All Forum Posts by: Shawn Torsitano

It's an option that can be used to get into the business, but if you should do it can only be determined by you and your husband, possibly with the help of a CPA or similar professional. 20-45k is generally enough to get started, depending on what you're getting into and where you are.

If you are going to be risking your primary residence with a HELOC, my suggestion is that you make sure you could handle the possibility of that money going into a failing investment and getting lost. Only you know your risk tolerance.

Congrats! Glad to hear it worked out for you.

Something about this still just doesn't seem right. Asking $240k for a property with $66,000 a year profit seems impossible. That's a cap rate of over 27%. I've heard of properties selling in the 11-13% range.... But 27% just seems absolutely impossible. If you were able to get it for 65% of asking, it would be a cap rate of over 42%. 

I guess there could always be an outlier, but I'm inclined to say that just wouldn't ever happen. I can't see any possible situation where someone would liquidate a property at a cap rate of 27%. No matter how badly you wanted to get rid of it, you could put it up for a much lower cap rate and still sell it quickly. 

If those are the numbers you have, and you trust them, then go for it. I obviously haven't seen any of the documentation. But something about this makes me uncomfortable. Tread very carefully.

Look into Ken McElroy's book the Advanced Guide to Real Estate Investing if you haven't already. It's got some good stuff about investing in apartments.

So you're just going to be asking for seller financing for 65% of the asking price, without putting any money into the deal?

I guess that's what I get for making assumptions, sorry about that that. 

They are asking $240k for a property that has a net profit of over $66,000? I get that they want to dump the property, but something about this seems impossible. 

Anyway, if you're able to get the property seller financed at that LTV ratio, you could try to do a cash out refinance once you bump the rents up and maintain them for a time. Could be a good option to pay back the private lending, if the equity position would still be as good.

If you have 35% down available, what is the advantage to you for seller financing? Or were you saying that the loan amount is going to be 65% of the actual value of the property, but you're not putting that much down? 

As far as other suggestions to acquire the property, no. Syndicating can be a great option, but trying to take on something like this as a first deal(is this your first? I'm not actually sure) could end very badly for you, and it would be incredibly difficult to find people willing to provide the cash anyway.

As far as the private money for the renovations, it really just depends. Just ball parking here, the value of the property is probably somewhere between $750k-$1mil based on cap rates that are roughly 6.5%-9%. So best case scenario, let's say $750k. Financing that entire purchase price at 5%, which is reasonable for seller financing, will put you at a monthly payment of $4,026 a month, or $48,312 a year.

Private lending is usually short term debt, 1-2 years. Funneling all the extra cash that you would have, even assuming there are absolutely no other expenses that aren't accounted for, you won't be able to pay off $100,000 loan in 2 years. So probably the only other option would be a refinance to pay off the short term debt, which would require you to be able to get that private money amortized at a longer time period, with balloon payments, or interest only payments during the life of the loan. Otherwise you wouldn't have the cash to make the payments.

But assuming that happens, and the new rents go up to $85,000, at the same 9% cap rate, the value of the property is now about $950,000. This isn't enough equity in there to pay off the seller financing of $750,000, as well as the loan of $100,000, and still have a good LTV ratio.

Long way of saying, I highly doubt private lending to finance the rehab will work for you.

If the owner is willing to do seller financing, the only way you'd be able to make the payments is if you can get it amortized at 30 years. It's possible, but I don't think I would recommend it. You probably wouldn't have sufficient cash reserves to deal with a potential maintenance emergency. Does it need to be painted? Something as simple as that could easily cost more than your actual profit for the entire year.

@Renee R.

I don't think you can refinish it, but with as cheap as a lot of it is, I don't know how big of an issue that would really be. Home Depot has tons unders $3/sqft, and some under $1/sqft. I've never personally installed the product, but the applications that I have seen were pretty nice, and appeared pretty durable.

@Jeremy Phillips

First step is the owner financing. If you can't find a way to actually get the property, nothing afterward really matters. Have you spoken to the owners and is that a possibility, or is it something that you are just hoping for?

If you are able to get the property, private lending would be a good option for the renovations, depending on the plan to get the cash back. That sounds like enough cashflow to easily pay back a private loan of that amount. 

Something about this seems a little "too good to be true" though. Have you accurately allocated for all the costs? Is that $66,300 profit before debt service?

@Renee R.

I know many people have had very good luck with the hardwood laminates. They don't get stained like carpet does, so they tend to last longer than carpet, which usually offsets the initial cost.

That is generally true, but depending on what it is, deposits can be reasonable as well. We take a 25% deposit upon contract signing for standard residential clients. The remaining is due upon completion. 

When you're scheduling week long projects, you don't want people flaking and backing out of the contract last minute. 

We allow 3 business days after signing for someone to cancel, after that, we keep the deposit regardless. 

You should certainly never pay the full price ahead of time, and for large projects, draws are often the best option. But don't be surprised if some people you've never worked with require some sort of deposit from you.