at a predetermined percentage when we sell. We feel this helps us in two ways...

1. It keeps his skin in the game and hedges against him selling us a disaster that he is just trying to get out form under.

2. We would save on several up front costs of acquiring the building (loan origination fees, title search/insurance, transfer taxes, etc. 

3. Our LOC is for $100k. If he continued to hold the note while we work, we would still have some room in our rehab budget for any unforeseen problems. We'd also have more cash available if another possible deal came along in the few months we'd be working on this property.

So, we believe our best offer for him would be to partner up with the possibility of a deferred bigger payday at sale, rather than a small payment right now to sell the building. 

Thoughts?

And thanks so much for your advice @Brian GibbonsHow might suggesting a joint venture change the structure or offer amount on our deal, knowing he paid $45k, and is asking $75k?

@Steve VaughanYeah, that's what I'm talking about! I want to become fluent in this language! Could you break that down into slightly smaller, digestible parts for a rehab rookie like me? Particularly the balloon/interest only portion? I've got a few multi-family rentals, but the nitty gritty of this type of deal is still new to me... 

@Brian GibbonsThe seller said he bought the property (only closed a month ago for $45k) for his daughter. They planned to do the work and she was going to move in. However, she's gotten word that her job may relocate her, so they are putting it up for sale. He's asking $75k, which is obviously unrealistic, but we feel like a cash offer, no inspection of $58k would get the property.

Our rehab money would come from an interest only line of credit we have with our lender up to $100k. As these things often do, the intent with the property has shifted as we've realized it probably won't cash flow as a rental, but could be a nice return if we rehab and resell. 

Judging by comps in the neighborhood  (and several within three or four doors of the property) we feel like we could get anywhere between $125k-$140k. We've also decided that, if we secure a deal, we will probably just use the line of credit to complete the entire deal, rather than seller financing, because we can just pay interest while the property is being rehabbed and sold. 

Thoughts?

@Jacob SampsonI appreciate your input for sure. Obviously there are many more details of the deal that would have to be fleshed out before we decided on using this as a buy/hold. We initially looked at it as a flip, and you're probably correct that the numbers make more sense that way. We believe that the home (according to comps we just got from our agent), if rehabbed properly, could sell for $125k-$135k range. This may be the better way to go. I'll let you know what happens if we decide to pursue it. It's a nice home in one of the most desirable sections of town, and they don't come that cheap EVER. 

@Wayne BrooksThanks for your clarification. As I understood it, the seller financing is very much like a typical mortgage, as we would receive title, and would "enjoy all of the benefits of ownership." This may, in fact, still be a way to go. We have several multi-family rentals in a portfolio loan with a great local lender. They recently opened up a $100k line of credit with them, whereby we have that much available to us as cash on demand. Anything borrowed would be initially repayed as interest only on the LOC. Then, after repairs are made, they would roll over into a traditional mortgage 75% of the newly appraised value. So, if we decided to purchase this property as a flip, we could perhaps buy the property using seller financing (perhaps $3000-$5000 down), borrow against the LOC to complete the repairs, and sell the property without ever having to roll that repair loan over into a traditional mortgage. Again, this kind of transaction is all new to me. But does that make sense?

Hello Friends! I'm looking for advice on how to structure a deal with a little bit of this magical "creative financing" I've been hearing about. I inquired about an ad in my local paper about a 3BR/1BA/2 Car Garage house for sale in a great neighborhood, "solid house, but needs work." I've called and found that there was a frozen pipe that burst. Long story short, the kitchen is gutted to the studs, the bathroom needs total rehab, and there is some plumbing work to be done in the basement. His asking price is $75K. Without seeing the home (though I hope to see it this afternoon), I estimate the place needs $30k-$40K I also know he bought the home just a month and a half ago for $45K.

I can come with cash from a line of credit from my bank, but I'm looking for advice on how I might make an offer that reduces the amount I might pay using the LOC. I thought about offing a mortgage back on the property, or full seller financing, but I've never arranged a deal this way...

$5k down, $400/mo for 10 years, and another $5k at the end, was my initial idea. 

*HERE'S WHERE I NEED HELP, AND THE PART NO BOOKS TALK ABOUT*

In these seller financing deals, who actually owns the home? Also, who pays the taxes? On this property, the taxes are approximately $225/month. If we do, and we rent it out, we'd be at $400/month payment to seller, $225/month taxes, $100/month insurance, and then the payment on the rehab loan. We feel like we could get $850-$900 a month. 

So, again, just looking for advice on how to structure an offer. Thanks in advance, everyone!

@Jake ThompsonIt shouldn't make a difference, and in fact I've heard it's easier to use AND easier to get help with.

@Jake ThompsonI'm brand new to both owning rental properties, AND accounting, and I first started with QBO, only to find that it's very limited in regards to features necessary for managing rentals. On the advice of friends and several accountants I've switched to the desktop for Mac version. I then had a sit down session with an accountant who walked us through setting up the chart of accounts, and entering fixed asset accounts for each building. The advantage of the full version is the ability to set up each property as its own class, and each tenant as a sub-customer within the class. That way you can break down your reports (balance sheet, profit/loss, etc.) by individual building, or company wide. 

I'm still learning, and will be checking out a few books to help me get there, but after a few months I'm sure it will become second nature. 

Jesse

@Alexander BallYou could figure out a general idea, but it will take just a little more sleuth work. 

First, you'd want to find a number of multi family properties that sold in the last 6-12 months in the area, including final sales price. Your agent can find that, and usually the buyers name (which can also be found through your tax office). 

The tricky part is calling the buyers and finding out what their properties are generating in annual gross rent collection. Then you take the sales price, and divide by the annual rent. That's the multiplier. Then average the multipliers of 10 or so properties. 

Now, it may be easier to just find a few investors that own multis in the area and find out their sales prices and annual rents, but if you can't find these people, the sleuth work will usually get to the bottom of it.

Jesse

@Alexander BallThose "rules of thumb" are a little different, and rent multiplier is generally a quick way to estimate value of multi-family properties. Where as the 2% rule would be calculated by dividing current rents by .02 to arrive at a rough market value, the gross rent multiplier is a dynamic number that changes by neighborhood, or even block. A realtor should have a general idea of what a neighborhoods rent multiplier is (usually not bigger than 10-12). So if current rents are $1200/month for the whole building, then the annual rent is $14400. Multiply that by the area GRM of, say, 8, then your offer might be $115,200.

This is helpful because, if a property is mismanaged (collecting below market rent), then it's value to the investor is diminished. If you get it, and can increase rents through better tenants/management (say upped rent in those three units to $1850/month ($22,200/year), and multiplied it by 8 again, your new value is $177,600. But you got it (hopefully) for $115,200!

As far as probate is concerned, I can't offer much advice. That varies by state/individual will. 

Jesse