All Forum Posts by: J Scott

A couple things:

- Many lenders will require that the loan go in the names of those who will be on the title. So, if you want your name on the title at closing, you will likely have to be a co-signer on the loan. This isn't all lenders, but all conventional lenders that I know of;

- Most conventional lenders will be wary of the borrower receiving the down payment as a "gift" from a non-family member. Generally, the borrower's down payment funds need to season for a couple months before the lender will allow them to be used, but again, this is lender dependent;

- If your partner gets the loan in his name and just puts himself on title, he can add you to the title after closing. This may trigger a due on sale clause from your lender, so read the fine print and make sure you're okay with any potential ramifications if you go this route.

Consider what your business model will be before you decide whether to get your license or not...

Personally, my wife having a license means we save/make between $50-100K each year on commissions for our investment properties.

And while the $50-100K is nice, it's even nicer that we have total control over our deals from beginning to end.

I'm guessing his point is that to really survive as a full-time REI, you need to do more than just "pay your bills," as the original poster implied...

And this is a very good point...

Thanks for pointing that out Josh!

And sorry Will!

Unlike Michael (above), I don't differentiate based on whether the financing is my own cash or a rehab loan (my two primary sources of financing).

In either case, my risk is the the same (either my cash or my credit score, both of which are equally important).

And, in either case, I'm looking for a minimum of $15K in profit on a typical flip that I buy in the $40-60K range and sell in the $100-140K range.

Not knocking Michael's requirements...as he pointed out, there is no "one size fits all" answer, and you need to figure out what works for you and satisfies both your requirements and your risk tolerance.

As long as your buyers aren't FHA, you shouldn't have any seasoning issues. That said, there are some lenders that will shy away from providing funds to a buyer who is participating in a double or simultaneous closing (they are concerned about both fraud and chain-of-title issues), so you could run into that as well.

My best suggestion is to find lenders who will support your purchase and sale strategy and "encourage" your buyers to use your preferred lenders to finance their deals.

Hey Marc,

What about the obvious problems of:

1) If the buyer can't qualify for a conventional mortgage, why would I (as the seller) want to underwrite the loan? If the buyer can't qualify with the banks, it's likely he's at a high risk of default, and then in two years I'm going to end up with a trashed property that is going to cost more to rehab than was earned during that two year period;

2) The note market for sub-prime borrowers has essentially dried up. If the buyer can't qualify for a conventional mortgage, the seller isn't going to be able to sell that note for anywhere near face value;

3) If the seller has to sell the note for 40-50% of face value (likely if the buyer is a credit risk), he'll lose more money than if he just drops the price on the property by 10-20% (which is what he was trying to avoid in the first place).

I'd love to know why you think this is a good strategy in today's market...

Not only does 3% vacancy seem low in any area, but it certainly doesn't take into account rent loss by occupying tenants. In other words, each month there will be tenants who do not pay their rent -- this isn't technically considered a vacancy expense, but is just as bad.

Depending on your area/property, rent loss can be as much as (or even more than) vacancy loss.

If you want to model this, assume at least 8.3% vacancy (one month per year per unit).

Also, as Mike said, if your expense ratio is much below 50%, you're missing something.

And a 7% cap is probably over-paying, considering the market is starting to soften for multi-family properties nationwide.

First, as Heather pointed out, it's not true that you can't get financing for an REO. In fact, you can get any type of financing you want (and can get). The banks may not consider your offer as seriously if you are getting conventional financing, but there is absolutely no rule that states that you can't get a traditional loan against an REO.

As for inspecting the property, my guess is that the bank is stipulating that you have no "due diligence period" after the contract is signed. This means that once the contract is binding (all parties have signed it), you don't have any time period in which you can back out and get your deposit back.

But, the bank certainly shouldn't limit your ability to enter the property as much as is reasonably needed, for things like inspections, contractor estimates, appraisals, etc.

In fact, I'd be surprised if the bank even knew that you were entering the property; it's normally the job of the listing agent to grant you access, though your agent should be able to do so as well. Especially since all REO properties are vacant, so you don't have to worry about disturbing the home-owner.

My suggestion is to tell your agent flat-out that you expect to have access to the property as much as need-be. If he/she can't ensure that will happen, find another agent.

My advice...don't quit your job until you have enough money saved that you won't stress over not having an income for several months (or years)...

I'm a full-time RE investor, and couldn't imagine the stress of just starting out and not having several years worth of savings...especially with a family who depends on you...