All Forum Posts by: Bill F.

@Carlos Sam You could also look into a limited liability partnership with you acting as the general/managing partner and your friends being the limited partners.

1. It makes the division of labor very clear.

2. Since you don't bring capital to the deal you are not exposed to as much lose and your friends are shield from liability.

3. It has all the tax advantages of an LLC

4. You can build in specific reimbursement incentives that account for you being the general partner, like hurdle rates.

@Shiloh Lundahl

Sounds like your partner is thinking more like a real estate agent and less like an investor by asking for the $11k in "expenses" Don't get worked up about it or argue try and show him why he's wrong. Mark Twain said it best: "Never argue with stupid people, they will drag you down to their level and then beat you with experience"

I'm assuming that when he signed the properties over to you the attorney had you two sign some document that ended the partnership? I'd either ignore him or tell him you'll the $11k out of the promised returns he owes you. After that, capture your lessons learned to ensure this doesn't happen to you again and move on.

@Nicholas Q. I'm not a loan expert by any means, but I'm fairly certain you will, at a minimum, tell the bank where you got the funds for a down payment. A title company may need to list her loan as a subordinate note to the first lien (bank Mortgage)

@Shiloh Lundahl Sucks that this guy put you in this position.

 I agree with @Jeff Schneider, involving attorneys probably should not be your first course of action. I think your goal should be to get the most amount of your investment back in the shortest amount of time. You need to have a tough conversation with your partner that ends with both of you agreeing on the way forward. This may mean making some concessions that sting. If this situation turns adversarial, than you won't see your $200k+ for a long time.

 I'd get him to sign an addendum that gives you the power to sell the properties/deeds them to you and lays out distribution of funds. Get another agent to handle the sale even if that meant paying yourself.  Your "partner" may be working an angle or doesn't have the skills needed to close the deal.

@Account Closed The advice I've always gotten is not to assume appreciation unless your property is in an A Class neighborhood. If you are worried about if the property with depreciate, I'd look at replacement cost. If it cost more to build new than you're pretty safe from massive depreciation. The NOI of around $500/ month gives you room to pull plenty of cash out in a refi and have a $100 positive cash flow buffer every month. If you have this property in your sights, I'd act on it.

Don't let yourself get caught up searching for the perfect deal or search for reasons why not to buy a property.

@Kevin Marrin For the sake of argument lets say we know for a fact that the Cap rate is 10% but you bought the property at the sellers rate of 8%, overpaying by $50,000. Based on your numbers this property has a NOI of $20,000. At a 10 Cap, you'll need to increase the NOI by $5,000 a year to break even. Can you do this without any capital expenditures (think of efficiencies of management that @Brian Spearmentioned and the storage space) or will the capital expenditures' increase to your NOI enough to cover the cost of implementation, your over payment, and still leave you enough profit margin to account for an acceptable risk premium?

I wouldn't allow what the seller said about a developer once offering him some amount of money for the land to factor in at all.

You could also see if he'd be willing to do a seller carryback on the $50,000 or maybe have him loan you the money to make the capital expentidtures you need to bring increase the NOI.

@Account Closed brings up a valid point. If you want to use these properties for your retirement, than you don't really care about today's CoC return. Plus CoC misleads you. CoC can't take into account amortization. A better calculation to compare investments over the long term (10-20 years) is IRR or MIRR. Those capture the other three profit means besides cash flow.

@Nicholas Q. The idea to take a loan from your MiL will work out much better than helping her buy the property.

 I use a very similar method to purchase my properties. I like to have interest only notes for 14 months with an option to extend for 6 months with either a bump in the rate or a point fee. I like to make the interest only payments monthly for a few reasons. It roughly simulates the conventional loan I will have in the future, it gives the lender tangible proof their money is working for them, and motivates me a bit to get the project completed.

@Richard Boughton Its a numbers game when it comes to getting approval. All you need is one loan officer to say yes. Are you looking to use the HELOC to fund the entire property or just the down payment?

In most cases I've seen individuals get HELOCs against their primary residence and entities can get LOC, either secured or unsecured. If you have the net worth to get an unsecured LOC, go for it. If the bank asks what you are using the money for, if it were me, I'd be 100% upfront for two reasons. 1. If you enter into a contract and say you will us it for on thing and turn around and knowing use it for another, that toes the grey area for fraud. 2. Banking is about relationships. If you've gone through the trouble and found a banker that will work with you, I'd do everything in my power to maintain that relationship.

It helps to find a bank that is looking to make loans for their portfolio in the specific type asset class you want to invest in (eg SFR, 1-4 Units ect...) You need to interview the bank as much as they interview you to make sure both of your goals and expertise align. Bankers are not all the same; some have expertise in varying areas. If you have a banker who knows Single Family homes but she writes you a note on a 10 unit apartment, she'll likely be much more nervous at the first issue that arises because.

@Stephen E. I know a few people; however, they have a bit more experience and use the REIAs for more of the networking aspect and educations on niche aspects of the market as opposed to general knowledge.

Check out the Costal Carolina REIA. They usually have 30-40 people per meeting and bring in interesting speakers. If you are looking for info read on BP and feel free to reach out to me if you have local questions.