All Forum Posts by: Zane Lyons

You're a legend man! I remember talking with you briefly back in 2021, awesome to see how things have turned out. UT prices have locked me out a bit, but I probably just need to find more creative deals. Appreciate the motivation.

@Mark H. Porter Appreciate the concern. It was definitely a large jump but the upside was really appealing given the location and other market rents. Luckily I would be able to raise the renovation loan through other means.

Unfortunately, the seller wouldn't budge on a few other key terms that made the deal unachievable. Was still an interesting exercise at the very least, though!

@Chris Seveney

Nothing is set quite yet including the interest rate – he has just made it clear that his target is ~$40k/m in cash flow and he is open to anything if we can hit that. Would it make more sense to structure it with a low interest rate? Any suggestions on how to learn more about the tax implications of a deal like this?

@Andrew Seeker

Agreed, it's a big payment! I had it structured very differently at first with much better cash flow, but that monthly payment is the most important piece to him. I think it can still work if I can trade the high payment for a low purchase price.

Pre-payment penalty hasn't been established, but I would push to not have one, of course – it would be much better off with a more reasonable payment through conventional debt. Definitely agree on the large risk of bearing all the reno + holding costs. Really want to defer the beginning of payments as long as possible to give myself room to start getting income. Since the building is vacant, I would hope an extra ~12 months wouldn't be a deal breaker

Hey folks,

Have an opportunity for a very exciting deal but would some love some input from the creative financing crowd to help optimize it/make it work.

Long story short, I have an opportunity to purchase a 32-unit complex with 0% down. The seller has a specified amount of cash flow he wants per month, and as far as I can tell everything else is very negotiable.

The hurdle here is that the monthly cash-flow he wants is high. It's serviceable, but it is cutting it close. He is looking for around $40,000/month. I think this could be adjusted (maybe somewhere between $35k-40k), but this monthly number is his main ask. I am sure this deal can be made attractive if the other terms are in my favor. The other hurdle is that the property is vacant will require significant rehab (mechanicals & cosmetics – structure is fine).

My strategy right now is to get the property as cheaply as possible, defer payments for 6-12+ months in order to get renovations well under way and units starting to rent, and then make sure we can hit his number for a 5-10 year period of seller financing, after which we would own the property for well under market value. In order to hit the seller's monthly payment, the units will need to be renovated to A-class. This area can support A-class buildings (downtown area with mix of A and B class) and the apartments are significantly larger than anything else on the market, so I think this is feasible.

Example Numbers:

PP: $4,200,000
0% down payment, principal only (0% interest), 10-year term, gets us to $35,000/m principal payment

Renovation: $2,800,000 (average of two quotes - one all encompassing, another comprised of subcontractors w/ GC fee)

Income: ~$54,000/m with competitive $/sqft

Expenses: 

$4,500/m in taxes & insurance (tax quoted from county assessor, insurance from broker) +

$3,050/m maintenance, $1550/m CapEx, 9% PM fee (quoted) = ~$14,100/m expenses

Assuming utilities will be paid for by tenants (standard in my market)

This gets us in at ~$150/unit/m cash flow, which is definitely decent to me. And at a 3-4% cap rate, gets us a value of $12-16mm! 

I would still need to raise the ~$3mm for renovations, which sounds like quite a challenge, but I feel like the deal can be strong enough that it would be doable.

Obviously more of this will need to be teased out during a true due diligence period, and there is a good chance I need to bump the purchase price to hit his $40k/m, but I wanted to post here to see if I am missing anything major.

Any creative financing folks willing to share input on a deal like this? Thanks a lot in advance

@Andrew Postell Thanks so much for this! This is exactly the sort of advice of I was looking for. I sincerely appreciate you lining out each point and will get our paperwork sorted immediately. One follow-up if you don't mind — is it not significantly more difficult/more expensive to receive a loan under a brand new partnership with no business history? I assume the answer to that is laid out in the first point: we can find a lender that is lending on the property's DSCR at which point the freshness of the business is a moot point. Is that right? I suppose we wouldn't have some of the benefits of traditional Fannie/Freddie loans (lower rates and ease) but the benefits would be the ability to lend on a much wider variety of assets.

@Lawrence Potts Appreciate your response as well Lawrence, I will definitely make sure we line out a precise exit strategy (in writing) and will have an attorney write up our terms. Thank you very much for your response!

Hi folks,

This is probably a simple question, but I'm having a bit of trouble finding the exact layout of a 50/50 partnership logistically, e.g., title, loan, funding etc.

I am looking for my second value-add deal and found a partner who is willing to invest purely financially and split 50/50 if I find the deal and do the work to rehab and find tenants (or flip).

We have discussed some ballpark numbers, but I'm fairly certain he is willing and able to stretch it if the right deal comes along. He has a decent amount of liquid cash and mentioned he could pull out an equity loan if we really needed to buy something cash, but he will likely be getting a mortgage in his name.

My questions are mostly based around the logistics:

1. Do I need him to get pre-qualified for a second mortgage/vacation home mortgage/anything like this before I find a deal? Again I have ballpark numbers, but don't have a hard line of what he could get a mortgage for and not.

2. Assuming I find a deal and we both agree to it, do we then form a joint LLC, sign operating agreement, open a bank account etc. that he transfers money into?

3. I assume we put the deed in the LLCs name, but the mortgage would be tied to him directly. We have a good relationship, but he did mention concern about having the mortgage solely in his name while each technically having 50/50 ownership of the property. Hypothetically, were I to run off, I would still own 50% of the property and have no obligation to the mortgage... right? I would like to quell his fears about this.

Any other tips of the more banal side of structuring a deal like this would help me wrap my head around it. 

@Chris Tarpey Yes that is definitely something I have to consider. I currently have two friends in the MIL basement paying under market rent because they moved in pre-renovation and suffered through it with me. Once their lease expires in February I will raise to market rents and I should "cash flow" (as in, my portion of rent will be under market rent and I could theoretically move out and cash-flow).

Hi all,

I'm just about finished with my first house-hack/BRRR combo strategy and it is going well, but could use some advice and direction at the tail end here.

I purchased and moved into a distressed off-market property in SLC, UT back in January of this year for $400K, putting 10% down ($360K mortgage). The house appraised for $430K, giving me a decent chunk of equity right off the bat. I took out a 100% LTV HELOC at a local credit union for renovations, and spent about $60K to fully update the place (so ~$420K total in debt financing).

I just got my appraisal back last week and ended up at $645K – I am very pleased with this outcome and think this deal went very well!

My initial plan was to do a cash-out refi at 80% LTV, use the funds to pay off the old mortgage and HELOC, and be left with ~$90K to reinvest in a second property. With rates ballooning so much in the last few months, I want to double check that that is my best option.

My current mortgage is around 3.5%, and my HELOC has gone up to 11.25%. My broker estimates my new mortgage would be somewhere between 6.5-7%. It pains me to refinance my initial mortgage and double my current rate, but I can't think of how else I can pay off my expensive HELOC. I also don't want to have ~$90,000 in "dead equity" and would love to use that for another down payment!

So my general question is: is refinancing (and doubling my current rate) worth it to pay off my HELOC and cash out my extra equity? Is there another option to keep my current mortgage and still cash out/pay off my HELOC? Any guidance or thoughts would be greatly appreciated.

Hi all,

Hoping for some thoughts and advice on a financing strategy I am hoping to use on my first house hack.

I purchased a SFH with a MIL duplex that is paying 2/3 of my mortgage.

I paid using a 10% conventional owner-occupied mortgage. 

Purchase price: $400k (I paid $40k down, so $360k loan) - The house appraised for $430k (16% equity).

ARV: $525K

Reno: my higher-end estimate is $50K.

I plan to fund these renovations largely with a 95 or 100% LTV HELOC loan.

After this, I get a little stuck and can’t quite wrap my head around things.

If I can cash-out refi 80% at 525K is this true:

Cash out $420k (525 * 80%), pay off the $410k loan ($360k conventional loan + $50k heloc), $10K cash for next down payment?

At this point, would I be able to use that $10k, open a new HELOC (or re-draw from the old one) to fund a future down payment? This is my understanding of the concepts, though it is quite complex so any insight on this strategy would be very valuable. Thanks in advance <3

@Mary M. I was also taken aback when I heard that not a single insurance company would take it as-is. This is coming from my insurance agent relative who has been pretty good in the past, but admittedly I haven't called around much after she told me. I definitely should ask around a bit more.

Do you think this is a don't-ask-don't-tell situation if I call more insurance companies? Or should I bring it up upfront? I appreciate the advice.