All Forum Posts by: John Matthews

Hey all,

I tried to find the answer to this elsewhere on the forums, but was unable to find my answer, so here goes:

If a seller is selling individual properties in their rental portfolio, all covered by one blanket loan, can they sell the individual homes on seller finance terms? If so, how does that work? 

If not, can they be sold subject 2 while keeping the existing blanket loan in place?

If not, is it possible to buy the entire portfolio subject to the existing blanket loan in place?

Any help is appreciated!

@Sergio Altomare

Got it, thanks. Unfortunately I need to head to Boston to help my parents move (last minute plans..) that weekend and will be unable to make it. Thanks for putting it together though.

@Rob Beland

I think Chandra is including the cash needed to bring to the table to refinance (to bring from 85% LTV to 75% LTV) in those closing costs. considering that, it's not so bad.

That said, @Chandra Yates if it were me I'd sell, the opportunity cost of your money is higher that way.

Scenario 1:

Refinance. You've now got $33895 working to make 2244/yr (for a CoC return of 6.6% though that's not really relevant in this comparison). Already, you're better off putting it in an index fund (not really, assuming appreciation and tax benefits, fine.

Scenario 2:

You sell. Assume sale price is $150k, closing costs are about 5%, you get $142,500. Your existing loan is probably around 118k (assuming 30 year loan). You now pocket the difference - $24,500. Now you turn around and buy a better rental, maybe one that meets the 2% rule - So you buy a $98k house renting for $1960/mo or based on the 50% rule with a $370/mo mortgage you're cashflowing 610/mo or $7,320/yr. This investment is 3 times better than refinancing.

So you can't find a 2% property? How about a 1.5%? $4380/yr net after debt service and 50%. Your break even point is a property renting (gross) $1,114/mo. If you can't find that, then refinance, keep your equity. But to me equity is useless, you can't do anything with it. Especially when the market could turn at any time - so I'd cashout and put that money to better use. But that's just me.

@Corey Weidenhammer

Welcome. What area of Philadelphia are you moving to? Let me know if you'd like to grab a bite next time in the area. Also, don't hesitate to ask any questions you've got.

Best of luck

@Eric Rosner

Welcome! I see you're interested in the long game. What are some of your goals? Are you looking for more properties? And if so where? (I don't have any to offer, just trying to see what my phello philadelphians are up to!

Reach out if you've got any specific questions. Best of luck

@Ronald Burgess

- Gotcha, so no FHA. You should still be able to find very low rates for an owner occupied place, I've heard some will go as far as 5% down.

@Lakeisha Robichaux

2-4 Units are comped just like single families, based on sales of comparable properties in the area. 5+ units are comped based on the cap rate of the buildings.

So for your duplexes, you're looking for comparable sales around your property. Now the one thing I haven't been able to grasp is what if there aren't any similar multifamilies in the area?

Now for me personally, I do consider GRM of comparable properties.

@Brian Gibbons

Fair enough. It's certainly a safer bet in some cases. I do like the idea of residual income through seller financing though...

@Ronald Burgess

Congrats on deciding to actually get started. To your first question, if it were me, I'd move into a new place with an FHA loan, and rent out the place you're living in now, but I don't know what numbers you're talking for your current home.

As for your place in kensington/port richmond, if you can't find a bank that will lend you on less than $50k you need to keep looking. I can refer you to one if you'd like, just PM me.

How have you been evaluating your deals? If you haven't been using it, look up the 50% rule here on BP. It's not going to be spot on, but it's a good place to start in making sure you're successful long term. Essentially don't plan on appreciation, buy a place that's cashflowing, and if it appreciates, that's icing on the cake.

Reach out if you've got any specific questions or need any help!

@Joe Boggin

I think it comes down to this. In the scenario you're talking about (making 60k / year and buying an average property when you can afford it). I felt the same way, which is why I didn't get into real estate two years ago. Looking at the numbers, a 12% return on my money isn't that great when you consider it's still a job, and you can truly, passively earn ~8% in the stock market by putting your money in an index fund or two. The extra 4% doesn't make the job aspect worth while. for me anyway.

Here's the difference, that never really clicked until recently. That's all presuming you're buying average properties. Or put another way, it assumes you're buying properties at market value, that cashflow. The way to get out of this though is find value where other people have overlooked it. That's what warren buffet did to get where he is today.

So what do I mean by that? Buying an asset under value. So buying rental properties at some percentage under market value. Let's look at some numbers:

Property is worth $100,000, it rents for $1500/mo. If you buy it at $100,000 with a 25% downpayment, let's assume it follows the 50% rule and your debt service is around $500/mo (which it's probably not, but whatever...). You're cashflowing $250/mo or earning 12% on your money. Better than the stock market, but not getting you anywhere fast.

What if you bought it at 70% off market, for $70,000? Well now you 25% downpayment is less, but your rent is the same. So now you're making 17% on your money. Still not that great. The magic in this scenario though, is the equity you've got. What you can do now, is wait 12 months, go to a bank and do a cashout refinance based on the market value of the property. So now you can refinance it to 75% or $75,000. Which means you can pull all of your money out of the property + $5k. Your return just went from 17% that first year to over 117%.

See the magic there? Now you've got other options open to you, like partnering with people who put their money in instead of you because they're protected by the instant 30% equity you bought the property at. Or you can use private money to fund the deal (for the same reason). Or you can sell the property instead, and double your money 6 months instead...

The key is in finding value where most people don't. It's how people get rich with longterm stock plays, or in buying businesses (a la warren buffet) or in buying real estate.

Hopefully that helps!