All Forum Posts by: Amy E.

I'm from Georgia but have a friend of a friend who is in the rehab business.  He wants to flip a property together and one of the properties is on Huntington rd just south of a school.  I am not at all familiar with the area, but it seems to be mostly lower income rentals.  Are investors buying these or is there a market for them?   In my area lower income rentals sell well but not in neighborhoods with nothing but rentals.  Is this Detroit neighborhood similar (this isnt a good flip neighborhood) or is there actually a market for this type of housing?

The houses are in my businesses name and so is my current loan.

Because I was nervous about investing in rentals, I bought my first three properties with cash. After about a year and a half I shopped around at three different banks: the first had too high of a rate, the 2nd never responded to my application, and the third had a good rate on a line of credit. I secured a $120k business line of credit (LOC) at the third bank using the three properties as leverage and signing personally. I promptly went and bought two more houses with the cash. I now have three leveraged and own two outright.

At the time of the original loan, my loan officer said that refinances were easy and that she could roll any new houses into the LOC.  Its been about a year, and I have just been denied a refinance to increase the LOC and include the two new houses!  My loan officer is giving me the run around.  She has said the denial makes no sense, she is looking into things, she's sure there has been a mistake, etc.  When I for status it takes her a week or more to respond with more of the same.

I am going to start shopping around for a new bank tomorrow.  But before I do, I just wanted to make sure that I am not being unrealistic.  To recap:  I have a 800+ credit score, am willing to personally guarantee the loan, I have had the same job for 10 years with a good income/W2, I have been in business more than two years, the business has positive cashflow, all houses are rented, I own two of these houses outright in cash and I will even break the $50k/year of gross revenue that some banks require before they'll lend.

Is there something I'm not considering?  Is it realistic to expect a bank to lend to me?  I just need a sanity check before I go through all the paperwork hassle of applying for financing again.

@Tarl Yarber, 

Saw this post from awhile ago, I was just curious if you compensate the "local agents and other investors" who drop by and take pics of your homes for you?  Or is there a realtor you intend to list the home with to sell it and they are doing this so they'll be able to sell it when its done?

Communication (aka expectation management) is the key to a happy relationship....of any kind.

For dealing with the current guy, sounds like you need a lawyer to at least mediate how to fire him if your contract doesn't have an out clause.  If you don't have a contract, I don't think he can put a lien on the house (this varies by county/state, so still check with your lawyer).

For future guys, get a statement of work and be SPECIFIC down to the nitty gritty.  You shouldn't ask "is that to code", you should be able to point to a contract and say "The statement of work and contract says the deck will be built in XYZ way, when can I expect it to be completed in accordance with the contract?"

How are you finding your contractors?  I find the best ones by word of mouth.

@James Bolden, I buy houses in the 1950-1970 range.  To me, that's "old".  

It was difficult at first to find someone willing to do the smaller jobs.  Those type of folks don't have a website or advertise, since they're typically retired, don't mind small jobs and sporadic work, and aren't trying to build their business.  The best way to find one is by word of mouth.  I found my current guy by wandering into a small locally owned paint shop and saying, "do you know anyone who can build a deck handrail?" and a guy getting paint gave me his card.  He is now my go-to handyman and is a "retired" general contractor with an active license.  Retired police/military/firefighters/contractors/plumbers/etc. or other folks who are retired but want some "extra" money for hobbies are good sources for finding someone willing to do smaller jobs. 

Do you mean house hack by living in it while you rehab? Or by buying a multi-family and living in it?

Not from ATL, but have friends on Mayfield Dr. in Decatur and it seems doable there. That neighborhood and the ones immediately next to it have lots of options.  Lots of mid-sixties ranges just begging to be rehabbed.

An LLC is a business....I file a form 1065 with mine. I am too high of an income to just claim a loss, but I can carry loss over and deduct it from the next year I have a positive income. I also get loans in the name of my LLC (that I personally guarantee). Talk to the bank and say that you want to transfer it for liability purposes and ask what the options are for lending to an LLC, I have better luck with small local banks for this.

My CPA said the easiest way to save money on your personal taxes is to start a business; because you are actually spending money on the business of owning a rental property, but right now you can't always claim the deductions whereas the business could.  Talk to a CPA, I get a lot of this stuff confused, which is why I hired one.

It sounds like you bought this property as a buy and hold.  Long term, you are going to pay much more in interest if you extend the loan term.  So, as a long term investment, you need to weigh your total life cycle costs that are going to increase if you refinance vs. the short term "cashflow" gain right now.  Extending the loan may bring more cashflow now, but at the price of a lower profit when you finally sell.  You need to look at the total lifecycle costs (purchase price, rehab, upkeep, interest, taxes, insurance, etc.) when you are doing a long term hold.

Its really hard for me to believe that a property that does not cashflow at a 15 year loan term is a worthy investment to keep.  Surely there are other properties in your area that will cashflow at a 15 year loan term and also appreciate?  But I do recognize each area is different, so maybe not.

Have you talked with a CPA about starting a business?  It seems like you would reap more tax benefits that way vs. trying to deduct stuff from your personal taxes, unless I've missed something.

I prefer to pay things off because my goal is a minimum net cashflow per month for as little effort as possible. That said, I've run the numbers and it does make more sense from a purely dollar value standpoint (ROI, total net profits, CoCR, etc.) to leverage properties to buy more properties. But you've got to have a balance of this with your personal goals as well. After all, most of us don't want to own a huge real estate company, we want X amount and when we get it we'll stop.

One thing that seems a bit off, though, you mention the property does not profit.  If that's the case, you should likely just sell it.  Sounds like it may just be a bad investment.  Paying off the debt may allow you to get some profit, but it won't make it any less of a bad investment and if you sold you could use the money to buy a more profitable property.

1) My lawyer charges $475 for closings and about the same to review my lease......how many real estate attorneys have you asked?  The thing of it is, you don't need a lawyer until you need a lawyer....kinda like insurance.  Other than there is usually a filing fee at the courthouse (mine is $18), I don't think you're missing anything.

2) Do you want to sell it, or do you want to be a landlord?  Typically I keep good properties that are cashflowing.  If they aren't cash flowing, I would sell them.  If the tenant specifically asks about rent to own, I find a number that makes it worth it to me and offer.  But I never buy a property with the intent to sell it as rent to own.

Sorry that's not much help.