All Forum Posts by: Edward B.

@David Edwards, the only "right" way to completely separate your properties from your personal fiances is to move them into a properly established and maintained LLC and refinance the properties in the name of the LLC.

Other than that, your options are to hold what you got. Like @John Underwood pointed out, your likelihood of being sued beyond your insurance is very very low...but possible. You could just transfer the property and see if the bank actually cares. Most of the time they do not, but I have heard of them accelerating the loan. It does happen. You could try to obscure what you are doing with a trust, but probably not really worth the time, effort, and money and easy to screw up. 

There really is no way to "get around" the due on sale clause short of refinancing. Anything else is a roll of the dice and if the bank discovers it and so chooses, they can accelerate your loan.

@Julian Joseph, all of them are. They are also a good way to pay your debt down faster. Waiting to pay off that kind of debt will set you back years. Besides you can write off student loan interest in a lot of cases so it is cheaper than other forms of debt. I am sitting on student loan debt because I can make more money investing that money than I can save by paying off the debt. 

Your problem is that you may have trouble securing traditional financing because of your debt. But if that is stopping you, then this game may not be for you in the long run anyway.

@Michael Willis, rough back of the envelop math, I'm coming in at $1.4m to $1.6m. There are considerations that may make it worth more, but I doubt $1m more. Especially with private utilities. Could be worth a lot less too. 

Looks like he is capitalizing the rent from the park owned homes at the same rate as the lot rent for the tenant owned homes. Experienced investors will not pay for that. Expenses look low too, but somewhat more realistic than most pro formas I see.

@Ryan Taylor, if you could qualify and close another loan within the 30 days that would certainly be an option. After all it is the same as cash to the other lender. I have also heard of lenders giving the borrower the option to remedy the situation, but depending on the language in your contract, they may not be under any obligation to do that. 

@Gareth Fisher, what you are talking about really is a personal decision. How risk tolerant are you? What is your definition of risk? Your conservative may be my aggressive or vice versa. Maybe the best way is to figure out what keeps you up at night. Are you worried that you won't stay afloat if your income takes a hit or your expenses suddenly increase? Take measures to mitigate that such as reducing your personal DTI ratio or increasing your reserves.

You can certainly use many of the metrics that banks use to assess risk, or better yet that are used to evaluate the financial viability of a company. Those are not bad measurements of risk. Maintain your personal Income Statement, Balance Sheet, and Statement of Cashflows and then choose which metrics give you the best warm fuzzy. Free cash flow, quick ratio, debt ratio, etc, etc. I'm guessing that is not the answer you were looking for, but like I said it is very personal and there is not a one size fits all.

@Jason D., my experience is that DSCR is calculated using just PI. The TI part is actually an expense that is factored in when determining the NOI that the PI is divided by.

@Gareth Fisher, net worth (debt to assets) is what matters in the long run, cash flow (roughly debt to income) is what matters in the short run, day to day. You kind of have to balance the two but cash flow is the alligator closest to the boat. I would say focus on cash flow with an eye always on your net worth. 

I've found that expenses on SFRs tend to run in the 40%-60% range over the long term, that includes taxes and insurance but not principle and interest payments. So rough numbers, if your expenses are 50% then you have $1k to cover your debt service (PI) and anything left over is your cash flow.

Banks underwrite loans differently and determine your DTI differently, that's why it pays to shop around. Your actual DTI on your property is much higher than .67 because you have not factored in most of your expenses. How a bank looks at it will vary. Like you, I prefer to track my investment's performance independently from my personal finances, but banks will look at the whole picture.

Your only concerns about what banks think should extend no further than your desire to secure financing from them. Otherwise they are pretty much utterly clueless about REI, personal finance, etc. and the metrics they use are poor tools to determine your own financial health. That's why they will happily lend hundreds of thousands of dollars to a first time home buyer who can barely afford it with no track record of managing debt, but not to a real estate investor with a net worth of hundreds of thousands of dollars that weathered on of the worst real estate markets in the past century without a hiccup. IF you need/want their money you need to understand and position yourself to satisfy their metrics, but don't use them to determine how well you or your investments are performing.

@Rob Bianco, not all state statutes specifically address series LLCs. If yours doesn't I would be highly skeptical about the protection it would provide. If it does then you should be good to go. The only concern is that there is not nearly as much precedence supporting series LLCs as there are regular LLCs because they have not been around as long. In other words they have not been tested in courts and proven themselves as much. The law is the law, though, and if your state specifically says it is as good as any other LLC then it should be. Just recognize that you might be the case that sets precedence for everyone else.

@Judd Campbell, is that a joke about the Aston? Because if you have that much equity in the car, why not refinance that? Pay that loan down with the proceeds from the deal. Is there anything else you can borrow or cross collateralize from? Friends, family, or fellow investors that may want a piece of the deal as a lender or equity share? That may be willing to lend you money secured by some other asset that you could use for this deal?

Besides, what are you going to do when the next deal comes along? You already went to the 401k well, so just shrug your shoulders and walk away? No, you are going to figure out how to make that happen, so just do that now. Taking from your 401k is the easy answer and unreversible. Easy is boring. Learn something new that you will be able to apply again and again.

@Judd Campbell,

DON'T DO IT!!!! Very short sighted. You are going to take a 40% hit right off the bat and remove your money from a tax advantaged account that you can never ever put back? Sure, run the numbers but I find it very hard to believe that is a good play.

Furthermore, if the deal is so good that you are willing to even consider something as drastic as that, there has to be a better way to raise the money. Even if you give up part of the deal or part of the return it will be unlikely to cost you as much as what you are proposing in the long run. Get creative.