All Forum Posts by: Art G.

Here is a great video by an attorney long time real estate investor that explains LLC vs S-Corp.

As to your other question about "setting up the business and tax structures..." I am not sure if setting up a business does require a license but it sure sounds like it does require you to be a certified financial planner or something licensed. As far as giving tax advise... YES you must have a CPA license or be a tax attorney.  When You answer questions from people, say, have you thought about doing it like this.....? Just an idea, you should ask.... (professional). That way you are covered.

Here is the bottom line, you are putting yourself out as a professional to people with a lot of money on the line. If they fail, which likely will have nothing to do with you, but if they do, they will want to sue someone to get the money back. And since you are a professional they will be coming after you.

Ask yourself this, can I get insurance to cover the practice of giving advice on these topics? Call Insurance companies and find out if they would cover you, and if they require a professional license before they do.

I do not see why you are sticking your neck out there and creating all this exposure, when you receive no benefit from it. But if you can currently get insured for this, and you get paid extra for doing the extra work, then go for it! Just make sure your long term is protected.

Are you saying you are wholesaling them? Or buying them at these deal prices? Rehabbing and holding as rentals?

Either way here is the math on each.

1- 118k x 70% less rehab of 25,200= $57,400 Looks great! Asking price is below investor math.

2- 118k x 70% less rehab of 11,200= $71,400 Looks great! Asking price is below investor math.

3- is the same as 2

Good job if you are wholesaling them, or if you are buying them!

Generally the math goes like this. If you are using Cash or subject to existing loan then its 80% ARV less rehab costs. If you are getting hard or private money loan, then the structure is 70% ARV less rehab costs.

Good questions. Personally when dealing with bureaucrats, and I deal with a lot of them, if I get an answer that I am unsure of, I go ask a different one. If its the same answer you are good. If its different then you need to ask a pro.

The supplemental tax is for the month of June, but the new rate starts in July, so really it sounds like you are just avoiding an extra month of taxes at the same rate you will be paying. But again, ask your tax man about that one.  If you are worried about paying a month of extra tax, contemplate the lost month of rents and see how much money you lose by waiting a month to close.

If the deal is that good, I would bite the bullet and pay an appraiser to evaluate it. Its like $600 out here but might be better out there since there is not a lot of action in a rural area.  Secondly, go and talk to the local realtors and ask what the market temperature is.

If you are borrowing money to do the deal then you have to factor in the extended period of time before you sell it and how much extra interest that will cost you and reduce your profits.

Finally, I use realtytrac to evaluate potential deals, but for comps I find zillow is best. Pull up your address, pan the ariel view out a bit, then click on the tab "listing type" remove the "for sale" & "potential listings" sections, and then click "recently sold". That will highlight all the sales. From there just click on each yellow circle and evaluate the home. Factor in its size as well as condition and land size.  If you still do not have current comps, then use the older ones, and factor in what the appreciation has been in your area over 4 years, usually its 3-6%/year. But you have to calculate it one year at a time. 5% for 100k would be 105k, then 105k x 1.05= 110,250 x 1.05= 115,762 x 1.05= 121,550 x 1.05= 127,628.   100k property in 5 years appreciated to $127,628.  You do the 1.05 so that the calculator keeps adding the increase to your previous number.

Google what the appreciation has been in your area. That will tell you what number to use.

First of all, is the home listed with an agent? If it is listed then you must go through the agent.  Agent's can be helpful.  They can explain complex things like owner financing and the seller will trust them.  Most sellers do not understand it. You eventually have to say You be the Bank. Then they get it. But the trick with an agent on owner finance you need to have enough down to cover their commission.

From there, the angle is how much extra money they will be making bc of the interest added to the sale.  Do all your mortgage calculations in advance so you know how much extra interest they will earn.  Few sellers will want to wait the full 30 years, so be ready to offer a balloon payout in 15 years, 10 years, even 5 years.  When it gets down to 5 or below, I switch to an interest only option. They make the full sale and 3-5% extra per year when balloon payment is due. This is a nice selling point for them. The benefit to you is that you have a much lower loan payment to start the rentals. This allows you to stock pile money faster and thus afford a down payment to refi and or get to the 80% threshold bc the property will appreciate 5-6% in 5 years, thus decreasing the margin you will need to refi at.

The key is appealing to the overall amount he will make from the sale. Your next key is to get the realtor on board and that she will close asap and you will have enough down to cover the commission.

Note buyers buy at a large discount. You will not get the full value and likely take a loss.

You would obtain a brand new loan in your name.  The total loan amount would be required to pay off the previous loans from seller. That way your loan is in first position and bank is protected.  Bottom line, is that its in your name and pays off all loans before it.

All make good points. The year lease is def in order here. My feeling is she was talking you up.  If its that hard to get rentals there then she knows saying she might buy yours would give her priority as a tenant. Mean while she is going to shop around for the home she actually wants and then leave you when she is ready to move.  

If she wants to buy your home, then sell it to her. Otherwise year lease.

and @Brian Gibbons thumbs up for linking relevant law to the texans on lease option issues and for conveying the alternative method!

Here is the 15 year loan payment plan incase you need it. Its $414.35 per month and total interest is $14,583