All Forum Posts by: Yan P.

Does anyone know if appraisers ever use pending sale figures from mls?

I did a little more research on this. There was another article about these guys around a year ago that said they were doing 9-10%. This article says 8%. For institutional size investors that's a big drop. And they're only at $150m in total value. Further, it's only worked in their backyard. A year ago they said they would also expand to other markets but haven't. Could it be that by growing they've had to sacrifice due diligence and their yield dropped? How would another $150m effect this? Would their yield drop to 5-6%? Is it worth it at that point? Considering the entire value of residential real estate in the us is 22.7 trillion, they are just a drop. So whether they can scale is still a big question. Now depending on what your own aspirations are, this could be good or bad for you.

Hey Nathan,

Property taxes in Chicago are definitely rough. Regarding the 50% rule, I am not exactly sure where the $1,500 is from. Since there is currently $2,300 in gross monthly income. If I lease the unit I live in, it would be about $3,700 gross. 50% of each would be $1,150 and $1,850 respectively. Considering I do not plan on leasing, I think the $1,150 number is more reasonable. Then, buried on BP somewhere is a post about how expenses decrease as the quality of the unit increases (income level of tenants) as well as decrease in management costs because I live here. I have an agreement with my roommate who completely manages the place. So I think I could make a reasonable argument for the 50% percent rule becoming the 40% rule in my case. So the expenses decrease to about $920 leaving $1,380 to cover mortgage. And your point about the deduction brings it across the line of definitely living for free. The second goal I had (pulling most of my cash out) is the one that will be the most difficult to achieve. I went a little crazy on the finishes which won't appraise for what I put into it. I'm still working on that and we'll see what happens.

http://www.bloomberg.com/news/2012-03-13/private-equity-buying-u-s-foreclosures-for-hot-rentals-net-8-mortgages.html

Thanks guys. I appreciate the support and hope there will be more success to share.

Over the past couple years I’ve picked up nuggets from BP that played a large role in the following deal. There are several people that have contributed an immense amount of knowledge to this forum and I am very grateful. I think it is only fair that I contribute my recent experience as well as monetarily to BP. I will share the bumps in the road and the specific BP threads that got me over them.

To the deal! I began the process with two goals:
1. Live mortgage/rent free.
2. Put as little cash up as possible.

After doing a bit of research, I learned that an owner-occupied 2-4 flat is a good vehicle for my goals. Further, there are solid deals in foreclosures that need a substantial amount of work since the pool of buyers shrinks substantially. Since my family has considerable construction management experience, I felt confident about construction cost estimates that are the downfall of many an entrepreneur. So, I was hoping that by purchasing a very distressed property, I could get a large enough discount to be able to refi out most of my invested money but still cover the mortgage with rents.

To accomplish this I needed all cash to purchase, cash to rehab, then a way to pull out the cash. I had been saving and investing since I was conscious, but knew it would be around 75-125K for a decent REO in Chicago plus construction costs. I needed to raise cash.

My first attempt at raising cash was definitely bump in the road. I had read a lot about hard money lenders and how expensive they were. I thought that approaching one with a solid amount of equity was a sure fire way to get the loan and a reduced interest. I was wrong. I approached two in Chicago, one is a BP member. The following thread is me trying to figure out why he wasn’t interested at all and him being kind enough to explain:

http://www.biggerpockets.com/forums/50/topics/58112-potential-structure-for-my-hard-private-money-deal-suggestions

I learned that in a professional’s eyes, I was some random kid with a half baked idea and no experience. I wouldn’t give me a loan either.

I had to think of another way to raise money to buy and rehab. I was at about 80% cash needed for purchase when I saw this thread about post acquisition loans:

http://www.biggerpockets.com/forums/50/topics/57275-financing-cash-acquisitions

Thus, if I could raise money just for acquisition, I could pay for the construction via a cash out refi (construction/equity loan). Since I had been working a steady job, had a decent salary, and great credit score, I didn’t think this would be an issue.

Another bump in the road: I thought I could go to a couple large, medium, and small financial institutions and have one of them take a chance on me. I learned that there are various reasons why each of these banks would not make the loan that had nothing to do with me. It wasn’t worth contacting each one to find out. Kinda like dating.

The following BP thread pointed me in a more efficient dating service direction.

http://www.biggerpockets.com/forums/12/topics/20118-local-smaller-bank-how-to-find-them-
(I couldn’t find the original thread posted by J Scott but this is similar)

It turns out that large and medium banks have no interest in making these types of small loans. Further, even if I was a star applicant to a small bank, some still could not make these loans since their equity base was unstable or deteriorating and the FDIC was performing a colonoscopy on them every other day. The FDIC and Bankrate websites are a very good source to search for healthy banks that are ready and willing to make loans to quality applicants.

For actually approaching the bank, the following blog post from Bryan was awesome.

http://www.biggerpockets.com/blogs/1361/blog_posts/9797-so-how-do-you-get-that-small-bank-on-your-side-

So…I was able to quickly find a small (one branch) bank that was happy to do the loan.

To recap:
-I had the post acquisition financing set
-Did not have all the cash needed to purchase
-Nor had found a suitable place.

At this point I had built up some more cash and was confident that I would be able to borrow the difference if need be. I started a very intense search for the property. It was about four months after that a property came up that was a level above anything I had seen. Another bump was that this place was also 50K above the price I thought I would be paying. I ended up borrowing this money at 3% per month (annualized 36%) from friends in small increments. Talk about expensive! I was ok with this since I knew I would be refinancing with the bank in 2-3 weeks. My lenders were ok with this because the loan was 30% loan to value.

From here (apart from the occasional delay or putting the kitchen floor tile on the bathroom wall), everything went relatively smoothly.

After completion, per agreement with the bank, I refinanced the construction/equity loan into a 3 year balloon, 30 year amortizing. I could not directly go to a plain 30 year because I didn’t have 2 years of tax return history until 2012.

Currently the place is completely leased doing about $2,300.00 with me living in one unit. Total cash into the place was a little above 300k. This is about twice as much as I should have paid according to the 2% rule but keep in mind the market I’m in. I will be refinancing into the 30 year soon and hoping that it appraises high enough to pull out a majority of the cash.

My first goal is complete. We’ll see how the second goal turns out after I start approaching banks next week.

Wow, that was longer than I expected to write. I am sure there are a lot of holes in it. Ask away. For doing its part, I’m donating a modest amount to BP and encourage others to do the same. Thanks everyone, hope this helps someone.

Some pictures from the place:

http://www.biggerpockets.com/galleries/show/15475

DA BULLS!!!

Today I made a cash offer on a place for 26k above asking price with no contingencies and am still very uncertain that I will get it. I will not be surprised if I don't. Every reo I have made an offer on in chicago has gone above the asking price.

Welcome to chicago rudeboy,
You don't seem very rude lol. I also invest in chicago and am a about your age. I'm currently looking for my next rehab in the windy city. With good credit and reputation 25k can go a long way. Good luck and welcome to the forum.

I am a very strong believer in that the best information is free (or at least very cheap, lol). Apart from a library of quality books, I have never spent a dime on courses, manuals, ect. I did just buy J Scott's business plan. It will come in very handy in the near future, but even more, J has contributed more to my wealth then he will ever know. It's like he put in sweat equity, without the actual equity stake. Thanks J!