Help with Direct Purchase Deal from Owner

[Hector Bermudez]

Hello Fellow BP members. I am looking for some input on process from more experienced investors. Here is the background: I am looking to purchase a duplex out of state; directly from the owner. This is going to be a cash purchase for a quick close, using my HELOC to fund it. Once I have ownership of the property my plan is to immediately finance the property with a bank for 80% (apply that back to the HELOC) and keep the other 20% under my HELOC. Based on my evaluation of the property the gross rents will cover all expenses (PITI for traditional loan and HELOC); therefore no money down purchase. I am submitting a purchase contract with contingencies for inspection and acceptable appraisal. The property was recently renovated and does not appear to require any significant repairs, and that is also according to the owner, but I'll verify with inspection. I'll wait to see what the appraisal is but I expect it to be over my purchase price.

My questions are:

1) When the seller provides me with the Title Company to send the Earnest Money, should I use the same Title Company for Title Insurance and Closing?

2) When I contact the bank to finance the 80%, is there any guidance you can provide or are there any issues that I need to know to have them finance it since I will already have purchased it in cash? 

3) I am considering getting an LLC since this is the 2nd property I will have in this state. Should I obtain the LLC before or after I close on this property? Should I not get an LLC? Will obtaining funding from a bank with an LLC be a problem? If I get an LLC does it have to come from the state where I am purchasing?

I am open to any suggestions and/or guidance as this is new territory for me. It would be ideal to know all, but I feel I have a good deal so looking to move on it before I have all the answers.  Thank you in advance for your input and guidance!

Best regards,

Hector B

[Kerry Baird]

1. Yes, I would. How else would your earnest money be assigned to your closing? Also, if you are refinancing soon, ask that same title company for a discount rate for your refinance transaction.

2. Purchasing all cash allows you to refinance faster, under six months, through “delayed financing.”

3. LLC financing will be at least a percentage point higher on the rate, and insurance will be a commercial policy, I.e. expensive. Close in your own name. Use insurance policies until you turn the corner into the strong need for portfolio financing, which is often closed in an LLC.