All Forum Posts by: Wayne Kerr

So there's a lot to be learned here:

1) Putting down 20% is nice IF you want to buy a property or two a year. If it's an expensive property, maybe 1 every 2+ years. The capital runs out quick - doesn't matter who you are or how much you make. 

2) Appreciation play is somewhat of a gamble. In the short term it's extremely risky - long term it should work out just due to inflation. That being said I always want cashflow to cover maintenance/repairs/Cap Ex. You live in California (very liberal place and not landlord friendly) so you may be capped on your rent increases (this would impede your potential cashflow even more) - something to look out for. Assuming you meant you'll make a couple hundred thousand in a couple of years...this is an extremely bold prediction. I can almost guarantee if that was the case those properties would be long gone by companies that have access to more data than you or me. 

3) An STR can be nearly anywhere - popular vacation destinations or your neighborhood. Regulations are a thing to pay attention to. This again should cashflow. If you buy a STR that doesn't cashflow...you'll have two places that don't cashflow. This is a recipe for disaster.

4) Why do you want the home paid off in 15 years? What's the benefit of a paid off home? Your ROI will likely be lower since your monthly payments are higher and you'll have to leave more in the property if you want it to cashflow. I don't care if my loan was for 50 years if the place cashflows...see where I'm going here? Let the debt work in your favor. Lower monthly payments = more potential cashflow.

5) There are always deals. Some may be harder to find, but they are always out there. And there will always be another one.  

The last few places I bought - PITI is $616 - rent is 1350 (duplex, $675 per unit), PITI is $909 - rent is 2600 (fourplex, 650/unit), PITI is 662 - rent is 1250 (SFH). You really want your PITI to be half of your monthly rent for a place to cashflow well.

Absolutely - first time in a while I can ask for some seller concessions because they don't have 50 over ask offers in less than 24 hours 

I'd prefer to buy at a lower price and higher rate - I can always refi that rate. Nothing you can do about a high purchase price - and if you ever do refi - guess what? That rate is more than likely going up

Quote from @Christine Watson:

Quote from @Wayne Kerr:

Quote from @Christine Watson:

Hello David,

Thank you for this.  This helped me see points that I was not aware of before.  

I want to purchase personally because my LLC does not have any income. I am purchasing a four plex. Once the 4 plex is rehabbed, the income from the four plex will go to the LLC.

Messing up the veil - I am assuming that I need an attorney to do the quit claim deed in order for the veil not to be broken.  Is this correct?  

Loan - I would not be able to refi a property that is in an LLC with a conventional loan. Is this correct?

Firstly - why do you want to put the property in an LLC? 

You can just purchase under your name - this gets you the best terms for your loan. Then talk to the title company and tell them you want to put it in an LLC. They'll record it and the deed will have the LLC. As far as the "veil" just keep your personal vs business bank accounts separate. This will limit your liability.

You likely won't be able to close under an LLC unless you go with a commercial type loan. AKA lenders will not let you close with a conventional loan under your LLC - needs to be your personal name. Just swap it over after 

Thank you, Jeremy!

I thought this way was a go, until David brought up some concerns that I had not considered.  
This seems to be the easiest way, however my main concern is the piercing of the veil.  If I do not have that protection, I have no use for the LLC.  

No - there's no concerns involving having your title company swap it over to an LLC after you close (regarding the veil)

Concern is - and all mortgage lender contracts will have is - is the "due on sale clause" - technically the lender can call your note due upon transfer of the property (since the property has been transferred to an LLC). I personally, nor has anyone I have ever spoken to had their note called due. That is the only concern. If you pay your note, I don't believe you'll ever have an issue

Quote from @Christine Watson:

Hello David,

Thank you for this.  This helped me see points that I was not aware of before.  

I want to purchase personally because my LLC does not have any income. I am purchasing a four plex. Once the 4 plex is rehabbed, the income from the four plex will go to the LLC.

Messing up the veil - I am assuming that I need an attorney to do the quit claim deed in order for the veil not to be broken.  Is this correct?  

Loan - I would not be able to refi a property that is in an LLC with a conventional loan. Is this correct?

Firstly - why do you want to put the property in an LLC? 

You can just purchase under your name - this gets you the best terms for your loan. Then talk to the title company and tell them you want to put it in an LLC. They'll record it and the deed will have the LLC. As far as the "veil" just keep your personal vs business bank accounts separate. This will limit your liability.

You likely won't be able to close under an LLC unless you go with a commercial type loan. AKA lenders will not let you close with a conventional loan under your LLC - needs to be your personal name. Just swap it over after 

I don't think a cash out refi would even be that great right now - would've been great a year ago. The credit score, HELOC, living situation with your mom in one house and you in one house, recent work history, income, debt - the terms are likely going to be so bad it's not worth it. You need to run some numbers to make sure these places will still cashflow after a cash out refi and that you'll have money leftover for maintenance/repairs/taxes etc.

Call me crazy, but I'd seriously consider selling. You have several issues right now - I think your health and related debt should be prioritized - and work on RE second. Sounds like you're a bit overwhelmed and have quite a bit on your plate as well. Simplifying life by selling one of the places may not be a bad idea. 

Sounds like since you didn't give a 60 day notice like the contract specifies you'll be sent to collections and your credit will likely take a nice hit (if you don't pay your rent due). When you go to rent again, the background check will show you owe in collections for not paying your rent - not a good look for trying to rent a new place, or anything else for that matter. 

You'd be renting month to month, so the month to month rent rate is fair, and likely what is specified in the contract. 

What would your argument to the court be? 

Lesson to be learned here is to make sure you read and understand the contract you signed.

Can you find another reason to evict them, other than non-payment?

Damage, pets, utilities, people living there not on the lease?

Try to find something else to evict them for - maybe get a PM team or attorney on your side. You need someone with experience and who has done this before to take this on

What would it rent for?

What are the terms on the mortgage?

Quote from @Michele Velazquez:

I have spent so much time researching and I am so anxious to make an offer and close on my first MFU. I am just having trouble finding the right location. My goal is to buy a MFU (2-4) doors and have it cash flow from the beginning and still have a decent appreciation. I am open to a SFH if it cash flowed too. I narrowed the cities down to Greater Metro Atlanta are and Dallas Metroplex. Atlanta does seem to have some deals that can work. Haven't had any luck with Dallas. Are there other markets I should consider? Budget under $600K and 20% down. TIA

 I'll say this - you are usually going to have either appreciation OR cashflow

Very unlikely (or lucky) that you will have both high appreciation and high cashflow

Why not look locally?

I hate to do this - but this is such a common question on this forum. 

Yes the rules are great screening metrics. Yes, IMO, they are still relevant. 

99% of houses, especially on the MLS, don't make good rentals (seems you are on your way to figuring this out). You'll generally need a pretty big rehab to make a SFH cash flow well.

I use my own income/expense excel sheet to analyze properties. My suggestion would be to make one - if you can't make a simple cash flow calculator then you don't understand what you are doing (and probably shouldn't be doing it). Making a calculator would be a good learning thing to do. 

Now go watch "4 Square Method" on youtube by bigger pockets. Very simple illustration/calculation on income/expenses/cashflow.