All Forum Posts by: Anna Laud

@Quincy Baker

You bet! Okay well this is a different situation then as you're not actively looking to hire, but hiring now as more of a consult. 

You're right, it is not as fair or ethical to use their professional estimate if you're not actively looking to hire them, and it should be based on more of a 'consolation fee' approach. 

After you've done enough of these, you will begin to get the idea of what rehabs in your area will cost on average and you'll know quickly, "okay this full kitchen rehab will be about $30K" and just add in these rehab needs until you've got a total going for all rehab areas accounted for. 

After enough time or experience you wouldn't need to keep hiring these 'consults' out. 

I would never (and it doesn't seem like you are) go into this with the promise of work, and be fully transparent with any contractors why you're hiring for the consult (ARV purposes).

I would anticipate most in state/area investors that you're working with to have their own 'boots on the ground' in established working relationships with contractors already, and not likely to move forward with a new contractor with or without a bid.  

But yes, based on your 'why' I would agree it's more legitimate to offer compensation as a consult fee more than a bid for work = )  

@Quincy Baker

Hi Qunicy! 

I'm not sure if you've talked or met with any contractors already, but if you truly mean the estimates (and not the actual work itself - like "how do I pay the first portion of the work until my first draw from an HML?") those are FREE.

You would usually NEVER pay a contractor for their estimate- they are 'bidding' on the work as in submitting a 'bid' to you to gain the job. A contractor's bid or estimate to you is part of their overall 'application' if you will. You would never pay an employer to submit your resume right? Same logic here : )

Along with this bid, you should ask about them being licensed, bonded, insured and for past client references - and make sure to call those references up.

Do not go with the first bid you get, simply because it's the first one, and truly shop around. Make sure that your contractor seems knowledgeable yet isn't going to 'take over' your project, i.e.. "Yeah, don't worry about the kitchen, I've got some ideas on what I can do" - that won't work as their 'ideas' can cost you a lot more than necessary and you never want to give 'creative license' with your checkbook or timeline. 

Know what you want, how much you're willing to pay total (as it pertains to your 'all in' totally invested mark with purchase, rehab, closing, and holding) and stick to it. 

Make sure to also be very clear with your contractors about your timeline- if it's two weeks to get flooring ordered and installed, it two weeks period. Absolutely any changes to this (like backordered product) need communicated to you immediately (as in them calling you from the big box store they are trying to place the order in or builder's supply house etc) 

- In that call you make a quick shift to similar product/price that's ready to rock and roll with now (I would never suggest a product delay as a viable reason to cost more in holding costs). 

As for paying a contractor- some contractors will have enough capital to cover materials up front (usually anyone doing enough jobs has this kind of funding available), some however do not and it's okay to be asked to pay for the product/materials upfront - especially if you're ordering anything custom that costs more (again, either buy the materials yourself or ask for an itemized receipt at order, not upon delivery). 

But usually never pay for work upfront/give advances- that's how you get your job 'spiked' (they will start your job and move onto the next, finishing yours when they get around to it)

But no, never usually ever paying for an estimate! If you're asked to pay for one, I would suggest moving along to another contractor. 

Having said that, be ready with what you want in mind exactly, know your city ordnances about permits and those timelines, ask for copies/proof of information on being licensed/bonded/insure and be crystal clear on how much communication you expect.

Once you've found a great contractor to work with- you've made a friend for life in a working relationship! I hold a great deal of respect for upstanding and honest contractors as my father was one for 30 years and that's how I got my 'real estate' start, gowning up on the job site. 

Hope that helps! 

@Oscar Parada

Hi Oscar! 

Yes, as Stephen said there are different thoughts on this and pros/cons, but I personally prefer using an LLC. Not a CPA or lawyer but maybe a little insight to offer before you speak to one (most often you can at least get a free consultation from either of these types of professionals!) and have a better idea of what you might want to ask about;

In going with an LLC, taxes should be more streamlined as well, and you might benefit from having the rental income 'pass through' the LLC as it's designed to do- and the cost for taxes can vary, I'm paying around $600/yearly/per LLC- to me worth it, but you can ask when speaking to CPA how much they might charge each year at tax time too.

Another benefit to having an LLC set up is the corporate veil of protection it offers, limiting personal liability- some investors also obtain an umbrella policy as well.

LLC's can be so beneficial in fact that some investors have a separate LLC for each property- this way if a situation goes into lawsuit with one property, the lawsuit is contained to this property (and this LLC) alone, not all of the investment (or personal property!) the investor owns.

(You might be thinking why would someone sue me over an investment property?? Unfortunately, that's actually as close as the wrong lawsuit happy person stepping in a hole on your property and twisting their ankle- but an LLC would offer your personal assets {and other investments} safe)

If it's just yourself, taxes are not so complicated with a SMLLC (single member LLC) so that shouldn't be a huge reason not to use an LLC(s), as the protection benefits offset/outweigh the small steps during tax time.

For future note, it's simply a matter of attaching Schedule C form to your Individual Income Tax Return (IRS Form 1040) and showing a total profit or loss as part of your total income that's being reported.

During the stages of setting up your LLC, you can include provisions in your operating agreement to have it survive beyond your lifespan and seamlessly transfer to another named individual. In other words what you set up now can last beyond a lifetime and keep working for any future heir as well.

Quite a few people that end up setting up an LLC do so in the state of Delaware, for tax breaks and lower fees, as well as a pretty quick turnaround time in organization.

Obtain an EIN with each LLC at it's organization (usually an option online in set up) and be ready to provide lender with the following when applying (as you mentioned using financing for with 20% down)

-Articles of Organization and an Operating Agreement for your LLC, for you or all LLC members

- State Secretary's proof of good standing (like business entity report aka fees paid to State yearly- can be as easy as paying the $30 fee (just what I know I pay in IN as an example) to your State and getting the email receipt of your payment /filing)

- EIN (that you obtained at set up as mentioned)

- Bank account info for LLC (just transfer purchase funds into accounts you set up after you've obtained EIN- plus usually bank perks to new business accounts like free checks, waived fees etc!)

- Personal credit and financial info

- business plan outline or proof of any real estate history (even like acting as PM before your first personal investment - something to show good record)

Financing might be more of an effort to obtain, but not impossible by any means and if you're putting down 20% on each loan - that's already better than some borrowers putting down less on one loan, going the entire PMI route etc.

So yes, for minimal set up (easily done online too, even after consulting with a professional) it does seem to be the best option for many investors to purchase with an LLC- and I hope that info/steps help = )

@Rebecca Acer

You bet! It looks like you've got a plan now to get the process started, which is exciting as I'm sure you're eager to get into this unique property!! If any other questions come up, please reach out and I'll do my best to offer any help = ) 

@Sang Yi

Hi Sang! 

It seems like it might be harder to compete with cash buyers and conventional buyers as it pertains to using a VA loan in certain markets, yes. However, maybe there is an affordable ‘creative' alternative? (I'll explain)

The VA has come a little bit further along with streamlining the appraisal guidelines to more like those of conventional loans, and on average started paying appraisers a little more (has helped some of the hurry up and wait game that has been so long standing in reputation with using a VA loan)- all good things!

Having said that, maybe it would be worth looking into to consider a mixed use property - I only say that as you’re kind of knocking out some of the end use competition there, and you would still be able to obtain a primary residence.

I think that as long as you're no more than 25% commercial in total space usage, there are no more than 4 units total, and you've got a ‘remaining economic life' of at least 30 years (on the residential portion)- you still would be able to benefit from your VA loan product benefits

• 0 down
• No PMI

Now you could work with some potential monthly rental yield from a renter in your ‘commercial space'- and you might be able to refinance IRRRL (Interest Rate Reduction Refinancing Loan/ VA Streamline), saving more there in time maybe if you're sure of the following;

Provable benefit-

1. Better interest rate

2. Lower payments

3. Improved terms

(You just aren't able to switch from ARM to fixed rate to the best of my understanding)

If you went with a VA- cash out refinancing - you could qualify for 90-100% of the value of the property (still closing costs etc obviously)

So if you were able to find a suitable mixed use property, it seems like there might be fewer offers to compete with as far as other offers you’re competing with currently, and you might be able to not only move forward at this time in a ‘hot market’ but, possible have some monthly rental income coming in as well.

So maybe with a little ‘out of the box' thinking, you could find a mixed use property, use your VA loan (0 down/no PMI still), have some money coming in each month, then move to cash out refinance maybe and use that cash out plus the $60-70K mentioned as cash funds for another investment property in time if you wanted to.

After all of this was said and done you would maybe be able to check the following off of your list;

1. Be in your desired area, having a primary residence
2. Using your VA loan product as desired
3. Have some monthly rental income coming in now (at least helping to cover mortgage payment maybe)
4. Move onto IRRRL to better costs or do VA cash out refinancing to obtain further investments and get most use of cash you mentioned ($60-$70K) for addition investment

I realize this is totally different than a condo/townhouse- just trying to help think of an alternative solution to if not compete with other end use offers, to ‘out think’ them maybe in a different option.

Hope that helps some!

@LeeRoy Kusto

Hi LeeRoy! Welcome to the wonderful world of real estate and BP! 

Taking Real Estate classes is a great way to start - and I'm assuming you mean moving towards being a licensed professional. It wasn't always that way (as a suggestion) but yes, we are moving towards (albeit slowly in some areas more than others) towards legislation being that having your professional license in most every state is not only helpful, but in some states (like where wholesaling is illegal), necessary to to stay lawful when moving transactions. So kudos there = ) 

I would say that networking is your second best plan of action and asking as many questions as possible from those that are already fully immersed. Connecting with a local REIA is a great option for you and probably where you would meet the most local people to get the best idea of what's happening around you.

Beyond this, you can get creative and just make some friends along the way that should turn into long term working relationships. If you're taking classes now for example, I'm sure you have an idea of where you want to hang your license maybe already. Now if this is a Nationwide company like Tucker (obviously there are a lot!), you can call a few of these in your area and simply ask to speak with their newest agents, then their agents that work most with investors, and often the managing broker would be helpful too.

Here's the 'why'- new agents will have their State and National exam fresh in their minds and be able to answer question you've got there about the exams, and it's great to have some fellow 'newbies' that are hungry and ready to be really helpful (if you join one of these brokerages, you know you've already got friends to help with open houses too in a lot of cases)

In speaking with agents that work more with investors, you'll kind of be able to 'interview' them and just ask what works well/tips/advice for how they make their transactions as smooth as possible. This is where your truly benefitting from their experience and soak up as much advice as you can.

Speaking with the managing broker - this is who usually has had more experience as well as taken managing broker classes, and will truly be where your 'mentoring' or most 'go to' for serious questions can come into play- plus you'll get a great idea of what their particular branch/franchise has to offer you. 

Beyond this, network (by call usually) with everyone you can and just be honest about what your goals are and get a good idea of how you can (and if you should/are a good fit) to work together. If you call five home inspection companies for example, and hit it off well with a few of them, plus you know what their best 4 to 5 point inspections cost/offer- come your first transaction you've already got a pool of inspectors to recommend to your clients if they would like, and you'll know about how much to tell them it could be- kind of ready from the gate so to speak. 

Apply this with contractors, insurance providers, home warranty companies (for end users obviously) and soon enough you will have a great 'team' of friends to help you out.

Hope that helps!

@Ben Parker

Hi Ben!

My wheelhouse is Indianapolis, but I’ll try to include some helpful information here that should roll-over into the NC market as well and give you a better idea of what to keep in mind.

Class A areas are most often SFR, owner occupied home, or rentals with lower monthly rental yield percentages (lower because the fair market value of the homes are higher on average, and most of the time anyone able to afford a certain threshold of rent (%based) could easily afford (and qualify to do so) without needing/wanting to rent. These areas usually have higher school ratings, as well as lesser crime and a lesser extent of an overall property damage level from tenants.

So, while fewer renters in these areas, the quality of renters are usually higher. It can be easier in these areas to have a buy and hold investment property and magane it yourself. Lower returns, yet higher margin of physical safety net/reassurance. Rents in these areas -usually less than1% monthly rental yield

Pros to this area would be safer to rent in, with higher quality renters. Cons would be minimal opportunity for fix & flip, monthly rental yield usually less than or equal to 1%

Class B areas are usually mixed between rentals and owner occupied homes, more duplexes can come into play here as well. These areas can offer some more of a mix between professionals and blue collar owners/renters. Rents in these areas are usually higher in % of fair market value than Class A areas, and in a lot of cases still less of a worry than other areas as far as possible property damage goes. Rentals in these areas range, getting closer to and sometimes beyond 1%.

Pros to these areas are still higher quality renters, yet monthly rental yield increases to 1% on average. Cons to these areas are slightly higher risk of property damage, and fewer flipping opportunities.

Class C areas become more of a 50/50 split than Class A and B areas as far as renters and owner occupied houses go. In these locations the schools tend to have lesser quality ratings, but more families (as gentrification transpires) will ultimately (and in time) choose private school settings. Rents in these areas range getting closer to a 2% monthly rental yield (at least in some places in Indiana- obviously not all Class C areas are closer to 2%, but you see a pattern forming :)

Pros to these areas are usually 1%+ monthly rental yield to 2%, and having a steady pool of renters, as well as more frequent opportunities for fix and flips. Cons are slight downgrade in quality of renters, property damage more likely/possible.

Class D areas are for the most part rentals, and in these areas of Indy you will find more abandoned homes. Tenant maintenance here is more required than some areas, and using a PM or PM group in these areas is what most investors choose to do. Rents in these areas are often subsidized, around <$900 a month on average (again, Indiana, but proceed accordingly as a loose rule). It IS worth noting that some of these areas have seen some drastic gentrification in recent years, and that may play into NC as well.

Pros to these areas (especially those mentioned after listed zip code) are ample opportunity for fix & flips and these areas quickly transforming into Class C or Class B areas. Cons for these areas (mainly those not having further mention) higher likelihood of property damage and more issues with tenants (yet still a steady supply/pool of renters)

Sprawl, Holly Springs, Fuquay, Franklin, Youngsville seem to be a few popular areas from others investing in NC, while those holding true to college town rentals prefer Boone and Asheville- but it does seem that Raleigh isn’t going to maybe be your highest cash flowing area maybe.

Having said that, you obviously fall into some tourist, Airbnb opportunities in some areas in NC as well and there are plenty of investors that use this niche as their bread and butter, so maybe worth considering if you find a Class A area that fits this criteria - this would change your % of monthly rental yield accordingly as “nights stay” charges usually are far superior to monthly rental charges (a quick prorated daily charge would show you by what %)

If you’re going towards a college town, I would caution you to move your lease agreements to student ‘friendly’ - co-signer at minimum (make sure you know that parents/guardians can/will foot the bill for damages/rent ultimately) but I’ll include a link that should help with this too.

https://www.rentecdirect.com/blog/the-pros-and-cons-of-renting-to-college-students/

With all of this in mind- it might be best to speak with an agent in your area/desired areas and get someone who’s familiar with working with investors and the best investing areas you’re talking about in NC. If you need help connecting with someone, let me know because I can connect you with an agent that you can at least talk to!

Hope that helps!

A lot of folks here are landlords in Indy, even if they live outside of the area. So I'm putting together a list of the best practices for property management, how to best manage SFR rentals in Indy (but really all over!). I'm sure most of this will apply to others as well so please feel free to share your best ideas. I'll be collecting the best ideas and then posting a checklist with the best ideas. It seems like maybe it would be really helpful to have a checklist from various contributors that everyone could benefit from and add their best experience practices to. It might even help some folks out when they are interviewing new PMs/PM companies, and it would be nice to help ensure everyone has a good idea of where to start out and what to know works well for others from all over. Maybe some 'red flags' to avoid too? Thanks! = )

@Alexander Straffin

You bet! I’m glad you found what you were looking for and have some ideas on what to do moving forward. If any questions come up - just reach out and I’ll do my best to help figure it out = )

@Roland Glenister

Hi Roland! 

So you've got some pretty exciting items on the horizon here as far as your 1 year timeline goes it seems and I'll try to help answer this for you if I can!

Not to get too personal (or make assumptions from the gate) but most physicians finishing residency have vast amounts in student loan debt to take into consideration. If you've deferred any of those loans, you're time in not making payments will be ending soon as well it seems. 

May not be an issue for you, but if so- fist step might be to evaluate those loans and factor in those payments as well that are to come. 

Having said that while your projected earnings are great they won't be able to count towards financing now to some degree- there's not an established work history at this salary etc. as 'potential earnings' are just that, potential.

With that in mind your best option might be to work with a lender that is geared for working with new physicians and apply for a 'physician's loan', which in some cases will allow you to have minimal amount in down payment and may not have the PMI cavate that usually comes with putting less than 20% down.

Some of these lenders will work with very minimal down, knowing you're about to have a substantial  salary, and will 'factor' it in more than any other lender might. 

TD Bank, First National Bank, Flagstar Bank, Simmons Bank, Lake Michigan Credit Union, University Federal Credit Union, KeyBank- even a stop by LeverageRx would offer you some comparisons  (shop around) on these lenders. 

With that in mind if it's not right now that's in your timing, going with a conventional loan then getting a HELOC (usually very 'cheap money' to borrow at 1-2% interest) would probably work to acquire an investment property.

So let's say of this first year in making $500K, you would be using the bulk of that to pay down student loans (these are probably at highest rate of interest), then mortgage loan, then using HELOC (lowest rate) to acquire transaction funding.

In order of operations, you'd be going highest interest rate to lowest and paying down in descending order, keeping most cash flowing out in year one to (hopefully) in year two to year four at most be free from all loans. 

Not impossible to do now at all, depending on cash reserves at the moment, but what seems like the best plan of actin for proceeding if cash reserves are at a minimum- factoring in earnings yet to come. 

Deals will always be there, and I would advise making sure right now is your best timing before proceeding - if it's now, that's great, but I would not consider this a 'unicorn deal' to the tune of jump in without full consideration of a year timeline in mind personally if that makes sense. 

Hope that helps!