All Forum Posts by: Daniel Rutherford

Your properties should ideally pay for themselves with some positive cash flow.  If you think you’ll need to invest additional capital in them in the near future then you should make sure you know exactly where that money is coming from before you buy the property since your future employment is in question.

The bank will look at your current financial situation, but they don’t typically inquire about your future state.  If you can get approved for a loan they will be happy if you make the payments on time.

What specifically are you concerned about?  Down payment?  Management costs?

I had a question for anyone who has done Subject To deals or is fairly knowledgeable on them. Once you take the title and pay on the existing mortgage, how would you go about changing any escrow terms? Specifically, the homeowners insurance policy would need to be in my name as the deed holder, but that is part of the existing PITI payment. Since the mortgage wouldn’t be in my name, how would I be permitted to change the terms? Would the bank allow a policy that is in a different name than what’s on the mortgage? This is all of course a separate discussion from any Due on Sale clause issues. I’m just curious how anyone has dealt with this in their own dealings. Thanks!

The bank would have nothing to do with the title, but they can call the note if they don’t like what you’re doing.

Most states have a deed tax for quit claim deeds that are about 1% of the purchase price.  Legal fees may apply to create the quit claim deed.  $700 sounds high, but it’s probably over $300.

None of that money goes to the bank.  It’d go to an attorney and a title company.

As long as you find good terms I don’t see it as a bad plan.  In my opinion you shouldn’t aim to pay off mortgages of your rentals if your goal is cash flow.  That equity can be moved to other investments.

Originally posted by @Sergio Aguinaga:

@Daniel Rutherford How did you derive the 6k in hand and 96k on the note? Also, would it be refinancing or financing that I’m doing since I would have payed for the rental property in cash?

In my example 20% ARV was $24k which is the equity you'd leave in the house. That would leave $96k on the note to equal the $120k valuation.

The $6k is the cashout difference between the $30k initial equity and the $24k refinance equity.

Hard money should be a short term arrangement unless you like enjoy paying 10-12%. If you're paying purchase + rehab make sure you have a good understanding of the ARV.

Let's say you purchase the property for $70k and put $20k in for rehab. If the ARV was $120k (hypothetically), you'd have $30k instant equity. If you followed the BRRRR method, you'd refinance everything to a 30-year conventional and cash out as much as you can to leave 20% ARV (to avoid a PMI payment) in the investment. That would leave you with $6k cash in hand, $24k in equity, and $96k on the note.

There’s really no other way you’d pay off $70k in 8 months or you wouldn’t be taking hard money in the first place.  But $96k amortized over 30 years won’t be a big hit to your monthly cash flow.

The 75% LTV is a typical requirement, but some banks will go north of 80% if you're willing to pay PMI. That will reduce your cash flow as well, though.

Is only the 2nd mortgage a balloon?  Was this for renovating it to make it suitable for renters?

Do you have a reset option on the balloon? 

@Julie Dike The tenants currently are and would remain responsible for both.  The only thing I may need to add is trash to be paid by me.

@Warren Fanaken I do not have any property management companies locked in yet.

@Alex Bekeza If I could find something like that I’d jump on it.  The local lenders I’ve talked to all seemed prefer balloons as to reduce their risk.  However, I can push for a longer term loan.  Thank you for the heads up!