All Forum Posts by: Dory Peters

Originally posted by nationwidepi:

the last thing I want is a used car lot

Forget the used car lot. Buy the land, lease it back to your car rental and loan shark businesses. :mrgreen:

any update?

I can think of a few ways to address that title company question. I like to choose the title company for the closing whether I'm the buyer or seller, because I like to know for certain that the title agent/attorney handling my transaction(s) knows how to handle every step, has experience handling those steps, and has the references to support his/her claims about his/her experience.

If a s/he hasn't done any deals with creative financing, then I can't use him/her on those kinds of deals. If s/he doesn't know how--or doesn't want--to do a binder or double close, then I can't use him/her.

Keep in mind some lenders actually insist on buyers closing with a specific title company.

You need to talk with the buyer, and negotiate this.

Sharon,

You might consider investing part of that $200K in residential and the other part in commercial. Also, learn as much as you can about Indy, before you buy anything. Indy has a nice Jazz scene, some good universities, diversity, and other benefits. This way when you do decide to pull the trigger, then you'll buy the right deal for you.

In my case, the right deal will be close enough to one of the universities--but far enough away to not be "another dorm" (if you know what I mean). It will be accessible via several forms of public transportation, and it will be close enough to one or more of the major arteries in the city--hoping to avoid byways and highways that tend to jamb easily. I could go on, . . . but I think you get my point.

BTW, Eddie, ani madaber ha 'ivrit (just a little bit though). :D

I don't know about how the costs for utilities run down there in LA. Had my father not insisted on having his tenants pay their own gas bill, he would have been creamed. Although the winters can get quite cold in Northeast OH, we're still at a loss of how one of his tenants was able to run up an $800+ gas bill for a single month (with 2002 natural gas prices). That tenant was able to run up a $4K-$5K gas bill (that of course she wasn't able to pay), because law prevented the gas company from turning off the gas during the winter (because the tenant had a newborn and an elderly relative staying with her).

The point is I agree 100% with Mike, Rich, and the others about tenants paying their own utilities.

Maybe I should start checking out the Tulsa Craigslist real-estate ads too! :D

There are several ways that you could structure this deal in a sensible way. Jon and Adam already gave you two excellent ways. Although Jon didn't explicitly mention it (but he probably thought it), you could structure that owner carry as a mortgage with(out) monthly payments and the short-term balloon. You could also set up a JV or syndicate with the current owner, and have her sell/transfer the deed to the entity (most likely a LLC). You could structure that owner carry deferring the first 3-6 months of payments (this is more common in commercial), with principal reduction payments (ie 0% interest--it really works [I have an accepted LOI; we'll ink the contract over the weekend]), with a 5-year balloon.

I don't entirely agree with this. As a creative investor you have plenty to offer. For example, you can also offer her a piece of the action. Let's say you sell the rehabbed property on a land contract at 8% APR, amortized over 30 years, with a 5-year balloon. You could give her 30% of the proceeds. Plus, you could sell that note (after a 6-12 month seasoning period). $50K+30% of your upside is probably more than what she would have received.

Thanks Jim! Now, I finally have an explanation that makes perfect sense mathematically. :D

Is there a better way to accomplish Mike's objective factoring in the cost of money, opportunity cost, and some kind of weighted (il)liquidity factor?

Also, intuitively, I think your explanation about cash liquidity helps to connect more of the dots between how appreciation--whether forced or otherwise--and cash-flow are related. Considering a spectrum of liquidity (where real-estate and cash are at opposite extremes), it appears you're implying that the degree of liquidity also matters. It's pretty clear that positive cash-flow and realized appreciation are nearly equivalent to cash, and that projections of future cash-flow and appreciation are both speculative by nature. Is there a mathematical way to model the opportunity costs between the two?

Originally posted by jawsette:

. . . when the deal is done it is the cash liquidity that sustains the business for various reasons it is more that the rules would suggest it to be. One is because you bought with cash or financed less that the full amount.

The true cash flow is low, but the cash liquidity allows you to stay in the game longer than if you were fully leveraged.

Interesting. So, is this the primary reason why some people argue against being over-leveraged?

Raz, that burns me up too. I even had an agent to challenge me on my numbers (because they differed from the seller's incorrectly calculated ones). I replied with a spreadsheet and several investopedia.com references.

Mr_Investor is correct. A cap rate of 10% doesn't mean anything (good) if one borrows at 13%. That's negative leverage; negative leverage is only a good thing for whoever is collecting the payments.

Like matter and energy, appreciation and cash-flow are interconvertible.

Nevertheless, a linear combination of cash-flow, appreciation, and positive leverage is most ideal.