All Forum Posts by: Cliff Benner

 He knows he will get hit hard with taxes from selling it all right away? Even a 5 year balloon means he will just get a monthly check until you are able to refinance and show that you improved it enough to get him 100% out of it?

Haha so you took a property and made profits and the bank cant understand that? Seems about right. Maybe general mortgage brokers who might be able to find more options, it will probably be a bit more expensive but if local lenders wont do anything than it doesn't matter. If it is under residential, could you get a 2nd mortgage or heloc? 

Have you create a Business Plan to forecast the phases of creating this so they might have a better understanding of how the project will look and go? With the growth of adding that, it could be what they need to envision the picture you have. 

My cousins company invests the funds need for a business to expand in return for 49% ownership of the business. This allows the business to expand and the business owner to retain the rights to make decisions without consult.

 I had decent luck with "Commercial" i found a few motels that didn't pop with "motel"

I want to pick your brain on how you got to this position, because this sounds like the dream.

Anyways, are you able to do seller financing with a balloon payment? own it for a few years and refinance after those upgrades?

Other thoughts, local banks and credit unions may let you do a commercial loan using a bank statement loan or equity/lien on the land, might be worth a day of talking to bankers or an hour each day until you find a "Yes". 

HELOAN/HELOC but the interest might be high.

No idea how relatable this would be to you; but my cousin works for a private equity company where they find entrepreneurs who work in their business and need the capital to grow. Their strategy is to buy 49 or less percent so the owner can keep growing and making decisions and they fund the expansion that is about to happen. 

Flips are treated like a Product for accounting.

So treat the Sale as an Income line of its own, each expense as a COGS, then the P&L calculates your Profit on it.

Loan should have cleared during sale, which the sale can be its own entry.

Usually its like:

Sale Price: CR

Closing Costs: DR

Loan: DR

Cash/Due to Seller: DR

While moving a flip from WIP to COGS can be its own.

COGS: DR

WIP: CR

then on the P&L it will go:

Sale Price: XX

Closing Costs: -XX

COGS: -XX

Profit/(Loss): -XX

That amount, after overhead, is used to calculate your taxable income.

Let me know if that worked.

I use Bridgestream and have enjoyed their service and attention even though I only own one rental there now. 

Regarding the Financial Due Diligence, you will want to take a look at the financials for the past few years and add back in any items related to the Owner that will not be around when they leave; Mileage, home phone costs, personal vehicle, their wages taxes and benefits, meals, donations they make, loan interest expense, depreciation/amortization, and any crazy one-off items. If the revenue is under $5mil a year this total is commonly referred to as SDE, Seller's Discretionary Earnings and that total is taken by a multiplier of 3-4x as a common rule for the purchase price. Above $5mil is referred to as EBITDA and that multiplier is more around 2.5-3.5x.

Then you need to check the financials vs tax return, because if they are willing to lie to the IRS, they are willing to lie to you.

Value the Assets to make sure they will keep working and are worth buying at the price as well.

Look up the book Buy Then Build, it is a great resource. 

Good luck! Any feel free to reach out if you need any help!

For my clients in Real Estate, they have to use the QBO Plus subscription. This allows us to code every transaction to a Class to track that property all year round and be prepared at Tax Time to have financials broken out for each property to be reported. Upgrading will allow you to use the same App to track mileage though.

Using a QBO Accountant allows them to create a new QBO account for you to get a continuous 30% discount they could pass along, otherwise you can upgrade yourself and probably get a discount for a year until the price jumps up to the normal cost. 

I have heard of Baselane, netsuite, freebooks, but because of my 9-5 I don't have the capacity to learn new softwares and stick to QBO. 

I know for me, I would be more worried about the an appraisal, the property i found is one lot with two houses on it, the houses are the same sizes as the rest in the neighborhood and the purchase price is comparable to one house in the neighborhood. So if I could get them each appraised as the same value as the houses around, then it would be a great BRRRR I would hold onto for a long time.

We bought a candle business with seller financing, put 2% down, the rest was financed over 8 years at 8% with Step Up Payments. Low payments the first year and every 12 months we increase the payments a decent amount. 

How are you calculating the ARV for this? Is it treated as 2 houses or 1?