All Forum Posts by: Gregory Wilson

On this forum I doubt anyone will be offended, but if you go to the general public you might want to rethink letting the prospective buyers know that you are ready to insult them for being Looky Lous or doing some "funny business."  And, saying you don't have to sell or want to do so promptly apppears disingenuous. This will not get you where you want to be i.e. with a buyer. For my part, I wouldn't call anyone who started out with "don't waste my time." Your the person who wants to sell and pre-qualifying your prospective buyers and yourself is really not a sound approach.

Quote from @Nathan Gesner:

Your equity is not a savings account from which you can withdraw for free. If you cash out equity in a property, you are "borrowing" that money from the lender. Upfront expenses and monthly payments must be considered when calculating the return on your investment.

EXAMPLE
You cash out $100,000 of your equity and use this as a down payment on a $400,000 investment property. This creates two loan payments ($100,000 of equity and $300,000 on the new mortgage).

Key Numbers

• Home Equity Loan Interest Rate: 6%
• Mortgage Interest Rate: 7%
• Rental Income: $3,000 per month
• Expenses (management, taxes, insurance, maintenance): $800 per month

Income and Expenses

• Monthly Rental Income: $3,000
• Monthly Expenses: $800
• Monthly Mortgage Payment: $2,000

Explanation

• The investor earns $3,000 in rent each month.
• They pay $2,000 on the investment property mortgage and $800 on other expenses.
• This leaves $200 profit each month or $2,400 per year.
• However, you have to pay $6,000 interest on the equity borrowed.
• This leaves you with an annual loss of $3,600.

This example shows that while the rental property generates positive monthly income, the interest cost of borrowing the initial $100,000 results in an overall annual loss. The investor must consider whether the potential property value increase or other benefits outweigh this loss.

 Mod:

Please take into account the mortgage principal amortization in these examples. It will be a small number in year one, but it is wise to keep this logically consistent. And, many of the RE millionaires I know have made their fortunes by buying essentially flat cash flow properties and then having them fully paid off in 15 years not counting the appreciation.

Quote from @Steve Dora:

Yeah, I think you're on the right mindset about the double interest (heloc downpayment & loan payment).  That's why I was leaning to foreclosures so I can do full cash (heloc) purchase.

The other part I need to get more fluent in is how to document all of those action items in the LLC to keep the corporate veil.

I'm glad I'm not the only one!  Good luck too!

Kentucky and Ohio differ as to "corporate veil" In Ohio there is just about nothing you can do short of fraud to expose the member of an LLC to liabilities of the LLC. Kentucky not so much. But, an LLC is subject to the laws of it's state of organization not where the property is located or its members reside.

A loan for an investment property purchase is a little different than a cash out re-fi. Talk to your preferred lenders about whether they see a cash our re-fi as being approved with the same standards as an investment, i.e. loan to value, debt coverage ratio, etc. If there is no problem then the HELOC will provide more flexibility since the cash out re-fi may yield more proceeds after improvements when applying the 70 or 80% LTV limit whereas you might get improvement proceeds from an investment loan but you won't want to because there will be a lot of red tape, inspections, draws, lien waiver compliance and a lot of other crap they load onto improvement loans on investment property.

Steve: If you are going to bid on an Ohio Common Pleas Court  foreclosure, the process is pretty safe because the foreclosing lender has to include a "PJR" which is actually a "Preliminary Judicial Report" which is a title report and include a commitment for title insurance should the bidder be successful and the property to be conveyed.

This differs from a liquidation auction by a lender, private auctioneer, receiver (other than an actual foreclosure case) where you might be successful but the property has pre existing liens that don't get swept away by the foreclosure case.

For your first one of these, get a lawyer to advise you. Go to the room where foreclosure cases are heard in the courthouse and sit through a docket of cases and get the names of the lawyers on both sides that you think know what they are doing. Don't pick someone off the Google search. The foreclosure process is confusing because a large number of the scheduled auctions don't happen at all or don't happen when they are scheduled for various reason. Your lawyer will tell you why.

Good luck!

Steve: This is a long and twisted pathway you are on. Accept that the successful RE investors have a well developed skill set that is not immediately acquired. So, the 20 or 50 things that might be said about your plans are not all going to be said.

And, you should be cautious that many replies will be made to you by persons who want to sell you their services or direct you to their interests. Sometimes, that is a good thing for you. Sometimes not.

Good luck!

You should have titled the property in mom's name, with a mortgage and an option to purchase it from her for the $75,000 at any time to protect you, if something happened to mom. Then when the property is sold, she excludes the entire gain as a sale of her personal residence ($250,000 exclusion) and she then gifts you the proceeds (nontaxable) saving all of the tax with no 1031 cost or deferred taxes.

Just sayin . . . 

Assuming the tenant is out of the premises, send an invoice for the amount due, be sure to comply with any deposit return rules, then send the case to a contingent fee collection law firm. They will charge 33% or 25% if you are lucky. If you fund the litigation you will be upside down before the court date comes and you will not recover those fees from the deadbeat tenant.

You have to ask, what is an agent going to do for his $30,000 or so commission? If it is schedule showings and transmit financial data and proffer the MLS commercial form contract then probably not. Investors in multifamily in the past have not relied solely upon MLS for scouting multi family. They have wanted to get what would have been a seller's commission expense to reduce the price. So when you list it with an agent you have to understand that it is a purchase of services and consider what those services are worth to you.

This is a different situation when residential properties are sold. Sometimes, the unsophisticated purchasers have to be taken by the hand by the listing agent and sometimes dragged across the finish line with a lot of services involved and typically a lower commission than a multifamily investment. In other markets, the listing agents have a stable of prospective buyers informally registered with them who can be plugged in to a seller's property.This just doesn't happen in investor circles. They scout all sources and hope to reach a seller who have not added 5% to cover the commission.

Quote from @Daniel Myers:

Thank you very much for your reply Gregory Wilson ,I think they will except a 2nd position because it’s only 30% of the price. Any advice on where to get the best commercial loan? Traditional banks , online lenders or? I’m use to residential loans and have the best loan officer around but she doesn’t do commercial so I’m searching for someone who knows what the doing and how to work around problems that arise.

Apparently in Texas which might as well be the Moon as compared to Cincinnati, commercial lenders do not permit subordinate seller financing. This is true in Ohio as to residential owner occupied but not commercial. In fact, in Ohio one can do a cash out refinance where not only does the owner have no cash invested equity, only loan to value ratio of 70% met, he may have cashed out more than he paid for the property. Loan to value and reliable source of payments is what matters. This lending environment is local so just ignore people from 1500 miles away when they tell you what a local lender will do. Just get a loan broker residing in Cincinnati, pay the extra origination cost (those fees are usually buried in a lender's origination fee anyway) and find the right lender for your situation. You can learn from what he does for you and next time maybe DIY.