All Forum Posts by: Christopher Brainard

Hi @Liz Rogers

"Foreclosures" specifically aren't the issue here - the issue is the price of the foreclosures. Typically speaking, foreclosures are priced slightly lower than market and tend to sell at deeper discounts than traditional sales. Lower comps for your house leads to a lower valuation of your house. This is true for traditional sales in declining neighborhoods as well, as homes start to sell for less and less, it drags down the value of all the homes.

With that being said, foreclosures also tend to be less appealing than a property staged and marketed home. It has been my experience that a home that looks great can sell for 5% to 15% over a home that shows poorly. Most foreclosures show poorly, so this may or may not be an issue for you.

-Christopher

Bird of a feather, flock together.

I would not consider renting to them. 

-Christopher

@Ryan Pemberton

On the surface, this seems like a very good deal, however, I think you need to review every property and determine exactly what the FMV for the home is, what repairs need to be made (if any), market rent for each home., and taxes/insurance for each home (est). If I were an investor that you were pitching this deal to and you told me the FMV for all 9 homes was between 400k and 450k, my first thought is, "Wow, that's a HUGE range. Why so vague? Why don't I have a breakdown for each property?". With that being said, if rents are at $72k/year, taxes and insurance aren't outrageous, I'm sure this will cash flow.

It does sound like, however, that you aren't the type of investor she is looking for. Hard money is VERY expensive and can't be considered for a 5 year flip. Private money is an option, but I don't think you'll find 100% financing, unless you bring a partner on board. At the very least, I think i may also talk to the seller a bit more about her 33% down payment. Even with a conventional loan, you should be able to find a 25% down payment without no trouble at all. I'm not sure she's really doing you any favors with the terms she is offering and you may be better off with conventional financing or negotiating better terms directly with her.

-Christopher

Hi @Matt Mimnagh

With your primary residence, as long as you have lived there 2 of the last 5 years and have not used the tax credit in the last two years, you can exclude $250,000 (single) or $500,000 (married) in capital gains.

For the empty lot, if it was purchased as a separate parcel of land, I doubt you can avoid taxes on this sale. If it was part of the same plot of land your primary residence sits on and you sub-divided it, I would consult with a tax advisor as you may be able to claim the tax credit. Note that is you used the credit on the land, you would not be able to use it on the house unless the sale was 2+ years later, as stated previously.

-Christopher

@Rav Ram

Well, therein lies the problems for most of us. 

I don't think there is any 'secret sauce' to finding deals, its all about hard work and digging. Unfortunately, that is generally easier said than done, the market right now is saturated with sellers who think their homes are gold plated and the fewest number of motivated sellers I've seen in years. Additionally, most realtors are MLS focused and I don't think you're going to encourage them to knock on doors, cold call people, or search the county records for absentee owners. Finding properties off the MLS will be key.

I'll be interested to see what suggestions people may have, however, if I had a ton of good deals thrown my way, I wouldn't need to be in a unique position to close them all.

-Christopher

@Timothy Ryan

Let me expand on my previous post. I know this is a real estate website and everyone always cheers for someone to invest, but sometime, buying is not the right answer. Let me also say I am not a financial adviser, and I will recommend that you speak to one before you dive head first into this endeavor.

You mentioned that you have 80,000 in credit card and student loans. This is a huge red flag. If you have credit card debt you should not be expanding your personal debt. Why? Because credit card debt indicates that you can't pay your monthly bills or you had insufficient reserve funds to weather some hiccup that life throws you. High amounts of credit card debt kill you credit score and ensures when you do get a loan, you get a worse rate, which can significantly impact profits. You need a budget to pay off the credit card debt and to build up a 6 to 9 month reserve account for household expenses. In addition to improving your credit score, having cash in reserve never hurts.

You currently have 170k of equity in your personal residence, that's great. However, converting unsecured debt (credit card debt) into secured debt (Heloc) is always a bad idea. If **** hits the fan and you default on your credit card debt, the bank gets mad at you, you'll probably get a bunch of nasty phone calls, and it hurts your credit score. If you default on your mortgage, you lose your house and all the equity you have. Yes, I realize that will save you $800 a month, but are you going to put that $800 to pay off the Heloc? Most likely not, as you will need operating capital for your investments.

As others have mentioned, your personal credit is generally one of the items that hard money lenders consider when looking at a candidate. The better you look, the more companies that will be available and the better terms you can get. Additionally, hard money is expensive and if you are unseasoned, things may take longer or cost more than you think. Always plan for the worst case - then you always come out on top.

I highly recommend that you sit down with you family and draw up a budget to pay off your debts with your existing income. This will teach you discipline and how to properly budget money. This is a critical component to investing and I don't believe that jumping into doing flips is going to solve your personal financial issues. 

While you're doing that, Bigger Pockets is a great place to study. Wholesaling is a great activity for people who are new to the business and would allow you to identify good deals and make cash to help pay down your debt. If you have the time, getting a license and selling homes is also a great way to make a little cash and learn the market. Even if you can only find a few deals a year and average $3k-$5k a deal, that would help you significantly, if your goal is financial freedom. 

-Christopher

P. S. If you really don't want to wait, you could always sell your existing house and pay off all your debts. Find a fixer that qualifies for a standard FHA loan and let the house hacking begin. It is an excellent strategy when you don't have a lot of operating capital, however, the trade off is your own personal comfort. Living in a renovation for an extended period of time tends to annoy the wife and kids.

@Timothy Ryan

My thoughts are pretty simple, there is good debt and bad debt. You shouldn't be looking for more debt until you take care of the bad debt (credit cards, student loans) that you have. If anything goes wrong or isn't planned for, you'll be in a world of hurt without cash reserves and sufficient income to support your investments.

-Christopher

@Joshua Beall

The only potential hiccup I see in your screening process is that the references screened are being provided by the turn key company. While it is possible that you do get some valuable feedback, its unlikely that they are going to provide you with any references that give anything but a rosy picture of how great things are. It is like the testimonials from the late night Guru courses - they don't pick people who have had average or poor results.

If you can get a list of past properties they've worked on, you should be able to get contact information from the county assessor's website. Might be a more effective way to get an honest reference.

-Christopher

@Manco Snead

If you can use that $50,000 and earn more than what you would having it otherwise locked up in the property, this could be a smart thing to do. If you can't take that equity and make it work for you, there is no reason to pull the cash out. Its really a decision that only you can make. I, personally, would put that $50,000 to work.

Eliminating the "perceived" expenses makes no sense - You can't just say "I'm never going to repair anything or replace anything in this property" and it magically happens. The reason people set aside money for CapEx, maintenance, and vacancies is because they will eventually happen. Some things, like HVAC or a New Roof, are quite expensive and can seriously impact you financially, if you don't have money set aside.

-Christopher

@Jonathan Alexander

I think you need to step back and look at it from your potential partner's perspective. If I understand your plan properly, you're offering me 3% to 5% of the 25% equity in the house which is 0.75% to 1.25% of the home's value. I'm lowering my credit score, degrading my DTI, and on the hook if things don't work out (or you simply miss a payment when it is vacant) with a complete stranger. it's just peanuts and not remotely worth the risk.

As far as your DTI goes, you should be able to manage that, if you have cash on hold and live a reasonable lifestyle. Income from your rental should cover that property + some extra, downsize your personal life if you must (pay off car, credit cards, etc). Short term sacrifices often lead to long term prosperity. The reason lenders look at DTI is to ensure that you can pay for the property you are buying. Vacancies happen, you can't be 100% reliant upon the income from the property to pay the mortgage.

-Christopher