All Forum Posts by: Costin I.

The purpose of this meetup is to promote financial relationships between private lenders and borrowers by networking and education. Anyone interested in Relationship Lending is welcome at this meetup. Whether you want to lend private money or borrow private money, or just learn about the process, please come build connections with others who share the same interest. Many of our members are interested in real estate, others have a variety of investments. Some of our group have self-directed IRAs, 401Ks or other trusts. Some simply have investment accounts. All share an interest in improving their financial lives through personal relationship lending or borrowing.

@Quest IRA, Inc - 100 E Anderson Ln #100 - Austin, Texas 78752 6:30pm

The W2-RE Investing is here to provide networking and information for those who are looking to get into the world of Real Estate Investing as well as a place for networking and sharing with more seasoned real estate investors looking to partner or just discuss the local North Austin real estate scene.

We are NOT about pitch-fests where you are being asked to buy into some new Guru's video training series and classes - this is not the TV Reality Show version, but the real life version, with the good, the bad and the ugly of real estate investing, investment properties and property management. This is the Tortoise story, the slow and steady investing and wealth generation, and not about the get rich quick schemes, one time lucky deal, or replacing a W2 job with another job (flipping). We ARE about networking, sharing ideas and learning from each other.

We look forward to networking with you soon at the next meetup! Meet fellow investors who are dealing with the same issues you are. Come with an open mind and be prepared to learn!

See you soon! Bring a friend and don't forget to RSVP!

@Brent Crude - since you are talking about issuing stocks and 351 exchange (as in 26 U.S. Code § 351. Transfer to corporation controlled by transferor) that makes me think you are talking about an S or C corporation (since a simple LLC can't issue stock, just membership certificates or debt bonds). And you don't want to hold rental properties in an S or C corporation - for all I know, Owning Rentals in an S Corporation Might Be a Costly Mistake, in a C-corp an even bigger one.

@David Hernandez - (S)LLC might not be the best option for you (being from CA). Look into DST and talk with @Scott Smith.

@Rebecca Graziano - have you looked into doing cost segregation for your rentals? 

And are you doing self-management for your properties? See if you can establish a Solo 401K plan and shelter there some of the rental income.

@Peter Hightower - so you made substantial and costly improvements to a house you don't own yet? I would address that ASAP - what happens if your "friend" changes his mind, or he's called up to the pearly gates? You need to transfer title to you immediately.

As for money, can't you get a HELOC or LOC from the other properties?

@Kevin Luttrell - Quick numbers? 8% vacancy, 10% PM, 5% CapEx and 5% Maintenance.

Here's an BP article that does a great job itemizing CapEx: real-estate-capex-estimate-capital-expenditures

Just make sure you don't confuse Net Operating Income (which is Gross Rent minus Operating Expenses) with Net Annual Income (which is the annual cash flow and is the NOI minus mortgage expenses and vacancy). And make sure to account for the following expenses:

1) Mortgage
2) Mortgage insurance (PMI or MIP) or FHA Risk base
3) Property Taxes
4) City Taxes
5) HOA (Home Owner's Association) Dues and Fees and Assessments
6) Insurance
a) Property Hazard Insurance (0.3-0.45%)
b) Flood Insurance
c) Earthquake Insurance
d) Umbrella Insurance
7) Vacancy Rate (usually 8% - the equivalent to one month a year, or 5-6% if multifamily and/or if experienced, if not use 8%)
8) Utilities (you’ll have these if your tenant is not covering them and/or during vacancy)
a) Water § Sewer § Garbage
b) Electricity
c) Natural Gas
d) Propane
9) General Maintenance (usually 5%)
a) Upkeep § Landscaping
b) Snow removal
c) Repairs
d) New Appliances
e) Make ready
10) Capital Expenditures (usually 5%, higher is the property is old and obsolete, less if fully rehabbed and all mechanicals and roof are new)
11) Property Management (8%, even if you self manage, your time still has value and there might be a time when you'll want to be completely hands off or you'll not be able to do it, vacation, retirement, etc.), including...
a) Office Supplies (e.g. stamps, envelopes)
b) Software
c) Gas/Mileage
d) Advertising + Payroll
e) Concessions
f) Lease loss
g) Lease renewal fees
12) Lawyer/Law office/Legal fees
13) Accounting/Bookkeeping/CPA/Tax preparer/Tax advisor

If you want to be precise, maintain a spreadsheet with the mechanicals that calculates exactly how much you need to put aside, per year, per month, when:

@Dante Feria Here you go:

1 Schedule inspection
2 Attend inspection and fill out the repair list
4 Send earnest money check to escrow company
5 Send option money check to escrow company
3 If you are satisfied with the results of the inspection, REA will notify your lender and tell them to order your appraisal if he/she has not done so already.
6 It usually takes 3-5 days from the date your lender orders the appraisal for the appraiser to schedule and conduct the appraisal.
7 The appraisal takes 3-10 days for the results to be returned to the Lender and for us to know the number.
8 During this time your lender should have all of the required documents. It’s best to check in with your lender to confirm he/she has everything they need.
9 "You should call a local insurance company to get homeowners insurance quotes at this time. It's best you email your insurance agent a copy of the MLS Listing of the home you are purchasing.
- Add Property Insurance
- Add to Umbrella policy insurance"
10 When you’re about 5 days away from closing you should call the utility companies and ask to “Transfer Utilities” for the date of your closing. You may not be able to transfer / turn on water until after you have closed on your home.
11 You should do a “Final Walk Through” of the property you are purchasing within 24 hours before closing to confirm the property is in the same condition that it was in when you agreed to purchase the property and that all inspection required repairs have been completed.
12 On the day of closing, all signers will need to bring their driver’s license or Passport and a Cashiers Check in the amount you are required to bring to closing. Your lender will be the one to give you the amount you will need to bring to closing. The Cashiers Check should be made out to the closing attorney. This is very important.
13 If your name is on the purchase agreement, you will need to be present at the closing or have signed a power of attorney for someone to sign on your behalf. If you are doing a power of attorney, you will need to notify our Client Care Coordinator and your lender at least seven days prior to closing.
14 The day before closing or sometime the day of closing, you should communicate with your lender because they will need to tell you exactly how much you money need to bring to closing. Don’t be alarmed or upset if you receive this number the day of closing or even an hour or two before closing. This is very common. For whatever reason, the banks often wait until the last minute to get their paperwork to the closing attorney and to their gather final numbers. It’s not your lenders fault; there is a lot of coordination in the final hours between Closing Attorney and lender preparing all of the documentation and Closing Disclosure Statement.
15 Closings are typically done Monday through Friday between 9:00 a.m. and 5:00 P.M. The closing should around 1 hour depending on if everyone is on time and whether or not the loan funds right away. We recommend that you plan at least a 3 hour window for closing in case there are any unforeseen delays. If this is a late closing say 3:00 or later, there is a very good chance it will not fund until the next day. If this happens you may NOT get keys at that time and will have to wait until the loan funds and the Closing Attorney receives the funds.

What to check the day before closing
16 Call the closing agent to confirm the date and location of the closing
17 Request a preliminary or final closing statement if there is one
18 Review closing figures for any mistakes
19 Confirm insurance, deeds, trust deeds, and mortgage documents are correct
20 You should do a “Final Walk Through” of the property you are purchasing within 24 hours before closing to confirm the property is in the same condition that it was in when you agreed to purchase the property and that all inspection required repairs have been completed.

After Closing
21 Check property insurance (check policy documents, billing and auto-pay
22 Confirm addition to Umbrella policy insurance
23 Check on Title Registration, Taxes, Insurance and Home Warranty - 30 days after closing
24 If leasing, then set up a "Landlord" account which defaults to you to avoid hooking up utilities fees between tenants

If you are taking over tenants, during option period also:

Check public records for any liens against property and/or owner
Check owner on social websites
Check public records for any liens against tenant (once application is received)
Check tenant on social websites (once application is received)
"Receive and carefully review the following documents:
- the tenant's application
- a copy of the current lease - How well does it align with yours and when does it expire? Is the tenant a relative of the seller? Contact tenant and verify lease and condition form.
- a copy of the inventory condition form
- the tenant's payment history (deposit slips, etc.) records
- a copy of the picture ID of each tenant and person over 18y.o. living in the house"
Get clarification on the house inventory 

After option period:

Contact tenant and verify lease and condition form + inform them that after close date to make checks to you 
Advise title of security deposit and pro-rated rent transfer

After closing

Inform tenants to make checks to you from now on

@Joseph Ret - you should account for Vacancy Rate (usually 8% - the equivalent to one month a year, or 5-6% if multifamily and/or if experienced, if not use 8%) - that is lost rent during vacant period (while you still have to pay mortgage for the property and other expenses).

You should also account for Make ready - the costs associated with making the unit ready for new tenants again, and that depends on the status of the property and how the old tenants leave and how good are you at Make Ready operations.

You should also account for Mileage (and time, for driving to the property for make ready and showings), Advertising, Concessions (any free rent, work allowance or other lease concessions to be provided for the space and term in question - a temporary financial incentive used to induce the signing of a lease. The common example you will see is one month free for signing a twelve month lease), Lease loss (it refers to income on leases that is potentially lost through making incentive offers to prospective tenants whom you hope to lease a unit in a property, e.g. any amount of rent that is below market rent), Lease renewal fees (e.g. fees and commissions you have to pay to tenant agent).

It could easily escalate into a 2-3 months rent equivalent.

@Michael Plaks - so here is the history: before we moved to Texas, we acquired a smaller property purchased with funds from a HELOC. We then sold our residence (at which time the HELOC was paid) and moved to TX, rehabbed that property while we figured out what's where, schools, commutes, neighborhoods, etc. and found our current residence. We decided to get a loan at maximum LTV for the residence instead of refinancing the rental, so we left the rental paid off and mortgage free.

Later we refinanced the residence and pulled out more money we used to acquire another rental. All was fine because the residence loan was at very good rate and the interest was deductible as a personal itemized deduction. But now we don't meet the itemized deductions and wonder if/how to move that interest back on the rental side.