All Forum Posts by: Benjamin Aaker

I also agree that you should go with the LLC. Also, it gives you more (but not complete) liability protection.

It can be done. What bank currently has your mortgage? Also, talk to your personal bank. Here, we call it a business line of credit.

You are an apartment owner and probably see the value of owning an income-producing property. Is there truly no price at which you would be willing to sell? I look at these calls as an opportunity to make a profit and turn my apartment into a bigger one. You must have a desirable place if you are getting this many contacts. Congratulations!

Since this is your first one, I recommend having a buyer's agent. The seller's agent in some states can represent you as a dual agent, but there is a conflict of interest there, which is why some states don't allow it. A lot of commercial deals are never listed on the MLS and word of mouth is very important. Hence, you should have an agent with a lot of contacts/experience in the area. As deal values get bigger, the typical 3% decreases. In my area (Sioux Falls) the seller usually pays the buyer agent's commission.

Hi John,

It sounds like you are at the evaluation stage of your project and don't have one under contract. At the very start I ask if the seller is willing to give me their rent roll or at least their annual income. Use a 50% expense ratio to arrive at a likely net operating income. Talk to some agents or property managers in Columbus and ask about what the capitalization rates are in the area. With this, you can calculate a rough property value. This shouldn't be used to rule in the property, but if it is far off the asking price, then it rules it out. Next, you should consider sending in a letter of intent. In it you will ask for tax returns, a T12 (trailing 12 month profit and loss statement), any insurance payouts, major work needing to be done, any contracts with other parties, and the rent roll if you don't already have that.

Hi Brian and welcome to BP! Thanks for the question. 
The FHA loan can be sometimes challenging. The best bit of advice is to talk to your banker about it. Not a mortgage broker, a banker. The bank has to report to HUD but the bank is the one making the decisions on whether to offer the FHA loan. The bank has an interest in enforcing the rules, but also wants to make loans.
The rule states that you must move into the property within 60 days of purchase and reside in the home the "majority" of the year. I haven't been able to find a more specific definition. To repeat, have a talk with your banker. Your idea might just work.

Since you are looking in your own area, networking is the best way to do it. Go to the local REIA and ask around. You might also contact title companies in your area. They may be able to connect you to some lenders they know. Also, friends and family are sometimes good private money lenders.

Is there a prepayment penalty on the ARM? If not, it would be fairly easy to refinance at year five. Does the 20 year term make the monthly payments too high for your property? If not, I don't have a big issue with 20 year. All my commercial loans have this term or less. You'll pay a lot less interest that way too.

Generally, if you are going to buy and hold, hard money is not great. These lenders will have an expectation of being paid in full within a timeframe measured in a few months. You would be unlikely to be able to pay them back unless there is significant rehab and you are certain you'll be able to bank-finance after the rehab.

Get references. Understand that they will be asking a high interest rate as they are taking a risk on you. Even more so if you are just getting started. Title companies are a great place to start asking about buyers using hard money lenders. They may be able to connect you to the buyer, who hopefully will refer you. Good luck.

You do indeed have to utilize one of the units as your primary residence. First, ask yourself if you would move into one unit if there was one vacancy. If not, then FHA is not for you - get a commercial loan. If so, then have a look at the leases and see when they expire. Any that go month-to-month could be given 30-days' notice to vacate and then you could move in.

Your bank will be the determiner of whether they will offer an FHA loan, but they have to report to HUD. If you can prove to the bank that you will be moving in after a short period I do believe you will have some wiggle room on timing. Just be sure you actually move in and make it your primary residence.