All Forum Posts by: Zach Westerfield

@Mike L. This is a question for the lawyers, but maybe you can transfer to your personal name, secure the good debt, then form a new LLC to transfer too.

If you are really worried, maybe you can structure that LLC in a holding LLC, like many of the post and books on here suggest

@Mike L. @David M. Is right, you need to consider that asset protection. I was just answering the ethical part of the question.

You should be able to find decent commercial terms pretty easily. 5% for a 10 or 15 year fixed is pretty common. 30 year fixed at 5% would be great, that matches agency debt on some of my properties. I personally haven’t found that yet. Make a list of every local bank you can find, then set an afternoon to call them all. Ask to speak to the commercial lending department, then ask what terms the offer on investment properties. If your property cash flows at the terms you mentioned, you will not have a hard time beating that

Congrats on the first rental! 

First, dont sweat the hard money. if the numbers work, the important thing is doing what it takes to get the deal done. After all, 9.9% is historically low for hard money anyway. 

is your hard money interest only payments? I would start by calculating the costs both ways and comparing. 

- Hard money costs = interest x # months until final refi

- Refi costs = closing costs + interest - amortize this over the same period about

Things to think about:

i dont know anything about arizona, but in a lot of areas you may have trouble getting a conventional loan if the project is in too bad of shape

consider cash flow: even though the conventional is a lower interest rate, you have to pay principle as well. run cash flow numbers with both scenarios and see what makes sense. since its a rental, two months of deferring payments will not make a huge impact in the long run

Good Luck!

lots of threads on the forums here about transferring title. Since you asked if its ethical, ill give my opinion.

1. as far as i know, this is not really a legal issue, more of a bank rule. 

2. since its a recourse loan, the guarantor of the loan doesnt really change

3. to me the ethics question boils down to the intent of the rule. i believe the intent of the rule is to prevent you from transferring title to someone else. if you did, the bank (who underwrote YOU) will no longer necessarily have the same guarantee they did before. In essence, you told the bank you would back this loan, then transferred that responsibility to someone else. 

in this case, you remain "that person" who the bank has dealt with. i do not see it as unethical. im sure others may disagree. 

@GP G. Augusta and Columbus. I would not touch Macon unless you know it intimately. Too much risk and headaches

@Tristen M Walker I would ask you banks about the business account question. However a sole proprietorship is a business as well, so it seems logical you may be able to open one. However, many business accounts come with additional fees, so if you don't have an LLC I would encourage you to just use a separate personal account. On the contrary, I don't think the bank will open a personal account for a business.

I keep all my accounts completely separate. This will help you out when you do form an LLC as the structure is already set up to keep it segregated.

Most states have laws on how security deposits can be held, so check there first. I know in FL it has to be non-interest bearing, so I can’t use a savings account. I open a separate checking account. I put all security deposits in one account, and note the separations through my bookkeeping. However I only use this account for security deposits, nothing else.

I also opened a separate account that I call “vacancy and repair escrow”. Every month when rent comes in i allocate a certain percentage to this account. When a repair comes up, I use this first. When I have vacancy, this account “pays” my operating account so that cash flow doesn’t stop.

@Etienne Dubois money is just one part of the business of real estate investing. Knowledge is arguably more important. Like the saying goes, “two men met on the street, one had money and the other had knowledge. The one with knowledge left with the money and the one with money left with knowledge.”

If you do have experience and knowledge, great. If not, With that sort of capital, it should be easy to find a partner who has knowledge and experience to invest with. However, I would still encourage you to learn some basics before you start. Even as a limited partner or “passive” investor, you need to be able to vet your investment decisions and understand the investment you are considering.

While I personally like the multi family space and am looking to grow into that sector, I do not believe it’s the end all-be all many people make it out to be. Yes it has many great attributes such as economies of scale, but it also has its own unique risks. Having all 100 units of you portfolio in one location presents a risk over spreading into different areas and markets. I own properties on the coast of Florida, I definitely like spreading them out geographically so one hurricane doesn’t wipe out my entire portfolio. Also, I like exposure to different markets. Real estate is local, and if another crash does come, I believe some markets will fair better than others. You could also split the money and invest $100k in five different multi family deals.

Ultimately, I don't think you can go wrong either way. The key is to do you homework and buy quality investments. Across the board, if you are looking for a true passive investment they tend to assimilate to similar returns. The typical multi family offerings touts a 9-10% cash on cash return and 15% IRR for limited partners. To do better in either multi or small multis or SFR you may need to take a more active role.

I have used private money, hard money, and a multitude of banks. While working with banks can be a headache, financing in general should not be scary. "Leverage" is a great part of this business. Take some time to learn key terms and understand the basic ratios such as debt-to-income (DTI), Loan to Value (LTV) etc.

some of the best products i have right now are renovation loans from local banks. i am getting up to 90% of the project cost (Purchas + rehab) at 6% interest for 12 months interest only. This beats the private money terms i have used in the past. 

I have looked into the 203K loan but not done one. I have done multiple FHA/VA loans. A few questions

1. Do you have decent credit?

2. Do you plan on completing any/all work yourself or hire a contract?

3. Do you have a resource to get recommendations on good contractors?

The problem with the 203K loan (besides the paperwork) is the timelines. The hold the repair money in a draw account, and will not release it until paperwork is completed and an inspector has been send out to approve the work. On top of that, the contractor may not complete completely in order with the scope of work. for example, maybe a draw was set up when all flooring was done, but he found subfloor issues. A good contractor will continue to work other parts of the project as the delay is handled. However it may take him a while to get 100% of the project finished. He will still expect to get paid, as most contractors have to make payroll weekly. 

That being said, if you go the 203K route you definitely need a reserve of cash on hand so you can pay the contractor when needed, then have the bank reimburse you. I would recommend at least 10-20K depending on the size of the project. 

A better route that I utilize (again depending on credit and size of the project) zero percent credit cards. Many have 0% for 23 months or more. This works if the propperty would qualify for FHA without the rehab. Or i have done a seller escrow account. Me and the seller agreed to increase the purchase price 30K, and he would put 30K in a seller escrow account for repairs. I did an FHA loan this way, and 30K took care of the required repairs to get the loan approved.

You are right, demo is not very expensive especially considering you will be gutting bathrooms and kitchens. Your total demo cost could be less than 10 percent of your kitchen budget alone. 

There are numerous dumpster companies, call several and get quotes. They can vary on price, and the amount of time you get to keep the dumpster. In my areas, ive seen prices range from approx $350-$750, and timeline from 14-30 days. Many of them also have weight limits, so if you are filling with concrete or roofing shingles you may have to pay extra. 

Most likely you will not save much money by doing it yourself. I have done several myself, and found it can sometimes cost more. I even found a guy off craigslist to do a demo for minimum wage. The last case definitely cost me more. Most the contractors I use have their own dump trailers, so do not pay dumpster fees. Because of this, they usually only charge labor plus the dumping fee at the landfill. In this most recent case, the contractors quote for demo was less than what I paid the worker plus rental fees for a roll off dumpster. Lesson learned. 

if you want to get hands on, and learn a little while you are doing it, then by all means get started yourself. there isnt much you can mess up and there is little risk of cost escalation whichever way you do it.