All Forum Posts by: Travis Hughes

Not necessarily. If the house is move in ready and needs no rehab, with a BPO value or "ARV" (considering $0 rehab) of say $100,000, and you buy it cash for $70,000, then it's the same difference. You just need to be confident that it will appraise. As @Kyle McCorkel mentioned, be confident in your ARV and rehab numbers.

In my example, if you buy for $70,000 today and rent it out for $1000 per month, then go to cash out refinance in six months, you are looking for the home to appraise at $100,000. If it does, and you are borrowing 70% LTV, then you get a principal loan balance of $70,000 cash out. Viola.

I have to agree with these other posters - sounds like you are taking the right steps.  Just keep moving forward, and be confident in your anticipated appraised value and any rehab costs.

One other point - not home actually has $0 rehab.  You'll likely have some utilities costs during vacancy, home cleaning, carpet cleaning, landscaping, etc until the home is rented.  Factor those in. 

@Latasha Shipman it's certainly possible to make some money with a transaction like this, but my opinion is that there is just too much red tape and too many landmines that you might step on to make it worthwhile.  I did owner finance wrap transactions for a few years during the credit crunch, and I don't recommend it.  

Is there any equity on the table for you? Can you purchase the home conventionally? Or could you borrow the purchase cost through private money, then refinance out (BRRR)?

@Steve S. what we are saying is that you do NOT want to do that.  If your buyer can only secure a mortgage in the amount of $60,000 (do they even originate 1st position mortgages that small?  Many banks won't lend less than $50,000...), then why would you allow them to buy a house from you for $0 down?  They would have no "skin in the game" and no equity to boot.  There is no incentive for them to perform on your loan, especially if their credit is already not so great. 

Nice link @Russell Brazil.  Very helpful. 

@Gary Headrick yes I misread - the OP was talking about THEM putting 20% down and then the buyer purchasing with 0% down.  Definitely not a good idea. 

Well first of all, your buyer's purchase, down payment, and mortgage numbers don't add up.  If they are buying for $85,000 and get a 1st loan for $60,000, then you're still owed $25,000.  If you carry that $25,000 2nd position note, then your buyer has put $0 for down payment.

If they put 20% for down payment on an $85,000 purchase, that would be $17,000.  Purchase $85,000 less $17,000 down payment equals $68,000 remaining due.  Now if they get a 1st position note for $60,000 then they would still owe you $8,000 which is what they would be asking you to carry back.  Make sense? 

If your buyer has $17,000 plus closing costs to put down, but they can only get a $60,000 loan because $68,000 would be too much for them to borrow, then that sounds like a red flag to me.  

Ryan, about half of American households have a pet.  If you choose a "no pets" policy for your properties, you are limiting your pool of potential tenants by half right out of the gates - before any actual screening has been done.  

Your lease should require your tenants to hold general liability insurance on their renters policy at a reasonable coverage amount, and they should name you as a certificate holder.  Your homeowners insurance may have exclusions for specific breeds, so there is nothing you can really do about that to my knowledge.  Just don't let those breeds live in your home. 

@Brian Chase if you are at 40% DTI on your current mortgage, and you want to sell the house to buy one with more space, I hope you are looking at getting a new home that gives you more space at a lower price?

DTI at 40% solely from the homestead property is too high IMHO. Just because the banks will lend it doesn't mean you have to borrow it. Also, the less you spend on housing, the more you have to invest elsewhere.

My recommendation would be to keep it at 25% or below. 

If your DTI were lower to begin with, you would be able to qualify for a second loan. For example, my home was at about 15% DTI when I bought it. I've still got another ~25% of DTI headroom to buy another house when I'm ready - no worries about the rental income.

Whatever you do with buying a new house, make sure you purchase it with the ability to rent it out later in mind. For example, if you do a minimum 3.5% down FHA loan, you will probably be too leveraged to cashflow on a rental. Additionally, my understanding is that you can't have PMI removed from an FHA loan. For that reason, I went with 5% down on a conventional loan for my home a few years ago. I still have PMI right now, but it would cashflow a bit if I move and rent it out.

@Pieter Bosman MSA is "metro statistical area."  It basically means a specific metro area that is lumped together since the market is more than just one city.  For example, Dallas-Forth Worth (DFW) would be an MSA that includes dozens of cities, not just Dallas and Fort Worth. 

In analyzing a particular market, you might look at statistics to try and get an idea as to where the market is headed.

https://www.biggerpockets.com/forums/311/topics/39...

@Dede Christensen does your lease have an application of funds clause that specifies that funds received from the tenant will be applied in chronological order to the oldest outstanding charges on their tenant ledger?  If so, you would simply apply funds to the utilities bills first, which leaves them delinquent in rent, then you enforce the rent delinquency.  If not, you're in the right thread - add it to your leases moving forward.

This is one of the several benefits of working with a professional property manager.  We have leases drawn up that tie up all of these loose ends already because we have seen it all.

Another common example related to utilities is something that even real estate agents will commonly miss. We have a condo unit that is in a high rise downtown. When the tenant moved in and signed a lease with a real estate agent that was not a professional property manager, that agent checked the box that "landlord pays water," because at the time there were no submeters and the water was being paid by the HOA. Well the HOA installed meters and now the water is billed directly. Under that lease, the Landlord would be liable for this extra expense. Instead, the lease should read "tenant responsible for water." If the tenant asks why, citing that water is through HOA, you simply say "if the HOA changes it, you would be responsible for the water." Thus, even though the tenant is not out of pocket to pay for water, IF the HOA changes the rules like this, your lease is already in place to have the tenant take over the water.