All Forum Posts by: Tim DeFor

Another creative financing option is to get a traditional loan and have the seller finance the down payment and closing costs. The seller gets the majority of their cash out at closing, they also get some ongoing income and tax benefits of not having all the income in one year. Your cashflow would be lower if the full amount is financed, but your COC return goes through the roof since you have no money in the deal. I just got my first commercial loan. They only required 20% although 25-30% is often standard. If you plan on refinancing to cash out after increasing the value through NOI increases and appreciation, you could do a shorter term 2-5 year loan, possibly even interest only, from the seller amortized over a longer period and pay them off in full when you refinance. Then you would have the equity in the property and lower overall payments increasing cash flow. Best wishes!!

Options exist. I believe you can 1031 across state lines into something in California. You could 1031 into something that is more passive, such as commercial. I'm definitely a fan of 1031 exchanges, but that is just the beginning. If you 1031 into something in California that you can live in, it may also reduce capital gains when you sell. There are also ways to sell creatively that can reduce the tax burden and spread it out over years. 

There are many ways to do creative financing. One of my favorite is seller financing, but that is just the tip of the iceberg. There are great books and videos on the topic on Youtube. How much do you need to raise?

Every class neighborhood has its benefits and challenges. The cashflow looks good, but the turnover tends to be higher in C class than B or A. It often also takes more to get units rent ready again. They are often more hands on because of problems too. If the renters are solid and stable, then it may be worth it. If you have someone else who can manage it well, it could be worth it. Some C class are primarily working class and the working class are often some of the best renters. Best of luck.

I agree with David's advice about checking around. Two local banks had about a 1% difference between rates. The lower one is 3.7% for refinancing investment properties. 2.75% for primary residence refinancing. What other factors are you considering? How much equity do you have? How long are the terms of your current loan? Are you hoping to gain cash flow or cash out from the refi? I don't doubt you've thought about this, I am mostly curious. These are the questions I'd want someone to ask me.

Follow-Up: We close next Monday.

I will put in about $10,000 of repairs and updating to one unit. It will rent for $850. The other is occupied at $750. At this time I will provide utilities at around $200 a month. My financing payments, including repaying the investor who is putting in the down payment and closing costs will be less than $700. After management fees, capex, maintenance, and vacancy, I will still cash flow. Purchase price: $62,000
Additional Expenses: $10,000
ARV: $90,000
Bank Loan: $49,100
Private Loan: $15,000
Equity: $25,900
Annual Cashflow: $2400 
CoC Return: 20%
The one current tenants' lease at $750 expires January 31. They will either move into the remodeled unit at $900, stay in their current apartment at $775, or move out. If they move out, I will invest in updating their unit and increase rent to $850. My cash on cash return will go down because of additional initial investment of updating, however my equity and cashflow will both go up. This is a good learning experience.

Thank you Cody, Great list to go on. I know of foundation issues that will need to be addressed in the coming years. It settled in one corner nearly 6 inches over the last 80 years, but there is evidence that it stopped a couple decades ago. Three units together would rent for about $2,000 with a monthly PITI of $550. Between the initial equity and cashflow I hope to have room to address any major and minor issues in the next few years. I plan on a follow-up post later today after inspections. On a side note, a family member let it be known that I'm looking at a property today and an older friend of hers asked if I might be interested in buyer two from her. We are meeting this afternoon to start the conversation.

Thank you Ryan, The last buyer backed out due to improvements needed. Their agreed purchase price was at the higher listing price at appraised value. I'm purchasing it at 25% below the previous listing price. It definitely has some potentially costly issues with foundation. They don't need immediate attention and the cashflow and forced and natural appreciation will more than cover the estimated costs. Good insights Ryan.

Four hours of BiggerPockets podcasts on a five hour drive from Nebraska to south central Minnesota, I had lots of time to learn and think. I arrived in time for a welcomed distraction of supper, games, and laughter with family. The night's sleep with an overactive mind and being away from my best friend and bride was like early cell coverage while driving through the eastern hills of Nebraska, spotty at best. Now my mind is racing and Today I walk through our first out of state rental.

The Find: While working on a possible deal in the same town, I came across an occupied duplex on the MLS that dropped 25% over night. It was listed as a 3Bd/2Bth. On a video walk through my realtor discovered it is a 4Bd/3Bth (2/1 up, 2/1 main, possible studio down)! I contacted the agent and within a few days we had an accepted offer slightly above asking price.

The Financing: We've already signed a purchase agreement and am working with a local bank. The agent shared that it had appraised for 30% above the purchase price for a previous potential buyer who changed their mind. I will be getting an in house commercial loan with decent terms. I asked the banker how we might get a higher loan amount in order to maintain our capital for repairs and improvements. I learned they use an 80% LTV of the purchase price or the appraisal whichever is lower. After a pressed a little, he offered that we could offer a list of planned repairs and improvements to the appraiser and ask for an after repairs value to possibly get a higher loan amount. We may need to put funds into an escrow account to use for fixes with the remaining funds to be released after they are complete. We are getting estimates to include with our work list for the appraiser.

The Future: One week from today, we will close. I will either need to make a 10 hour round trip drive back to southeast Minnesota or we will do a long distance closing using snail mail. Rain, shine, or snow I expect the a postal service to deliver the closing documents over night. After signing, we will return them to title company. Then the fun begins. We plan on splitting the utilities, putting in an egress window and leveling the floor in the basement, make the basement bath functional, upgrading the main floor bath, replacing or refinishing flooring, painting throughout, removing some overgrown trees, doing touch up paint outside, and patch repairing some cement work. 

The Friends: This is where you come in. All these things are flooding my mind. Today is a walk through. I want to get this righter than I would alone. What would you suggest that I put on my "do this before, during, and after walk through" list for today?

Update: I just docusigned a purchase agreement! The local bank that holds the current mortgage opted for an in house commercial loan instead! This keeps it off the radar of other lenders and doesn't disrupt my other deals. I'll get a better interest rate than the seller had. The realtor is confident that it will appraise for nearly $20K over purchase agreement price. It was listed as a 3BR/2B duplex. I assumed a 2BR/1B and a 1BR/1B. I'm out of state and my sister did a video walk through. It actually is two 2BR/1B apartments. This increases combined rents from $1,300 to $1,500. AND the basement has a separate entrance, a full bath and a kitchenette! With some capital improvement, such as an egress window, leveling the floor, flooring and paint, we could make the basement a studio apartment and it could be a triplex! As a triplex it should bring in about $2,000 and my mortgage will be below $550. I have an investor who will cover my down payment and costs to make rent ready at 6% over 5 years. Using the rental calculator, even with this payment added and all other expenses calculated, I'll still clear over $200 per unit and my cash-on-cash will be phenomenal since I'll have almost none of my own money in the deal. I'll keep you updated as we move forward!