All Forum Posts by: James Masotti

Oh...and for the record...since I never got around to saying it in my last post...this would be an awesome idea @Glen Beringer.

I was just driving around today looking at some properties...there are some areas that look boarded up and such and after looking them up on some crime mapping sites like Trulia, CrimeReports, and NeighborhoodScout they definitely aren't the absolute safest neighborhoods, they aren't the worst either. ...of course driving around at night time might be totally different..and everyone has different levels of comfort.

@Sean Salandy - Again I think this is something you need to consider as part of a larger thought process. (Then again I tend to over think things) 

Do you plan to stay flipping in your market for the long haul? I don't know Cecil County all that well, but at a $170k price point you're probably talking a middle class area, which means to successfully target the bulk of your buyers you want to make sure that your materials are up to that standard. You'd hate to have realtors and brokers steering their clients away from your properties in a few years because you get a reputation for using inferior building materials for the price point. Now I've honestly never had to put in a laminate floor as I haven't done my first flip yet, so I can't tell you exactly what the difference is between the 8, 10, and 12 mm thickness. I have to imagine it makes an impact on sound dampening and the impact of spills and other such things on the wear and tear of the floor. So again...you need to know your market and what's acceptable and what your long term business plans are. 

Great thread @Nik S.! And congrats on the deal. This will be an awesome resource to reference back to when I get around to doing a larger multi-family deal. 

How exactly does a partial seller carry back work?

Other than the convenience of having been pre-packaged I have no interest in paying a retail price, and as the owner refuses to break the properties up and only wants to sell as a package through a commercial broker, he is targeting investors. 

So..for example total property values are around $330k, but there's no way I'd pay more than 80% LTV.

This means I'd be offering $264k.

The bank will want to see a LTV of no more than 75%

This means I need to have my bank financing at $247k

Now I know the $16.5k spread doesn't seem like much but...is it reasonable to ask the seller to carry a short term note on this? Something like 2 years payments with 20 year amortization. The property should cash flow enough to come close to being able to fully pay this off...

Next question is would a bank permit something like this?

Sorry for all the questions I'm just trying to wrap my head around how I can make this deal (or another deal like it) work out.

Everyone has their own objectives with their flips, so you'll have to decide in the end if the quick sale and return of your capital is worth it. For me I hope to be able to present a house that looks like the most expensive, but is in the median price point...and I want to sell quickly. My goal is to have a full priced offer in the first week the property is on the market because it is priced to attract every buyer on the market in that neighborhood and price point and will be the nicest thing they look at. So for me this would mean putting in the hardwood over the laminate. 

Others want to maximize top dollar and would rather have another $10-$15k on the price and wait 2-3 months for the "right" buyer. My holding costs would be too high for that...and I'd rather get my money out and move onto the next deal. 

@Sean Salandy - Take a look on the MLS at your comps and see what they have. Also ask a realtor if he thinks you'll be able to save the additional $3000 either by adjusting the price or selling faster(reduced holding costs).

If the answer to either of these is yes, than that should help you make your decision. 

Welcome to the site @Justin Lewis! BP has some awesome resources and has been a huge asset as I develop the strategy I'll be moving forward with, but I'd also encourage you to check out the SJREIA to get some more specific local insights.

@Bill Leonard - I don't have much to add but I can say that I'm sort of in the same position as the person who has requested funds from your stepson. So although you've already received fantastic advise, I'll share my thoughts just as another data point.

I have been looking at a number of properties to start getting into flipping approach a long time friend (20+ years) who I knew had excess funds. We have talked about doing a real estate deal together for a few years now and both were just not in the right place. I came across a deal I liked and my HML would lend on 100% of acquisition and rehab so long as I was below 65% ARV all in. The points and interest were obviously high, so I thought perhaps having a partner would be a better option.

I first approached him about formally going into business together in a new LLC where I would bring some cash and all the work and we would just be an equity partner. For his own reasons, he decided this wasn't right for him now and opted to just lend the money.

As we discussed this and the various pros and cons we discussed whether or not he would like monthly payments or a balloon at the time of sale. Understanding the value of my cash flow in making a deal run more smoothly, he offered to take the full principal and interest at the sale, or 12 months. He's getting a straight 10% return on his investment, so if I can be in and out in 3 or 4 months, which is definitely the goal, than his annual rate of return is much higher than 10%. However if for some reason things don't go as well as they could and it takes longer, his annual rate gets a little worse. This will also be filed as a second lien on the property.

Through our discussions he made it pretty clear that the reason he was comfortable making the deal was that we have known each other for a long time. 

...at the end of the day too I am very fortunately to have found a small community bank who has no problem with me using the second position private funds to cover the 25% down payment they require on their construction loans. This way I'm only out the upfront points, closing costs, as well as monthly carrying costs. Terms are much better than HML

So I tried to give my friend all the control in setting the terms, but obviously ones that I as the borrower were also comfortable with in order to help get me started. My goal is that after I get a deal or two done I wont need his gap funding any more for flips. However I hope to have built a good enough track record that I'll be able to change the terms of the lending and try to bring in some additional private funds in order to pool the private money, along with my own, to buy larger multi family buildings. 

@Monique Rene Coates - Thanks for your thoughts. The plan is to put these into my long term buy and hold portfolio. So I wouldn't be looking to lease option these particular properties. As far as the land is concerned, I'd also plan to hold onto that. That particular lot is right across from a small apartment complex, so I have a thought to in time, apply for rezoning and build out the property into a multi-family. (I'd still have to investigate this in the long term, but the numbers work even with the lot included)

@Brie Schmidt - I'm going to do some poking around regarding commercial loans. I know they're different than traditional loan packages and I'm not nearly as familiar with the process. If you have any recommended resources you can point me to that would certainly be very helpful! - And on an unrelated note...really enjoyed your podcasts! You're doing some awesome stuff that is very inspiring!