All Forum Posts by: Dan Thomas

Have you talked to your lending institution to see what they think about the seller staying in the deal?  It is HIGHLY frowned upon in small business purchases, not sure about real estate but I think you should have a conversation with the lender first.  If they say no it doesn't matter what anyone else thinks.

Seller financing should be advantagous to the seller.  Why would they take on that headache if there isn't much in it for them?  Also, if they are selling why would they want to stay in the deal?  To answer your original question about making it more palatable for owners....you need to pay them for the service of providing you with debt.  A low interest rate isn't going to do that on its own.  Over asking with a low rate might.

From my perspective I would want to keep this a debt arrangement, not an equity one.  It could get real messy if not done right.  Even if done right it could be real messy.

 One other note.  I am sure you already know this but appraisals are unpredictable to say the least.  You should be prepared to not be able to pull 100% of the heloc money back out.  You may be able to but you should plan for the worst.  I have had appraisals come in 30% less than very good comps I used in my own analysis.  There are ways to dispute or get another appraisal but it is a real risk that you should have a mitigation plan for.

 I personally have used a heloc to purchase and renovate an investment property, like you mentioned I cashed out at the end and paid back the heloc.  I would say it definity is a risk as you are tying up equity AND taking on an additional payment.

My personal criteria to use my heloc for investments are:

1. Covers entire purchase, entire reno, with money left for reserves, and a couple months of vacancy. (No additional borrowed money for the project)

2. Target re-fi within 6 months

3. Set aside 6 months of cash to pay HELOC payments during reno so I am not scrambling

4. Assume a 10% (pulled out of the air number) interest rate on the heloc. You will likely be in the high 7's or 8's right now but my heloc went up several points in a short time and that could happen again.  You should be prepared for it.

Like any industry there are professionals worth every penny and "professionals" not even worth $280. I have bought an investment property that had a very tight time window to close. No exceptions. We ran into an appraisal issue and our agent helped us fix it and negotiated a longer closing despite the fact that they initially wouldn't budge. I have worked with agents that needed help filling out the description of the property (example of the bad ones)

I'm not an agent but I can only imagine low price properties are MORE time consuming than a luxury home. Typically there are reasons these homes are so cheap and a good agent will help their client navigate those issue s.

@Mark S.

From what I have heard I tend to agree with you. It probably isn't likely it gets called. But there is still risk. For me, although it isn't likely it is called, if it is called I risk my 2.7% interest rate for what will probably be closer to 7% for a commercial rate.

What value are you getting by having your asset in an LLC that you would risk that spread on a rate?

I hear risk mitigation and taxes often....from what I understand (but could be wrong) pass through entities like LLCs don't impact taxes all that much and a good insurance policy is much better on the risk management front than an LLC that may or may not be ran properly. At least that's what my lawyer tells me. We have some properties in LLCs but it is always because our bank has required it not out of our desire.

@Nicholas L.

I respectfully disagree. I think the days of a fresh coat of paint and some laminate floors with nice landscaping isn't going to get the job done these days. There are still deals (in my markets) on the MLS that have PLENTY of meat on the bone if you are willing to deal w deed issues, tenant issues, structural issues, etc. These deals require REAL WORK but the hurdles can be overcome. They also require Cash. Using "opm" and low dp options don't make sense in most cases these days. You may not be able to pull all of your cash out but I am happy if I can get 75 to 85% back out.

 That is a questions you need to answer for yourself.  They are two very different strategies.  Flipping is more of a job and is usually much more hands on.  Renting should be more passive but still requires being hands on at some level.  You need to figure out which interests you more and learn all you can about it.

Flipping and BRRR are similar and require a similar skill set. I agree that BRRRR isn't the easiest but I wouldn't say it isn't the best, that will depend on the specific deal. I would suggest really focusing on what you want to do and learn as much as you can about it while looking for your first deal. Do you know any real estate investors in your area you could partner with for your first deal to minimize some risk and to use as a learning opportunity? Reading about real estate is great but you will learn 10x what you can in any book by actually closing on your first investment.

  My first properties were through turnkey providers.  I bought at a lucky time, before covid.  It allowed me to get my feet wet and get comfortable with real estate as an investment.  After a few of those I felt comfortable enough to start investing in deals I sourced and managed.  I am getting out of turnkey and moving that money into investments that I manage now.  I don't think there are as many turnkey deals out there that cashflow these days but it may be worth a look??  There are enough turnkey providers that contribute on BP, I'm sure they would have a conversation with you.

 This is a great post.  I am very interested in the responses so far.  I am very conflicted on this topic.  I have a 6 year old and a 4 year old.  In an ideal world I want to leave them with everything I have built and will build through out my life.  We have a handful of rentals and 2 small businesses.  In the perfect world we would leave those to our children so they can do what they want in life, not what they need to do to pay their bills.

On the other hand....I was raised in a middle class family who raised me with love and through learning from my mistakes.  I have had a steady job since I was 13.  I learned how to be successful by working for it.  I did not get fancy vacations, or allowances or extravagant gifts (outside of my parents gifting me 4 years of college).  If I wanted to go somewhere or buy something I worked for it.  I believe that this is what led me to develop the work ethic I have and develop an appreciation for financial security.  It takes hard work to build a solid financial footing and if you didn't build it how can you appreciate it and not destroy it?

Hopefully I have some time to figure out our plan.  For now our trusts have everything going to our children but my mind is continually thinking wheter or not that is the best thing for THEM.  I think it will depend how and who they grow up into.  

@John Underwood

I agree with John. I am about 50-50 w airbnb on removing un true reviews. I have a decent amount of 5 star reviews I use to dispute these.

Is their complaint warranted? No one is perfect, and we certainly have had times where we were not proud of the experience we provided to our guests. We make it right 100% of the time. I got some great advice once..."when there is an issue someone will make a big deal over it. If it is you and you go overboard to acknowledge the short coming and make it right than the guest will most likely forget about it and move on, if you blow it off the guest will make it a big deal and a big headache for you". This advice has saved me 5 star reviews on more than one occasion. Basically own your mistakes or short comings.

I have only ever given 1 full refund and it was really just to get scumbags out of my property early. We will usually comp cleaning fee or give gift cards to local restaurant to comp any legitimate issues. It has never effected us negatively and folks seem to appreciate the sentiment.

 I don't have financing for lack of trying....I have been working on financing for the last 9 months or so....I have been struggling for all the reasons you outlined and am not willing to walk away so am paying out of pocket to get this across the finish line.  I am in underwriting now with a small local bank who does have the local knowledge you mentioned, fingers crossed.

I do have a fairly comprehensive business plan but did not get into the level of detail for the construction that you mentioned.   I relied on the engineer and construction company for their expertise.  I see now that I needed to own this process quite a bit more than I did up front.  

I think I can do more when it comes to stress testing. I highlight weather and wages but am not as comprehensive as to what I think your getting at.  That is good advice and will likely help me in the conversations I am having with the banks.

I hear what your saying about the driveway being step one....that is a lesson learned and will be on my check list in the future.