All Forum Posts by: Mike H.

To me, the most obvious effort you'd want to participate is the actual showings of the homes they're looking at.

They can share the current price of the house, go through the rehab items and how they're figuring estimates, and then tell you what their rent estimate might be.

They can also show you things in the house that will make it rent fast or slow (i.e. small kitchen, large kitchen, huge great room, etc) and what they would do to make it pop (i.e. new countertops even if the laminate ones are ok, etc)

I have a friend thats investing and he has asked me to take a look at a couple of the houses he was interested in. Funny thing is, he knows more about construction than I ever will. But I think he just wanted to know if the numbers he was looking at made sense and if he was missing any gotchas.

There is something to be said for doing your first few deals and the lack of confidence in pulling the trigger.

Sometimes, when you come across a good deal in the beginning, you tend to talk yourself out of it more than anything (i.e. If the deal was so good, why didn't someone else already do it?)

Are you just looking for most offers on a house? Or can we share how many offers we've submitted on the same house?

I once submitted over 20 offers on a HUD house - and finally got it. My realtor was the one that suggested we submit every day. This was when HUD would magically drop the price seemingly willy nilly and their low bids would change drastically.

It was a steal of a deal. But the bid history on it was crazy (that was back when you could see all the bids placed on the house). :-)

I had the same problem with State Farm. They wanted to insure the replacement cost based on what it would take to build instead of what it was worth. House appraised at 130k had to be insured at 200k. Do the math on that times 17 properties.

I don't want to do actual value. What if there is a partial loss (say a roof) because of a falling tree? But the roof only has a couple of years left. Add in a deductible and I'm basically paying for the entire roof. What good is that insurance?

The new company I switched over to allows me to set my replacement cost but limits it to $45/sq ft. I try to set my total coverage about 20k above my loan amounts.

I'm not using insurance to make money. If I have a total loss, I'll pay off the loan, demo the house and still have 5 to 10k left plus a vacant lot to sell - possibly with a foundation as well.

My savings are about $400 to $450 per month (on 17 houses) doing it this way. Although, because of the square footage, there are some houses that my coverage is more than 20k over the loan amount. But that is my new path.

I have replacement cost and don't have to rebuild (I had to double check on that one). And I'm saving about 5k per year net on my insurance - which is a week long vacation for me and my family - all by changing my insurance strategy.

Any risks there I'm missing? Is the 20k cushion sufficient? If I have a partial loss, its covered at replacement so I don't need to worry about how much life the item had left.

I use Screeningworks. No credit scores but they do rate them good, medium to bad. What I like is the address history, eviction and criminal.

I'm pretty lenient with the credit as I expect them to have some credit problems or else they'd be buying. But the address history and eviction is fantastic.

Since I started using that service a couple of years ago, I have not had a single eviction (17 houses). Before then, I was running about 1 a year.

Even after I tell people I'm going to run their info and will not take an eviction, I still get some that try it anyway.

I also like seeing address history to see how much moving they're doing. I do add weight to length of rental history at a given house more than if they jump around.

btw: I tried looking at the biggerpockets service you mentioned but it doesn't look like they show eviction history or address history.

Is that correct?

I think its going to come out. But I think the banks are going to try to push it out to bulk buyers so they don't have to report the individual sales and it won't affect comps as much.

And I think there's another big wave coming from the delays the bank made and from the people who realize it makes more sense to take the foreclosure now because their house is going to take decades to return to their previous value (and what is owed on em).

Once people fall behind a couple of months, its almost impossible for them to ever catch up. And, for some, it doesn't make sense to even if they could.

Take the hit now and, more than likely, they'll still be able to buy their own house back (or one similar) for 20 to 30% less by the time they can qualify again.

I think you answered your own question. I'd rather have as much cash as possible at today's rates. Although I do like each deal to cash flow a minimum amount.

But what if you could use that 20k to buy a second house with a conventional loan instead of a rehab loan and you get to save the hard money lender fees and the refi closing costs?

Which is better: 2 houses with 80k loans apiece?
Or one house with 100k loan and the other with a 50k loan (20k you pull out plus the 10k in HML fees and refi closing costs)?

Your total mortgage amount is 160k on the first option and only 150k on the second. Doesn't matter whether technically one house is cash flowing less or more. The two houses together are cash flowing about $50 a month more by getting the 20k and using it to buy house #2.

The other piece to that is that you may still buy both houses the same and owe 100k and 80k which means you're paying $100 a month or so more by taking the extra 20k out.

But you stick the extra 20k in the bank and that may be the difference in continuing to buy more properties or not.

So what is that money really costing you? $100 a month?
But if you are able to buy 5 more houses because the banks
like your cash position a lot more with the addtnl 20k, and each
house is generating $300/mo net cash flow. Whats that 20k really doing for you? Is it losing $100/mo or is it gaining $1,400 a month.

To me, I think it depends what you're going to do with the 20k. If you're going to put it in the next deal or stick it in the bank to show a stronger financial position to the banks, then I would take every penny I could out.

If you're going to use it to go on vacation or buy some "toys", then
I would pass. Why give up your equity unless you'll end up with something to show for it?

Here's the thing. If you were buying from an individual, I'd strongly suggest you get an attorney. But buying from a bank or a govt agency, I don't see the need.

You're not getting the banks or govt agencies to change a single thing in their contract. And, as for liens, thats what the title company is for. They won't close a deal if there are outstanding liens on the property.

As long as you're going through a title company closing and have title insurance, an attorney probably isn't needed unless you're looking to get out of the deal. Then I'd talk with an attorney.

re Joe D's Question.

Sorry. I probably should have clarified that a little more.
I thought Denver was crazy because of the previous post
I read by Grant P (see below).

Basically, it sounds like they are all growing their own plants
over there - and it appears to be legal to do it provided
its 6 plants or less.

-----Grant's POST---------------------------------------------------------
We are dealing with this on a constant basis here in Denver.

Not sure if everyone realizes how common pot has become here in Denver the "weed capital" of the country, but there are more dispensary's then Starbucks at this point. You have to adapt or get left behind.

The grow lights always concern me, however I require my renters to have renters insurance, and I make sure if they are going to grow weed it is only for personal use. Here in Colorado that limits them to 6 plants.

As long as they keep it legal at a state level, I try to leave them alone. If it looks like they are going to burn my place down I will not be so accommodating.

I only have high end rentals so I'm not dealing with Cheech and Chong, but here in Denver everyone is doing it.

You could build the financing issue into the deal.
After the 5yr balloon is up, you'll want an option to renew
another 5yr balloon loan at the same terms (i.e. 4% int rate amortized over 30 for the remaining balance) provided
you pay down another 20k. But give yourself the option
to get bank financing as well (not that it would be better).

The key is to have that option to renew another 5 yr loan
to avoid the risk of not getting financing and losing the
property back to the owner.

You should easily be able to save up 20k over 5yrs with the terms you're getting - especially if you think you can get those two business units rented.

I'd still try to get them to drop the price a little more.
But given the terms and the upside with filling the vacancy,
I don't know that I'd push too hard.

It seems like a great deal. Not so much in terms of pricing.
If the ARV for the entire thing is 300k and you're paying 250k,
thats not much of a discount there. Thats almost to be expected
these days.

However. Where you're making your money is on the terms.
4% interest rate amortized over 30 on a 5 yr balloon?
Those are tremendous terms for a commercial loan
with such a unique mix.

The only concerns would be:
1) Paying for the new roof out of pocket and on top of
your 50k. I'd see if you can't take that out of your 50k.
i.e. If the roof is 15k, then your out of pocket should
be 35k plus 15k for the roof (i.e. 50k instead of 65k if
you had to do the roof after closing).

2) Would you be able to refi it once the 5 yr balloon is due?
Kind of unique grouping of properties. Not sure
how easy it is to get a loan to cover all of them
as I really only do residential. But it seems like it
might be something that comes up.

3) How is it the net income might be boosted to 45k
instead of 30k?

If it were me, I'd definitely keep it for myself during the 5 year loan. 4% amortized over 30 should kick off some great cash flow. But I would still try to get them to move down off the price (80% of the ARV seems high).

And I'd try to make sure that the roof repairs were put into your down payment. The seller would still getting 50k from you - 35k in cash and 15k in roof repairs (i'm just throwing that 15k out there obviously as I have no idea how much the roof is) so if you walk, they make out with 50k in value from you.