All Forum Posts by: Craig L.

Just as an aside to the SFH positive cashflow discussion...

What is the typical difference in rent rates of a SFH vs. a unit in a multi-unit given the same # of beds/baths and square footage?

Check out prosper.com. People lending to people. You could get a loan for $10k in probably a week.

Sure, I'd borrow at 0% til the cows came home. But not if it would ruin my credit. Would maxing out your credit for a few months do that? I don't know.

I'm thinking about putting a contingency in a stripped-down purchase contract offer that would help me get around the need for getting a repair estimate done on a potential rehab on a bank-owned house listed with an REO agent. The contingency would read something like: "Offer is contingent upon a contractor's written repair estimate acceptable to buyer."

This will allow me to make offers on REO houses very soon after they get into the agent's hands. I'll take a look at the house myself and get a rough estimate of the cost of repairs. Normally, if the house meets my criteria for a good rehab, I'd then get a contractor to take a look and give me a written estimate with which I can make an informed purchase offer and take to my hard money lender. That can delay my offer by a week and time is of the essence with these REOs.

So I'm wondering if the bank will see this as a very unfavorable weasel clause, and a definite rejecton solely on those grounds. I'd probably explain the contingency in a cover letter, along with a brief explanation for the amount I am offering.

Does anyone else have other contract strategies for REOs/rehabs to get their offers in quickly and get their offers accepted?

Some things to consider:

If you aren't sure whether the city will approve the condo conversion, don't you think any buyer will require the due diligence to determine whether it would be approved? So, you could do the due diligence yourself and eliminate an "if", both for yourself and as a selling point.

Convey your urgency to the prospective sellers of the 2 buildings and ask for a contract, perhaps contingent on their closing their other deal. Maybe get more concessions because you are accommodating their situation.

Or, you could lower your offer or improve your terms for the 2 buildings with the thinking that if you lose out then you'll just do your condo conversion. If you get better terms or lower price, its an even better deal and probably tilts your decision towards the buildings.

Last, you could try and figure out a way to do both. Try and find a partner to provide some capital. Split the profits on the condo conversion and their use their capital to allow you to still get the 2 buildings.

Is that legal?

Upstate NY. Rochester, to be specific. Linear market, tiny appreciation, but good cashflow.

Yes, even using 50% gross rents for expenses you can cashflow $100 per unit. You can easily find properties with monthly rents that are 2% of the purchase price in my area. Getting 95% LTV is the tricky part and you need a flexible or anxious seller to carry back a big second.

Example: 10 unit complex sells for $300k, rents for $600 per unit. Blended rate on $285k mortgage of say 8% is $210 per unit. Conservatively putting expenses at 50% of gross, or $300 per unit, leaves $90 per unit cashflow.

I think most successful investors will tell you that having a concrete plan on paper before you start investing is absolutely critical. I've been doing research for several months now and have formulated a plan that I am anxious to take action on, and thought I'd get some feedback. So here it is...

My overall goal is to have a passive income of $10k per month by January 2011. I will balance the first 1-2 years of investing with a full time job, which I understand is not going to leave much time for sleep.

The first phase of my investing will last 8-12 months and include capital base growth and no-down-payment rental acquisition. For capital base growth, I am focusing on rehabs (REO houses) with the typical formula ending up with a profit of 30% ARV. I have enough liquid assets right now for my first rehab to be in the range of a $75-100k ARV house, so a $20-30k profit if flipped. I am still unsure whether I will retail the rehabs and pay the 6% realtor commission as well as higher short term capital gain taxes, or lease/option them to get full retail, no commissions and lower taxes. I'd probably just straight flip my first one or two which would give me a capital base to make cash offers a pay less in rehab loans on future rehabs. At the same time, I will be looking for flexible sellers to negotiate purchasing property for no money down that I would rent out. I'll be using the techniques outlined in Carleton Sheets course to acquire properties for no money down that will still cashflow... and I suspect this will work well in my area since rentals with conventional financing can be acquired with a gross rent multiplier of 50-60.

In 8-12 months I hope to have completed 3 rehabs, have $50k in capital, and 2-6 rental units which cashflow $100-250 each per month. I also expect to have some experience in property management which will help me find a good property manager in the future. Now comes the fun part of making $500/mo passive income grow to $10k/mo in 2 years. I think it is ambitious, but possible.

Phase 2: With the $50k in capital I want to acquire apartment complexes at 95% LTV -- or $1 million in total mortgages. Apartment units can be had for $25-35k each in my area, giving me a total of about 30 units which cashflow at (conservatively) $100/mo. That now puts me at $3500/mo passive income. In the next year, I would improve the apartment complex(es) intelligently with the goal of decreasing operating expenses and increasing rents $20-25/mo. 30 units X $20 X 12 months = $7200/yr, and more importantly increases the value of my apartment complex by $72k (assuming a conservative 10% cap rate).

Phase 3: After having improved the income-determined value of the apartments on the books for a year, I would plan to do a 1031 exchange into an even larger apartment complex and do it all over again, with the goal of that complex netting me $10k/mo in passive income.

Phase 4: Take a vacation. :beer:

Any comments, criticisms, advice etc. would be very helpful.

Thanks!

Actually, I've found several hard money rehab loans that will lend up to 75% of the ARV. Of course, that 75% must include the cost of the loan (usually 4-7 points and 12-15% interest-only for 6 months) which essentially brings it down below 70%, but it works if you want no money out of your own pocket.