All Forum Posts by: Shawn H.

- Subject To - yes, they are real and I've done several of them. Just do what you say you are going to do and don't mess up your seller's credit. If they already have bad credit, then you can actually improve their credit by making timely payments. Make sure you get a limited POA so you can talk to the bank if you need to. My experience is that you do not need to worry about the due on sale clause. If you keep the payments current the mortgage company has no reason to be looking at that property very closely.

- Owner Financing works sometimes, especially with older landlord investors who have been managing their own properties. They like the cash flow and want out of the management and are smart enough to know that they're only going to get 0.3% if they cash out and put the money in the bank. (You're not going to make this deal with the guy that wants to cash out and be a hard money lender, but most just want to go play golf).

- Lease/Option - don't do major property improvements before you exercise your option unless the whole deal is escrowed with an attorney.

- Lease at a low payment. I don't care if I ever own it if I get a few hundred a month off of it.

- Single Payment Due On Sale note for a rehab/flip. House needs a lot of work. You get the deed, give back a due on sale note with no payments. Rehab using your money or an equity partner's money. Sell the house and pay off the seller at that time. You can even sweeten the deal for the seller a little bit by getting them to wait a few months for their payments. If you're not paying interest, you can pay them a little more for the house than you otherwise could have.

- A recorded Option without actually taking the Deed up front could work for the above rehab/flip scenario as well.

- If you're trying make huge profits in your IRA, the Option is a great tool. Give the seller $100 for the Option out of your IRA. Your buddy does the rehab(but not a disqualified party and definitely not you). When it comes time to sell, they have to cure your option to get clear title. Your IRA demands $10-15k to clear the option...

Just a few ideas...

Sounds like a great deal for the money guy, but it sounds like a $45k/yr job for you - unless you're doing multiples at a time. If you could turn one of these a month instead of one every four months - now that would be great.

Stumped everyone with this one, did I?

I definitely have an allergic reaction to FICA/SS/MCARE taxes, especially on a deal within the family. I'm also trying to avoid running afoul of laws related to managing properties without a broker's license.

No war zone! Nice commercial "work shop" type space in a decent area (auto mechanic, auto body, etc).

Does any town actually allow bandit signs? I thought that's what Prepaid cell phones were for. Just don't accidentally agree to meet the code enforcement guy for a chat.

Wayne Brooks - very good point, and I don't know how you picked up on that from my post, but this is commercial. Hmmm.. Back to the drawing board... Or maybe I just manage it for free off the books and my family member gives me a big gift every year.

Couple of ways:

1) Double closing on the same day - there's no way for your buyer to see your profits at the time of closing, but this is expensive since it increases your closing costs substantially. Now, later, they could go into public records and look up the first deed and calculate your purchase price from the tax/doc stamps on the deed and find out that way if they were interested.

2) Have your closing agent split the HUD-1 into a buyer's closing statement and a seller's closing statement... One side of the HUD-1 is blank on each document and only when the two are combined is the complete picture of what happened known. Your buyer only sees the buyer's closing statement. Your assignment fee is paid on the seller's closing statement, which they don't see. Again, later they can find out.

In reality, I've rarely found the need to hide my assignment fee except in a rare case where I made an insane amount of money. People know you're flipping the property and understand that you're in business to make a profit. As long as you left enough skin in the game for the buyer to be getting a good deal, I don't really feel like you should need to hide your profit from the end buyer.

I have used a double closing before where I had a skiddish seller who didn't know I was flipping the property. My company bought it and sold it the same day with the same title agent. Double doc stamps, double closing costs, but it got the job done and I made money.

A family member wants me to manage their properties for them that they hold in a corporation, but legally, I don't think I can do that because I'm not a real estate broker. So, after some brainstorming, it occurred to me that I could master lease the properties from them for "90% of collected rents less expenses".

Then it occured to me that I just converted what would have been self employment income for managing properties into rental income since I'm leasing the properties.

Any tax experts care to chime in on whether that would fly in an audit?

I would pass on this deal. There isn't enough spread in this for any errors including the property taking too long to sell.

I am also very suspect of your estimated holding costs of only $1000 if your expectation is a six month hold. You will have water, electricity, gas?, vacant property insurance (unless you're going to risk it), and pro-rated real estate taxes during the rehab. Is any of that included in your rehab costs because $1000 holding cost doesn't cover all of that.

Also, are you planning to sell to an end buyer or an investor who doesn't want to do the rehab himself? If you're looking at an end buyer, someone who can only afford $45,000 for a house is likely to need a lot of help to actually get in. You may end up paying ALL of the closing costs just to get the deal done. On houses this cheap, I estimate 10% closing costs.

I always back into the most I could pay for a house using my desired profit. I'd want to make $15,000 minimum to split between you. Any less and you have no room for error whatsoever. Here are my numbers (not having seen the deal, obviously):

Sale Price: $45,000
Desired Profit: $15,000
Closing Costs (out): $4,500
Rehab Costs: $7000
Wholesale Fee: $1500
Closing & Holding (6 months): $3000

Max Purchase Price: $14,000 cash

Good luck with this one. I just don't see the numbers.

If you still want to lend the money on this deal, I would go in strictly as a lender and not a "co-investor", and I'd get additional collateral because any mistakes by the guy who is actually doing to the work could cost this deal all of it's projected profit in a heartbeat.

Couple of thoughts:

If you were thinking about taking the money and lending it, then why not finance the deal for your buyer - pay taxes as you collect the principle under the Installment Sale rules, not all at once. Enjoy the cash flow.

Second idea... Taxes are generally optional if you have a long term strategy and can wait for your payday. Here's a crazy idea that will actually work. 1031 into a beautiful single family home that you thought would be a good investment. Rent it out for a year so it actually shows up on a tax return as an investment property. After a year, realize that it wasn't a good investment property but you'd love to live in it. Move in. Live there 5 years. Sell it and take most of the profit under 26 USC 121 (sale of principle residence).

Add your HELOC idea to the above, and you can still get the money to lend out.

Third idea... no idea if this will work because I don't know if California has figured this one out... What if you 1031 into a property outside California into a state that will abuse you less with taxes? Can you get the money out of California that way and then sell that out of state property later to avoid at least the California taxes?