All Forum Posts by: Brian V.

Hi, there is a 4-plex I'd like to buy. However the asking price is a rich $920,000. I figured out based on NOI, that if I put 3.5% down as an owner occupied FHA loan, that all I can afford to offer is $500,000. He posts his cap rate at $920,000 is 4%. Its a fairly desirable area in Southern California and the complex is in good shape.

Do I offer $500,000 which the NOI covers including PMI (and we are paying full price montly rental for the unit we live in)...or do I not offer because I might insult someone? If I sell my house, I can cover the down payment and purchase expenses and have about $40,000 cushion in the bank for emergencies.

I'm really interested in house hacking, and I've read many articles, listened to podcasts, and heard many success stories about it. The problem is I live in Southern California and people seem to want top dollar for paltry rents. Most of the income properties that cross my desk are very old and ugly. This one I"m interested in is pretty and exactly where I want to live.

Thank you for the feedback everyone. I do plan on trying for a 3.5% down FHA loan as soon as I can sell my house which is also FHA. I live in San Bernardino County and I'm trying to invest in Rancho Cucamonga, CA. It is a very desirable city to live in. Is it wrong to think that I can get in with a low down, and live in 1 of the units for free? That's my goal. If I'm not living for free, I'd rather just stay in the house I live in and not invest.

Where I live, the 2% rule seems to be a dream. And cap rates seem to be mostly in the 4% range where I'm looking. While I agree with the above poster that maybe low offers aren't a totally good idea, I don't think I should pay their top asking price that offers me little wiggle room to make money. 

I read stories all the time where people actually are paid cash flow to live in their unit for free. That's what I want. I'm just not willing to live in a property built in the 1940s in a rental district that's ugly and in a questionable part of town. The funny thing is, those properties are also asking for top dollar with a low cap rate here in Southern California...and forget the 2% rule.

I would like to ask again: How do I reverse engineer an offer price..based on my example above...they want $920,000 for a 4 plex . Given my goals of living for free, the posted rents, expenses, NOI, and cap rate...what would be a good price to offer?

I've been reading about "house hacking". I want to live in a 4 unit building for free and have the other 3 units pay the mortgage, all expenses, and a bit of extra cash flow. I have read story after story of people who got started investing this way, and I think its something my wife and I would like to do.

I've contacted a Realtor and begun receiving listings for 4-plexes in my desired areas. I've also been searching loopnet, zillow, realtor.com, and other sites. I'm struggling to even know what I'm looking for. It would seem most of these 4 plexes were built decades ago and are ugly. I own a 10 year old house, and its pretty. I want to live somewhere moderately pretty if I'm going to sell my house.

Anyway, I found a property I like. Its very nice, and its in a very desirable area. They are asking $920,000 for a 4 plex with a 4% cap rate. So forget about cap rate for a minute, and let me provide some numbers.

Unit 1 - 3/2 - - $1400 a month in rent. (I actually want to live in this one for free)

Unit 2 - 2/2 - - $1250 a month in rent

Unit 3 - 2/2 - - $1250 a month

Unit 4 - 2/1 - - $1150 a month

Gross income $60,600

Expenses $23,215

NOI $38,585

If I live in the 3/2 for free that's about a $16800 reduction in income.

So lets say that leaves me $21,785 or about $1800 to service debt?

Based on this info, how much should I offer? I'm thinking $450,000 with a $50,000 down payment. That is half of what they want! Is it insulting to throw the offer out there? How can I structure this deal? I was just gonna try to go FHA. How can I offer more? I only have $50,000 for a down payment when I sell my house. I would really like to live here though. But I don't want to pay "rent", although I currently pay $950/month for my mortgage now with my current income.

How do you reverse engineer an offer price? Is it ok to insult sellers? I like where I live now. I don't have to move. I'm not under any time constraints...is it wrong to have the attitude that I can make 50 "wish" offers and maybe land 1? 

My wife and I are retired. We make about $30,000 per year. Its very modest. We have $20,000 in the bank and about $50,000 equity in our house if we sold after selling costs and real estate commissions.

I had an idea that we could somehow sell our house and buy a small apartment complex. We would live in one unit for free and maybe collect a small monthly income after the mortgage and all expenses.

Does anyone have any ideas or resources on how we can accomplish this?  

I just bought 2 courses on Subject to. I'm ready to dive in. I've been studying all the material, methods, contracts, forms, and marketing ideas. Then after all the excitement, I came to a sudden crash--The dreaded "DUE ON SALE" clause.

I don't have much in my life, but I'm comfortable enough. I have a house, a new car, some money in the bank, zero debt except for the mortgage, and a small pension. Because I'm retired, I have unlimited amounts of time to invest.

The problem came up with the due on sale clause. If I have taken the deed subject to the owners financing and put a buyer in a land contract (or lease option) to buy the house, I'm going to have a big problem if the due on sale clause is executed. I don't have a good enough debt to income ratio or spare cash for a down payment to actually buy the house if the loan is called due. Then the bank would forclose, and I would have to break the contract with my buyer, who has given me a substantial down payment or option consideration.

Someone is getting sued, and I think that person is going to be me. The seller could sue me for not making the payments I promised to make. The buyer could sue me because he has a contract that allows him to buy the house. Perhaps even the bank could sue me, I'm not sure.

My question is, since the due on sale clause almost never gets called, is doing this business model a risk worth taking? I want to move forward, but the idea of losing everything doesn't sit well with me or my wife.

One more thing to note. I purchased another Sub2 course this week called "screw the bank" by Jay Palmquest. His paperwork is a bit better and he gives his phone number and email address and is willing to hold your hand and support you. It was $700 but its nice to be able to get your questions answered.

I have had a change of heart, however. Due on Sale Clauses, while rare, have and do get called.  If a loan gets called, my end buyer is totally screwed because I don't have the resources to pay the bank or refinance. I would probably have to return the down payment and option money to the end buyer, and he is probably going to sue me. Additionally the seller, whose loan I promised to pay, now has a foreclosure on her record and her credit will be ruined. I feel she might sue me too. Additionally, many loans are tied in with the government and by concealing the transaction from the bank, the insurance company, and the government without full disclosure you might be breaking the law. Understandably, taking a loan sub2 is not illegal. I'm soul searching right now, but this whole due on sale clause seems risky until I have some major cash or credit line to back me up in the rare chance the loan is called.

@Derek Smith and @Brandon Diaz I did buy the course. Its a fun read and he writes well...but the paperwork provided in the course is a mess. I had it reviewed by a lawyer and he told me the contracts suck and not to use them. Additionally, how to use the paperwork to close the deals is unclear to me, and the author Tingle does not support his course. I sent him an email and he told me to have an attorney draw up new contracts. Also the material and strategies are a bit dated as the course was written around 2000 or 2001. I think the methodology of going out and solving peoples problems is timeless, but because the paperwork and instructions suck, and the material being almost 20 years old, I'd pass on this one.

I need an attorney to look at some contracts I want to use for purchasing "subject to" in the state of California. I need him to make sure they are legal and educate me on how to fill them out properly.

I also want him to explain how I use land trusts.

I also want him to review Lease and Option paperwork and show me how to fill them out correctly.

I also want him to explain how I fill out a limited power of attorney document.

I bought a course on Subject 2 and I want to take action. The person who wrote the course advises that I have an attorney go over all the paperwork to make sure I'm doing it properly in my state.

My problem is I just got a quote from an attorney and he wants $300/hr.  I could go broke paying attorneys, but I really need help using the paperwork because the course did not give me any examples of properly completed paperwork.

 How can I make the best use of an Attorney? I've never hired one before.

@Jeff Greenberg I just inquired from a couple local real estate attorneys if they would be willing to go through the paperwork with me. This way I can understand the forms and make sure everything is legal. Good advice. Thank you.

I just bought a course on "Subject 2", last week and I feel like I have a good idea how to find sellers and negotiate a deal. However when I look at the sales contract,  deed paperwork, limited power of attorney, etc.  I'm confused as to how to fill it all out correctly. The course does not show examples of properly filled in paperwork. I'd like to take action and start talking to people to complete one of these deals, but I feel insecure about the paperwork, forms, disclosures, etc.

On the buyer side, I will probably use lease option. However, even though I have forms from this course and another course for the lease and separately the option, I feel insecure about filling it all out property. Not to mention delivering proper disclosures and such.

I feel like the paperwork is keeping me from taking action.  One more note to mention is that it was suggested that as I'm marketing for sellers, a sweet rehab deal might cross my desk. I might want to get it under contract (if its a good enough deal) and assign that contract to a fix n flipper for a fee if I wasn't prepared to do the work myself. Again, that would require that I know how to properly fill out paperwork for such a deal for not only the purchase, but also the assignment.

I don't have a mentor, I'm not a part of any local Real Estate Clubs. I don't know any real estate investors. I've googled how to fill in contracts, but I'm left with more questions than answers because every contract is different. I wonder if I could pay a lawyer a couple hour fee to sit down and look at the contracts I have, explain what I want to do, and literally have him teach me how to fill them out, and what to do with them once they are filled out.

Any ideas?