All Forum Posts by: Edward B.

@Dave Bopp, have you tried talking to them, as in go to the property when you know they will be there and talk to them? Or are they just dodging your phone calls, emails, and letters? The reason I ask is people do really stupid counter productive things sometimes when they feel threatened or embarrassed by their situation. Sometimes if you can get face to face and let them know that they gotta go, but you are willing to help them transition, they can become much more reasonable. At least you will get a better feel for what you are dealing with.

Agree. HELOCs are great for building a rental portfolio if you are doing BRRRRs and/or fix and flips to build money for a down payment. But that's a whole other level of investing. Very powerful, though, and worth learning.

@Amanda Berg, HELOCs are great for short term deals such as BRRRR or fix and flip. Not so much for long term buy and holds. If you could pay it off in 12 months with profit from the investment that's a different story because that is a pretty darn good investment. I suppose even if you could pay it off in 12 with other money it might be worth it to get the ball rolling. A lot of variables to consider.

To answer your question though, I use HELOCs on my personal property as well as some of my rentals to get into deals. They let you move very fast. I also use margin from my stock portfolio. All viable funding options. I would not want to lock any of that money up long term, though. Otherwise you will be tapped out very quickly and the longer you keep it out the more you have to be concerned with rising interest rates or a falling market.

@Gabrielle E., the numbers look tight to me as a rental. As mentioned vacancy, maintenance, and turnover costs will be much higher with a nightly rental. That is going to significantly squeeze your profit. And if the AirBnB doesn't work then what is your out? However, $146k 10 years ago? Was that right before the crash or right after? Either way in this market it may be worth significantly more. If you could take it over then maybe you could refi or sell it. But a refi is unlikely to save you more than $100-$200 per month.

@Ken Nyczaj, totally understand. If that is what was agreed upon and he is cool with it, then no worries. Sounds like he is bringing  a lot to the table, though, so moving forward maybe consider a different arrangement. Otherwise, he may realize that you need him more than he needs you.

It gets a little convoluted but it's fairly easy to distinguish what the deal would be worth if you farmed everything out vice relying on people who are bringing more to the table. I can very easily quantify what my license brings to the table as I am sure your contractor friend (or anyone for that matter) can. I can also probably pretty easily quantify what your unskilled labor is worth :) and tell you that you are probably better off finding the next deal.

It costs money to maintain licenses and so our costs for bringing more to the table are more. Something to consider. So we are burdening all of the costs associated with all of the profit that is being split. 

Literally, just pretend like you have to pay a third party for everything to determine your profit. If someone has expertise that saves on that expense then they should be paid for it accordingly. If you do this enough you all will probably find that your time is much better spent finding and working deals than actually doing the work on deals. 

Sounds like this guy adds a lot of value. I only say that because dealing with contractors is a PITA so if you have one on your team he is worth his weight in gold in my opinion. Keep him happy if he is a good dude. If he is cool on this one then fine. But I would make sure that he is fairly compensated for his extra time, expertise, and expense going forward. Same with any of you that bring something special to the table. Any of you can be replaced for a cost. So what is that cost? Don't ignore the trust and bond factor, but understand that it may not be a total equal split and all you have to do to break it out is pay the guy what you would have had to pay a third party to do the same thing. Otherwise you are taking advantage of him and his expertise.

@Ken Nyczaj, you can honestly do it any way you want. There is no industry standard here. I would say that if it was a successful deal then I would do whatever it takes to maintain the relationship. 

I like to keep things relatively equal, but if someone is bringing expertise to the table that adds value you otherwise wouldn't have realized then they should be compensated accordingly. For example, I am a licensed real estate agent so if my license makes the deal more profitable should I have to split that with everyone else? After all, if I wasn't there then we would have to pay a real estate agent the full amount for that expertise. However, that is always made exceedingly clear before the deal begins so there are no misunderstandings.

So without knowing what was said, implied, or expected with your friend. I would have structured the deal so that any work he did that you all would have otherwise had to pay for would be paid to him as an expense subtracted from the divided profit. Seems fair to me, but your situation may be different.

@Gary Dezoysa, based off of your numbers that is right, but there are a lot of holes in that strategy. 

First off will be finding notes for only $5k. Second will be finding one that yields 15%. That combination typically is for an extremely risky asset. Also, you are much more likely to find private money to recapitalize at this stage than a collateral assignment. Traditional lenders will want to see a proven track record and will want to lend against a much much larger portfolio of notes.

Honestly, the timeframe is highly dependent upon you. If you are only using your own money then it will take a long long time to grow from $60 to $1000. If you are using other peoples money, which you are when you talk about recapitalizing, then it can be done much faster. 

@Brent Coombs, I'm sure what he is looking to do is replace the current mortgage with a HELOC, and then some. i.e. replace his 100k mortgage with a 200k HELOC in first position and pay off the current mortgage.

@Kareem Aaron, I'm not really sure why you would want to do that either, though. You will more than likely wind up paying a lot more interest on the current $100k if you roll it over to a HELOC. I can think of reasons why you MAY want to do that, but without knowing more about your rational it's hard to say.

@Andrew Hemminger, Google Al Williamson AirBnb. This is exactly what he does. I have friends that have successfully implemented his strategy in the Richmond area.

@Ben M., should have no effect on property tax, but you will probably have to get a commercial policy on the property which could indeed be more. Not necessarily, though, you just have to shop around. Insurance is one of those things where you really have to understand it to compare apples to apples (i.e. same coverage/service to same coverage/service). 

I know that on my properties in NC I switched to a commercial policy when I moved the property into an LLC and it was comparable but probably up to a few hundred more. To put that in perspective, though, in coastal Carolina a few hundred more is only 10%-15%. Depends on your idea of negligible I guess. That's only $10-$15/mo.