All Forum Posts by: Mark Yuschak

This question comes up every now and then around forums.

I'm of the school of thought that using a HELOC is an excellent, inexpensive way to fund a flip. I don't know of any other debt service which is as cheap as a HELOC, and especially at today's rates. Most people are paying prime or prime plus 1 or 2. That's cheap money!

Hard money is not only expensive, it can be time consuming to justify to your lender that you're a good risk. I often equate this to the simple proposition: if you're using hard money to spread the risk, then you must not have confidence in the deal. If you don't have confidence in the deal, what makes you think a HML would have confidence in you or the deal?

Since a HML is expensive (1-2% per month, plus points), why would you want to openly pay more to a HML when you get HELOC money so cheap? Do your due diligence. Be confident in your numbers, spread, and yourself. Fund it yourself and save the hassles, underwriting costs, and time investment. If the numbers don't work, find a better deal. Don't try to drag a HML into it. It will only make the deal more thin!

In my opinion, a hard money lender should primarily be used when all your other capital is tied up yet the deal is so hot that you'll pay expensive rates to make the deal work.

My next flip candidate is a house which was involved in a bad house fire. I have a good team to reconstruct it, however, my bigger concern is the end buyer getting funding after the rehab is done. Has anyone ever run into an issue with getting an FHA or conventional loan to close if the property was previously involved in a fire?

The last thing I want to do is rehab this property only to find out it's too late to get the end buyer funded.

These are all great tips.

Since the areas where I have rentals allow the landlord to put the water in the tenant's names, I take full advantage of that. It doesn't make me liable for any unpaid water bills. However, the flip side is that the tenant has to pay a hefty water deposit. It ranges from $150 - $250 to get the water turned on. So, if a house rents for $600, it costs them first month rent, security deposit, and upwards of $250 to turn the water on. $1450 to move in can be tough to overcome. Charging more of a deposit is a good idea, but it comes with even more of a challenge for the tenant to come up with the money...and likely go find another landlord to rent from. This is definitely a trade off!

Adding verbiage in my lease (maybe even in bold) that the security deposit is not to be used for the last month rent is a great idea.

To the best of my knowledge, there is no area restriction on buyers who intend to get FHA funding. The bigger concern is with whether or not the property meets FHA's guidelines for safety and livability.

When flipping a property to an FHA buyer, you'll need to budget to have a second appraisal. The buyer pays for the first appraisal. The seller typically has to pay for the second. FHA does allow flipping, but they require two appraisals.

I've never had issues flipping a property to an FHA buyer. If the house is in good, habitable condition (as it should anyway after a rehab), you won't have any problems.

This is occurring occasionally in my area as well. The biggest rehab I've seen was a full mold remediation and it's trickled down to smaller things such as paint and carpet. 99% of the time it's just paint and carpet.

The local credit unions have been doing a lot of their own rehabs lately. They've wised up and learned they can get more for the properties if there aren't missing kitchens, bathrooms, plumbing, etc. It makes the most sense for a local credit union to have a property rehabbed than it does for a large, national lender. The CUs have a better gauge on the market, contractors, etc.

This can be tough to screen against especially when the prospective tenant is moving from an apartment. If the prospect is moving out of a house, I make it part of my screening process to drive by the current home (assuming it's in the area) to see how it is up-kept. If the outside looks horrendous, the inside likely is too.

This is something I routinely struggle with in my rental business. Nearly every tenant thinks their last month rent is to be covered by the security deposit. Each time it comes up, I have to school them about what the deposit is actually for. About 50% of the time I will get the last month's rent, then refund the deposit as applicable. The other 50% of the time they don't pay and assume the deposit has them covered.

In the case where they don't pay, I treat it like they're delinquent and issue the 7-day notice. Usually it falls on deaf ears and they still move out. If they don't move out, at least I've gotten the process started and not wasted any time (and only a First Class stamp).

Does anyone else have this issue? Any tips to help overcome this tenant mindset?

To add what Monica Breckenridge stated, the end buyer will want to make sure they record the proper documentation with the State for the Registered Owner/Agent of the LLC or entity.

It's also in your best interest to have that updated with the state, too. In the event that property is involved in any lawsuit, lien, etc., you don't want anyone dragging you into it.

You should also check with your local or regional banks. Often times they will originate loans that are not sold off.

Credit unions are also a great resource for investors.

This is a frustrating situation, but it sounds like you're staying positive and on the right track.

I would use the inspection report as a checklist of each thing that needs to be corrected.

Did you have a general contractor on the job? If so, I would definitely bring this to his/her attention and find out why such obvious things were not brought to your attention so that they could have been rectified during the rehab. If you were the GC, use this as a learning opportunity so that you don't make the same mistake twice!

Don't skimp on making the repairs. I would correct everything on that list that you reasonably can. You want to create a strong name for yourself in the local market. Overtime, it will pay off when your properties sell quickly since the buyer agents will appreciate the workmanship.