All Forum Posts by: Thomas Franklin

@Account Closed

Wholesaling in many states is ILLEGAL unless there is intent to purchase, i.e. a Double Closing. For Florida I refer you to Florida Statues 475.42 and 475.43. Many other states have similar language.

Link: https://www.richardhornsby.com/crimes/regulatory/unlicensed-... 

I have been a Real Estate Investor, since 1998. Please feel free, to review my profile. 

@Ryan G.

You are looking, for recommendations and that is fine, but why just trust a referral and not do your own research?

I suggest that you interview, at least three General Contractors and ask the following questions. In addition, I strongly recommend that you verify all licenses and Insurance Policies.

1. How many homes have you rehabbed and/ or renovated? What was the magnitude, of your projects?

2. How many projects is your company currently undertaking?

3. Do you work with Investors that need to adhere to strict timelines and scope of work?

4. Do you have multiple Sub Contractors, for similar trade skills, such as plumbers, electricians, flooring crews, painters, etc.?

5. Would you provide a copy of your GC License, your Certificate of General Liability Insurance, and your Certificate of Workman's Compensation Insurance?

6. Are you bonded?

NOTE:

To be “bonded” means the Contractor must purchase a Surety Bond, which serves as a form of Insurance to protect the Contractor’s Customers if he or she fails to complete the job properly or fails to pay for permits, subcontractors, or other financial obligations.

7. Are all of your Sub Contractors Licensed and have Workman's Compensation Insurance? Would your Sub Contractors be willing to provide such information, or would you be willing to sign a waiver stating "All your Sub Contractors have Workman's Compensation Insurance?"

8. Do your Sub Contractors have the ability to verbally communicate, with English Language Only Speakers?

9. Do you pull all necessary permits?

10. Do you provide a written warranty, for all labor? If so, what is the length, of the warranty? (a minimum of 1 year)

11. Do you provide all applicable warranties, for materials?

12. Who is in charge of the job site, to ensure timelines are met and the Scope of Work is properly completed?

13. How do you handle dirty work such as debris disposal and clean up?

14. Would you be willing to receive four draw payments that would correspond to four phases of the rehab project?

15. Would you provide references, from past clients?

If the General Contractor that you are interviewing does not provide you their GC License, their Certificate of General Liability Insurance, and their Certificate of Workman's Compensation Insurance, this should be a Red Flag, for you telling you to move on to another GC.

If the General Contractor that you are interviewing does not give you specific answers, to the other questions, this should be a Red Flag, for you telling you to move on to another GC.

You should contact their Insurance Company and verify all Policy information such as, but not limited to the Policy Number, Coverage Limits, and the policies’ date of expiration. In addition, you should also visit your state’s Department Of Business And Professional Regulation and check the GC’s License that it is current and valid. You should also check, if any complaints, liens, lawsuits, etc. have been filed against their license. Vet! Vet! Vet!

@Robert Ok

Below are some things that you might want to consider between Single Family Residences (SFRs) and Multifamily Residences (MFRs).

SFRs

If you are using a Realtor, he/ she will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a FHA 203k Loan. A FHA 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). There are downsides:

1. Because you have less than 20% down payment, you will have to pay Principal Mortgage Insurance which will add approximately $150 extra per month, to your Mortgage Payment.

2. If you loose your tenant, you yourself will be responsible, for all Property Expenses including having Marketing and Advertising Expenses.

3. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own that is in your Personal Name. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies.

4. You have no Asset Protection.

5. The above are just a few downsides.

You may be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.

MFRs

As with SFRs, assuming you have a respectable FICO you can buy, with a FHA Loan because these properties (2-4 units) are still classified Residential Properties. Everything mentioned above is also applicable to MFRs including seeking owners willing to consider Seller Financing. For Lender Financing, Commercial Properties are six plus units and have different Lending Terms, but allow you to close in a Corporate Entity.

ANALYZING MULTI FAMILY PROPERTIES

In your analysis, you should include Management Fees (10% of the Gross Income, Attorney Fees, and Advertising/ Marketing, to your list of expenses. In addition, you want to include Capital Reserves in your list of expenses. As a general rule, your Capital Reserves should be equal to 10%, of the Property's Fair Market Value (FMV). These Capital Reserves are to cover Capital Expenditures (Cap Ex) such as Major Roof Repairs or replacement, Major Electrical Repairs, Major Plumbing Repairs, or other Big Ticket Repairs.

You want to obtain the Rent Rolls, for the past 12 months; and at a minimum, the T12 (the last 12 months of Income and Expense). I prefer 24 months. Once you have this data, look for Red Flags such as Property Insurance missing, Property Taxes missing, Management Company Fees missing (if you know one is in place), etc.


Another thing that you want to do is, if there is a Management Company in place call them and try to ascertain if there is any Deferred Maintenance, the current state of the Property’s Condition, and what are the current rents being charged. Being able, to talk with the Property Manager will give you a good feel, for what is going on with the property.

A downside is if you close personally, you loose the certain advantages, of the Federal Tax Code, by not closing in the name of a Corporation Entity plus the downsides listed under the SFR Section above.

PMI

1. Mortgage Insurance known as Principle Mortgage Insurance (PMI) is required when the Loan To Value (LTV) is greater than 80%. In other words, if the property has 20% of equity or greater, one is not required to pay PMI. Having 20% or more of equity can be a combination of a down payment and buying the property below the property's value, or you putting a 20% down payment. However, if a FHA Loan is obtained, you will have to pay PMI, for the life that you have this loan.

2. Principle Mortgage Insurance only benefits a bank.

3. Principle Mortgage Insurance will increase you monthly Mortgage Payment approximately $150+ per month.

4. Interest paid, on a mortgage is the only thing that is tax deductible. Principle Mortgage Insurance is NOT Tax Deductible meaning Principle Mortgage Insurance cannot be used, as a legitimate Business Expense.


I hope the above information helps you, to confidently move forward.

I suggest that you interview, at least three General Contractors and ask the following questions. In addition, I strongly recommend that you verify all licenses and Insurance Policies.

1. How many homes have you rehabbed and/ or renovated? What was the magnitude, of your projects?

2. How many projects is your company currently undertaking?

3. Do you work with Investors that need to adhere to strict timelines and scope of work?

4. Do you have multiple Sub Contractors, for similar trade skills, such as plumbers, electricians, flooring crews, painters, etc.?

5. Would you provide a copy of your GC License, your Certificate of General Liability Insurance, and your Certificate of Workman's Compensation Insurance?

6. Are you bonded?

NOTE:

To be “bonded” means the Contractor must purchase a Surety Bond, which serves as a form of Insurance to protect the Contractor’s Customers if he or she fails to complete the job properly or fails to pay for permits, subcontractors, or other financial obligations.

7. Are all of your Sub Contractors Licensed and have Workman's Compensation Insurance? Would your Sub Contractors be willing to provide such information, or would you be willing to sign a waiver stating "All your Sub Contractors have Workman's Compensation Insurance?"

8. Do your Sub Contractors have the ability to verbally communicate, with English Language Only Speakers?

9. Do you pull all necessary permits?

10. Do you provide a written warranty, for all labor? If so, what is the length, of the warranty? (a minimum of 1 year)

11. Do you provide all applicable warranties, for materials?

12. Who is in charge of the job site, to ensure timelines are met and the Scope of Work is properly completed?

13. How do you handle dirty work such as debris disposal and clean up?

14. Would you be willing to receive four draw payments that would correspond to four phases of the rehab project?

15. Would you provide references, from past clients?

If the General Contractor that you are interviewing does not provide you their GC License, their Certificate of General Liability Insurance, and their Certificate of Workman's Compensation Insurance, this should be a Red Flag, for you telling you to move on to another GC.

If the General Contractor that you are interviewing does not give you specific answers, to the other questions, this should be a Red Flag, for you telling you to move on to another GC.

You should contact their Insurance Company and verify all Policy information such as, but not limited to the Policy Number, Coverage Limits, and the policies’ date of expiration. In addition, you should also visit your state’s Department Of Business And Professional Regulation and check the GC’s License that it is current and valid. You should also check, if any complaints, liens, lawsuits, etc. have been filed against their license. Vet! Vet! Vet!

I suggest that you interview, at least three General Contractors and ask the following questions. In addition, I strongly recommend that you verify all licenses and Insurance Policies.

1. How many homes have you rehabbed and/ or renovated? What was the magnitude, of your projects?

2. How many projects is your company currently undertaking?

3. Do you work with Investors that need to adhere to strict timelines and scope of work?

4. Do you have multiple Sub Contractors, for similar trade skills, such as plumbers, electricians, flooring crews, painters, etc.?

5. Would you provide a copy of your GC License, your Certificate of General Liability Insurance, and your Certificate of Workman's Compensation Insurance?

6. Are you bonded?

NOTE:

To be “bonded” means the Contractor must purchase a Surety Bond, which serves as a form of Insurance to protect the Contractor’s Customers if he or she fails to complete the job properly or fails to pay for permits, subcontractors, or other financial obligations.

7. Are all of your Sub Contractors Licensed and have Workman's Compensation Insurance? Would your Sub Contractors be willing to provide such information, or would you be willing to sign a waiver stating "All your Sub Contractors have Workman's Compensation Insurance?"

8. Do your Sub Contractors have the ability to verbally communicate, with English Language Only Speakers?

9. Do you pull all necessary permits?

10. Do you provide a written warranty, for all labor? If so, what is the length, of the warranty? (a minimum of 1 year)

11. Do you provide all applicable warranties, for materials?

12. Who is in charge of the job site, to ensure timelines are met and the Scope of Work is properly completed?

13. How do you handle dirty work such as debris disposal and clean up?

14. Would you be willing to receive four draw payments that would correspond to four phases of the rehab project?

15. Would you provide references, from past clients?

If the General Contractor that you are interviewing does not provide you their GC License, their Certificate of General Liability Insurance, and their Certificate of Workman's Compensation Insurance, this should be a Red Flag, for you telling you to move on to another GC.

If the General Contractor that you are interviewing does not give you specific answers, to the other questions, this should be a Red Flag, for you telling you to move on to another GC.

You should contact their Insurance Company and verify all Policy information such as, but not limited to the Policy Number, Coverage Limits, and the policies’ date of expiration. In addition, you should also visit your state’s Department Of Business And Professional Regulation and check the GC’s License that it is current and valid. You should also check, if any complaints, liens, lawsuits, etc. have been filed against their license. Vet! Vet! Vet!

Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a FHA 203k Loan. A FHA 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate which is around 7% in today’s market).

If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a FHA 203k Loan. A FHA 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

The downside of using FHA or a FHA 203k is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC (you can elect to have a LLC taxed, as a S Corporation which is a whole other conversation).

If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, Conventional, FHA 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You may be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.

There are several important factors, when thinking about proposing Seller Financing. Consider the following and ask relevant questions:

1. Why is the seller selling? Consider the following:
a) Does the seller have problems?
b) Did the seller acquire the property through probate?
c) etc.

2. Ask questions to find out how motivated is the seller.

3. Find out through asking the right questions what will help solve any existing problems, that will give the seller a nice monthly Passive Income Stream, etc.

4. If the seller has problems, demonstrate GENUINE EMPATHY that you want to help him or her solve their problems.

5. Know your numbers!!! Come up with terms (Down Payment, Interest Rate, and Amortization Schedule) such as a 5% Down Payment, a 6% Interest Rate, and 30 Year Amortization Schedule. You may have to add a Balloon Payment into the terms. Terms will need to be negotiated.

Your ultimate goal is to create a “Win-Win” Situation, for you and the seller.

@Vidit Maini You might want to be more specific regarding what type, if business you want to start. Fix and Flip? Buy and Hold? Syndication? Your best advice would come, for a Tax Advisor NOT a Tax Preparer (CPA).

@Kendric Buford Considering a Duplex, TriPlex, or a Four Plex. Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a FHA 203k Loan. A FHA 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate) AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC/ LLC taxed as an S Corp, or an S Corp. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC/ LLC taxed as an S Corp, or an S Corp.

If you want to close in the name of a LLC/ LLC taxed as an S Corp, or an S Corp, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, Conventional, FHA 203k, etc. and then Quit Claim the property, to a Corporate Entity, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You may be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.

@Jerome Thompson

INTERVIEWING CONTRACTORS

I suggest that you interview, at least three General Contractors and ask the following questions. In addition, I strongly recommend that you verify all licenses and Insurance Policies.

1. How many homes have you rehabbed and/ or renovated? What was the magnitude, of your projects?

2. How many projects is your company currently undertaking?

3. Do you work with Investors that need to adhere to strict timelines and scope of work?

4. Do you have multiple Sub Contractors, for similar trade skills, such as plumbers, electricians, flooring crews, painters, etc.?

5. Would you provide a copy of your GC License, your Certificate of General Liability Insurance, and your Certificate of Workman's Compensation Insurance?

6. Are you bonded?

NOTE:

To be “bonded” means the Contractor must purchase a Surety Bond, which serves as a form of Insurance to protect the Contractor’s Customers if he or she fails to complete the job properly or fails to pay for permits, subcontractors, or other financial obligations.

7. Are all of your Sub Contractors Licensed and have Workman's Compensation Insurance? Would your Sub Contractors be willing to provide such information, or would you be willing to sign a waiver stating "All your Sub Contractors have Workman's Compensation Insurance?"

8. Do your Sub Contractors have the ability to verbally communicate, with English Language Only Speakers?

9. Do you pull all necessary permits?

10. Do you provide a written warranty, for all labor? If so, what is the length, of the warranty? (a minimum of 1 year)

11. Do you provide all applicable warranties, for materials?

12. Who is in charge of the job site, to ensure timelines are met and the Scope of Work is properly completed?

13. How do you handle dirty work such as debris disposal and clean up?

14. Would you be willing to receive four draw payments that would correspond to four phases of the rehab project?

15. Would you provide references, from past clients?

If the General Contractor that you are interviewing does not provide you their GC License, their Certificate of General Liability Insurance, and their Certificate of Workman's Compensation Insurance, this should be a Red Flag, for you telling you to move on to another GC.

If the General Contractor that you are interviewing does not give you specific answers, to the other questions, this should be a Red Flag, for you telling you to move on to another GC.

You should contact their Insurance Company and verify all Policy information such as, but not limited to the Policy Number, Coverage Limits, and the policies’ date of expiration. In addition, you should also visit your state’s Department Of Business And Professional Regulation and check the GC’s License that it is current and valid. You should also check, if any complaints, liens, lawsuits, etc. have been filed against their license. Vet! Vet! Vet!

@Blaise Bevilacqua I am not a fan of purchasing a Residential Multifamily Property known as "House Hacking." If you are looking to owner occupy, you may want to consider starting out, with buying a Duplex, TriPlex, or a Four Plex. Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a FHA 203k Loan. A FHA 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, Conventional, FHA 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You may be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.