All Forum Posts by: Benjamin Aaker

This is a tough one. You don't want to kick out anybody who is paying the rent. If the sale price supports the lower rent, and the tenant keeps paying then you could keep them in until they move out and feel good about it. If the sale price doesn't support that, then talk about it to the seller. The seller is the one who is forcing them out by selling for a higher price.

You'll have a hard time finding a bank to give you a 100% LTV loan. You asked about lenders though. You might be able to find a private money lender who will do this. You usually will need to have some history in the business first. Since you mention holding cost, it sounds like you'll be flipping. In this case, you need to borrow the amount you will need for holding costs until the place sells. You'll need to predict how long to rehab. If this is your first time, it's usually longer than you think.

I don't have any books to recommend here. Maybe one of us could write one.
I recommend that you have outlined clear responsibilities for each partner. Get very detailed here.
Outline what each partner is bringing into the deal, whether that is work, money, or other.
It would be beneficial if the partnership had one clear leader who owns the most interest in the company and makes the decisions. This requires a lot of trust. If you can't do this, then evaluate whether you should be partnering. If you still want to go ahead 50/50, look into a Texas shootout clause.

Hi from a fellow Midwesterner! You picked a great place to invest. If I were in your shoes, I'd also start shopping around for commercial lines of credit. Unless you have that next project picked out right now, you'll be sitting on a pile of money doing nothing if you refinance. With a LOC the money is ready to go right now. You might even get a better LTV. The interest rate will be higher and variable but you aren't paying it unless you use it.

You might want to consider the house hack. Buy a 2 to 4 plex and live in one unit while renting out the other ones. You'll need to keep saving up for a down payment. Once you buy, that 2k you are putting into rent will go way down and hopefully your tenants will pay your mortgage. This is a great way to get started.

@Sabrina Mouavangsou, I didn't clearly state: the contractor needed to have furnishings, so I bought them up front and he paid a monthly fee to reimburse me for them. I got to keep them at the end as part of the deal. I ended up with a couple percentage points higher. I sold the property at year 2 rather than the planned year 5. I paid all 5 years of preferred returns and the rest was split 60% investors 40% principal. A great deal for everyone.

I budget 1% for closing costs. Agreed that you should have a minimum 6 months of reserves. You should keep 5% of the gross rental income in a capital expenditure account, which is similar to reserves, but you keep adding to this going forward. Other expenses should be already calculated in your analysis and will come out of the income.

My mistake: Buying too far away. Start with one that is close, so you don't have a problem visiting it. Whether you are just checking on the place or doing some work there yourself, if it is too far away, you will likely not go there enough to run it well.

The investment property will require a commercial loan. I don't know of anyone less than 80% LTV (20% down). Remember, with less down, you have less equity and your mortgage goes up. If you have the cash it might be better to put it in and do a line of credit later.

A lot of great advice here already and I won't repeat it. I'll add that many sellers are reluctant to give a bunch of financial information until they have a signed purchase agreement. Often, the seller will give you a pro forma annual income of the property (what it would make if the rents were always collected and no vacancy for a year). You can divide this by 2 as a very rough estimate of expenses. Divide this number by the going cap rate in your area for this type of property and you have a property value to work with. Once you start talking numbers, some sellers will be more forthcoming with information.