All Forum Posts by: Austin Fruechting

A lot of banks (especially on commercial properties or multifamily) have a 5 or 7 year balloon payment. In the couple I've had they were 5 year balloons on either a 15 or 20 amortization. When they hit that 5 year mark, so long as they had always been getting their payments, there was just a small fee to re-process the loan on another 5-year balloon and it will continue that way for the entire amortization so long as they are still comfortable with me. 

Brad Di - No problem. I have every property in an LLC and have many LLC's (49 properties across 7 LLC's). A little more accounting fees at the end of the year and just $160 to start and $50 a year to maintain. I hope I never need the legal protection of them but if I ever do even one time it'll be worth the total costs MANY times over.

Originally posted by @Mark McNutt:

@Austin Fruechting

3 units and I would be living in one of them. Down the road i could probably rent it for 500$

Unit 1 850

Unit 2 650

After the repairs (The kitchens need new appliances and cabinets and bathrooms need a little work) I would probably end up buying it for almost 15 or 20k more. (repairs are built into the mortgage). Should I be a lot more concerned about overpaying by about 20k? 

 If you are getting $1400 in rent for the other units, and if it falls around 50% expenses you would have $700 left to pay the mortgage.  I assume you will be the property manager though and probably do some of the repairs yourself as well.  If so, maybe 40% to expenses and you have $900 left to pay the mortgage, which I assume is around $600.  So while you are living there I would guesstimate +$300 in cash flow and you have a $1k difference in monthly cash from where you are right now. 

After you move out and hire a property manager you have $1900 in rent and 50% rule leaves $950 and you make $350 with someone else managing. 

How does $1900 in rent for $135k (1.4% rent/purchase) compare to others you've looked at?

Originally posted by @Roy N.:

Originally posted by @Austin Fruechting:

@Mark McNutt - how many units, what are the rents per unit? 

Preliminary if your numbers are right and you can live for +$400 a month instead of -$700 a month I wouldn't worry about the extra $5k in purchase price.  Even if you paid an extra $5k in cash to get it, you only have to live there 5 months to get it back, but the majority of that will be financed anyways.  So if you can make a swing of over $1k in your monthly expenses the sooner the better. 

I would disagree.  You should analyse the property as if all units are rented (with an appropriate vacancy allowance for the market) and ensure the business can provide a rate of return that meets your objectives.

If the {M}IRR of the business is sufficient, then you look at the personal advantages of residing in the least profitable unit.

 I'm not disagreeing with what you are saying about analyzing.  That's why I asked about the # of units and rents.  

But just going off his assumptions and if it were true he could have be +$400 cash flow (while living for free!) I wouldn't care about and extra $5k on purchase price. So I was extrapolating out analysis on if those assumptions were true, it was providing a great return. Because then he rents his out later and cash flows even more. But I'd be pretty happy with even just $400 cash flow on a $130k all in purchase, not even counting the additional unit to rent later.  

EDIT TO ADD: I don't know the market and how that compares with that exact market.

Originally posted by @Mark McNutt:

@Austin Fruechting

3 units and I would be living in one of them. Down the road i could probably rent it for 500$

Unit 1 850

Unit 2 650

After the repairs (The kitchens need new appliances and cabinets and bathrooms need a little work) I would probably end up buying it for almost 15 or 20k more. (repairs are built into the mortgage). Should I be a lot more concerned about overpaying by about 20k? 

 Is your realtor saying it's only worth $110k even after you do the work? Or that it's worth $110k as it is now?  If it's worth $110k right now the work you are doing adds value to the property too so you wouldn't be overpaying by $20k. 

@Brandon Hanks - that is true.  The first $250k of capital gains is tax free for a primary residence ($500k if married).  All that is required is that you lived in it for 2 of the past 5 years. 

You could also keep it as a rental and cash out refinance if you wanted to capture some of the equity. That is all tax free. 

@Mark McNutt - how many units, what are the rents per unit? 

Preliminary if your numbers are right and you can live for +$400 a month instead of -$700 a month I wouldn't worry about the extra $5k in purchase price.  Even if you paid an extra $5k in cash to get it, you only have to live there 5 months to get it back, but the majority of that will be financed anyways.  So if you can make a swing of over $1k in your monthly expenses the sooner the better. 

@David Zheng - congrats David! That's awesome!

Originally posted by @Nicholas Lohr:

@David Dachtera  Isn't it true that he is going to have to take title and mortgage in his own name? 

I get it that having an LLC if he is starting a long term real estate "business" is a good idea, separation of expenses, etc... And he may have the option of transferring the title to the LLC later on assuming that doesn't trigger the due on sale clause. I'm just trying to make the point that having one rental property where the title and mortgage are in his own name doesn't necessarily need to have an LLC attached to it as it will serve no limiting of the liability in that case.

For his first deal he will have to control AND own it. 

Banks lend to LLC's all the time. Even for small deals. However on those smaller deals non-recourse loans are not typical. They underwrite the individual and make them sign a personal guarantee and it's based on them, but the property legally goes to the LLC. So you don't have protection as far as the loan, but you have all the legal separation if a tenant sued or something like that.

@Aaron L. - thanks for the notes. Yeah refinancing won't be happening. He won't be BRRRR-ing. So I think if I can help him get into his first house hack and then use the savings to buy traditionally after that'd be his best bet.