All Forum Posts by: Bill Briscoe

Mark,
How do you not work with sq ft? I understand that all else equal, a bigger house will have a lower $/sq ft than a smaller one, but if you are looking a good comps - +/- 200 sq ft, same beds/baths/garage, age+/- 5 years, and condition and neighborhood don't you have to plug in sq ft somewhere in the appraisal formula - especially for mass-produced suburban SFHs? All realtors use it for CMAs...

I guess my question about the brothers comes down to: is it easier to "over-improve" relative to your neighborhood in a low % OO area than a high OO area?

In OK, prices are and always have been so low that its credit and stability that generally determines whether someone owns or rents long term, not income. Renting generally costs more per month than owning, so if you have good credit and therefore can buy, why would you buy something nice in a run-down neighborhood?

Jon,
I'm only doing the repairs that I've done before on other houses: pouring a small patio, installing new light fixures, replacing a toilet or a bathtub insert or a new sink, paint, siding repair, drywall repair, or even a water heater - none of that requires a permit in OK. I'll have a pro do the roof, AC, and carpet but those don't require permits either.

I'm aiming to buy newer (20-30 years) homes and I'm not changing anything structurally or adding sq footage or replacing wiring mains - and I'll have the wiring/plumbing inspected to make sure.

The cost approach could drop over time because of depreciation. But then, cost approach is most appropriate for new construction and/or unique property types.

That is what my SIL told me tonight. Her brothers bought 4 houses to rehab and flip and couldn't sell any of them for a profit, so they kept them as rentals. She said no one could afford to buy them for what they are worth.

Is that more of a function of the market as a whole (Tulsa, OK) or because their houses were in a low income part of town where probably >50% of households are renter occupied, and qualified homebuyers can look in more desirable areas?

My rehab plan is to buy at around $48-50 per sq foot in a newer part of town - 1990's construction, then depending on the quality of the house, ready to move in comps are asking $73-83/ft. Does that give me enough room to make a profit assuming I do a lot of the minor work - new showers, paint, siding repair, fixtures, landscaping myself and hire out for AC/roof/carpet from discount outlets?

At a minimum it should cash flow $200-300/mo if I rented it.

Curt,
That is exactly my plan. Only I thought we would use a CFD to transfer the property from my name to LLC instead of a quitclaim - that way I make sure the LLC stands behind the loan payments or I get the collateral back.

Any other thoughts on CFD vs quitclaim?

Rob,
I've already done it on my own, and it wasn't that much fun.

The last company (propane industry) I worked for was basically owned by 2 partners who were best friends. They sold most of their equity to a fund and became very wealthy men, who are still best friends.

So I've seen it work. But if you have any specifics on how to do it well with a partner, I'm open to that.

Please let me know if I'm missing anything here or what else I need to consider.

I'm wanting to partner with 2 friends to form an LLC to buy rental property. We don't have a ton of cash so my first thought is to buy Homepath FNMA REOs that require only 10% down. So that we don't run into the 4 property limit as soon, the plan is for me to buy one in my name, then person 2 in his name, then person 3 in his name, and so on.

So for property 1, which will cost $100K incl closing costs: loan from Hompath for $88K, plus 12K put down by me, which I received from the LLC.

I will immediatly "sell" the property to the LLC under contract for deed for $100K, of which 12K is the option payment and $88K is the balance of the loan.

To form the LLC, we each put in $8K for a total of $24K equity. $12K goes to me to make the down payment and the other $12K stays in the LLC bank account for repair/vacancy reserves. The opening balance sheet looks like:
Assets:
CFD for Prop 1: $100K
Cash: $12K
Liabilities and Equity:
Loan balance for CFD on Prop 1: $88K
Owners Equity: $24K

Income Statement:
Rent Revenue: $1100
less PITI: -$661
Less vacancy and repair reserves: -200
net distributable cash flow: $239

$80 distribution to each investor for per month on an $8K initial investment.

As the MTG balance drops, the equity position of each investor increases, once paid off, the CFD is exercised and equitable title transfers to the LLC, and I no longer hold a financed property in my own name. At that point I hold a 33% equity stake in an LLC that has a fully paid for property as its asset.

For property 2, partner #2 will put the house in his name and we will each make the same equity contribution and repeat the process over again, rotating the name on the loan until each of us hold the 4 financed properties in our names. That should give us a limit of 9 to contribute to the LLC in addition to the homes we live in.

What kind of pricing flexibilty is everyone seeing on HUD homes in various parts of the country? Are they still going for list price or has anyone completed a transaction at substantial discount from asking price?

I have 2 properties right now - the home I live in and a small ranch. The ranch is paid for, and I have over $75K in equity in my home. Rental income from the ranch is $700/ YEAR. I have owned a SFH rental in the past but that was in another financial market era.

Anyway, if I were to buy a 2nd home as a rental, what bank terms could I expect? 10% down? 20% down? 30 year fixed rates same as for O/O 1st home or higher?

I make a good income, have no debt other than my first mortgage, perfect credit, etc