All Forum Posts by: William David Kelly

Hi Bruce and thank you for responding with advice that I will take. Honestly, I have been busy planning for my wedding in less than a month so I haven't done my due diligence and verified that the seller/owner/agent is in fact the owner. I've met him and my fiance's parents (the GC) have met him. My father has talked to him numerous times asking as many questions about the property as we could. Are you apart of a 1031 company? I will definitely verify he is in fact the owner as soon as possible. I'll give the title agency I will be using a call to figure that out or at the very least, they can point me in the right direction. 

Hi Bigger Pockets community,

I'm a newbie real estate investor with only 1 deal under my belt. I'm getting a clearer understanding every day and appreciate everyone from the Bigger Pocket communities help. Any information, advice, or feedback would be very very much appreciated. The details are as follows:

My father is planning on selling his San Diego Property and buying another property somewhere else by doing a 1031 exchange. So this new property will be 100% purchased by cash from the 1031 exchange since the values of both properties are spot on. The San Diego property when all said and done will amount to $450,000 and the negotiated purchase price of the new property will be $450,000. I have a few questions:

1. Is there a difference in financing this house since we're doing the reversed process of how a house is usually mortgaged? Most people get the mortgage and then buy the house. We're buying the house in cash then financing. Do you we just go to a bank after putting an extra $100,000 in renovation expenses into the house and tell the bank we want to finance the house for $550,000 since we purchased the house for $450,000?

2. This house is not the traditional 3 bedroom 2 bath single family home. The property before renovation is listed as 7 Bedroom and 7 Bathrooms. There is a separate house that's unfinished on the property. Once we acquire this house, we plan to renovate and finish the unfinished separate house. At the end of renovation, there will be a total of 12 Bedrooms and 12 Bathrooms. As of right now, the separate house with plans have been approved as a single family but will that change once the second house is finished? Will this property be considered a multi family since the second house will have 3 bedrooms and 3 baths? It won't have a kitchen or living room. It will have a Motor home garage.

3. How will an appraiser find comps for a home like this? I looked on the MLS and there isn't anything that is quite like this near the properties town. From research on google, the most I could come up with is that the appraiser will take the closest comparable neighborhoods with comparable properties that have sold within the last 6 months.

4. Will the house appraiser just add all the expenses of our renovation to our purchase price and call it a day? Someone told me that most appraisers will come in at what your trying to finance the house for. As an example, if we want to cash out finance (is that the correct term for "cash out finance"?) the house at $550,000 ($450,000 purchase price + $100,000 Renovation Expenses = $550,000), would they just verify that it's actually worth that and stop near that number.

Thank you for taking the time to read this and for providing critical feedback,

Will

Thank you @Dave Foster and @Jake Thompson for the valuable information and I've already implemented most of it so far. The seller/owner/agent now understands our concerns and we'll go the proper route. We couldn't get him to stick to the $440,000, it's now $450,000. This is still $30,000 below the asking price of which he at first said he wasn't flexible till we told him we have cash and could use him as our agent to save cost. He understands that we will be getting a home inspection, appraisal, and be using and choosing a title company. He also knows that we will be hiring an attorney to review everything. If anyone knows of an attorney that you think would be good for this unusual property purchase then it would be greatly appreciated as well. Another thing to note is that the owner/seller/agent has actually taken the property off the MLS as of this morning before talking to him. We haven't made an official offer yet, just verbal negotiations so far. We have had a trusted and experienced GC already go through and look at the house and the GC said the house was solid, well thought out for the most part, and made with great quality.

I should probably have added more detail in my first post but I didn't know if these details below were worth mentioning. The owner/seller/agent is also an architect and contractor. He's actually building a bunch of houses in the next town over to where this property is located. He designed and built this house. 

We thought of a few contingencies, it would be great to get anyone's feedback if possible as to what we should add since this purchase has unusual characteristics. The fact is though, the cash flow and cash on cash return potential isn't something I can just walk away from unless of course one of these contingencies are violated. It does smell bad @Mindy Jensen but perhaps that's just the new niche you've just coined. The bad smelling real estate niche that potentially provides great return for those willing to accept greater mitigated risks.

1. The property appraises at or above the purchase price of $450,000

2. The home inspection comes in with no major issues.

3. The successful Sale of the Buyers home.

4. The Title is clear.

Thank you Dave, Arlan, and Sara for your responses and will definitely not do anything illegal. Those answers have really helped out a lot. We will definitely go the proper way and negotiate at $440,000. I want to be as safe a possible in this purchase. 

With that being said, what's the legal and safe process of purchasing a home to which the owner is his own agent? We want to use him as our agent but want to do it in a safe and legal way.

I'm a newbie real estate investor with only 1 deal under my belt. I happen to do well and want to expand. Thank you Bigger Pockets. Luckily, my father is selling his San Diego house and I happen to find a deal that would benefit both my father and I. 

The first objective is to save my father from paying capital gains tax by doing a 1031 exchange. I've verified with out accountant that this property meets all the widgets with no issues. My father plans on retiring in a few years and living in this property. Then potentially selling it tax free using the home exclusion act.

Details on the Sale and Purchase of the new property are as follows: My father is selling his San Diego house and will receive $450,000 after all said and done. The new property is listed at $480,000. 

Here's where I'd really appreciate feedback and opinions. The selling owner of the property my father is buying from is acting as his own Agent. He seems legitimate and is an Agent for Coldwell Banker. The selling owner/agent wants to work directly with my father. This is possible since my father isn't using an exclusive agent. The selling owner/agent has told my father that he will lower the purchase price to $440,000 if my dad completes the purchase of this home by wiring $390,000 for the home. Then wiring an additional $50,000 to him. The selling owner/agent told my father that this would allow him to not pay long term capital gains tax on the $50,000 he would otherwise have to pay on if he had sold it to my father for the one lump sum purchase price of $440,000.

The second objective my father and I have is to renovate the property and then do a cash out finance and pull out as much money as possible.

Here are my questions:

1. If I finance the property with a lower sales price, will that lower my appraisal?

2. Should I have my father tell the selling owner/agent the plan to finance and how it'll negatively impact the appraisal if we buy it for a lower price, therefore, we could pay $10,000 more and have the total purchase price be $450,000?

3. Can my father finance the property 5 months after we complete the 1031 exchange and finish renovations and pull out 75% of the appraised value? What are some pointers about doing this, since it's kind of the reverse of what most people do.

4. Will that money being pulled out be subject to tax?

5. If we hypothetically purchase the property for $450,000 and then put $80,000 into renovations. Should we theoretically be able to finance the property as an investment mortgage up to 75% LTV?

6. Theoretically, is it a stretch to say that an appraiser will look at the purchase price and all the work we've done (backed up by the actual costs of renovation invoices of work done) after 5 months of the purchase and just add the renovation cost to the purchase price and make that the appraisal value?

Thank you for reading this and providing any advice or feedback.

 6 PM according to this post Tucker. I'm interested in going as well, not definite if my schedule will allow it as of yet.