All Forum Posts by: Jeff V.

I believe it is a 10 loan max not a 10 property max.

That being said I think the portfolio loan is a viable option if they are all under one loan.  That would free you up for 9 other loans.

One caveat is to make sure that each property has the ability to be released individually from the loan in the event you want to sell one.  This would prevent you from having to pay off the entire portfolio loan just to sell one property in the portfolio. 

Roger,

Thanks for the feedback :D and glad I could help.

Jeff

If you don't already have your EIN apply for one.

Apply for EIN Online

If you have multiple members in your LLC you might want to draft an Operating Agreement to define roles and responsibilities and how profits/losses are divided.

Open your checking accounts.  They will need your Articles of Organization and possibly your Operating Agreement if you have multiple members that have different roles...  such as one person that manages the finances that has check writing privileges  and ability to secure financing on the business's behalf ect while the other does not...  they will need to know who has the ability to make withdrawals ect.  On the other hand if only a single member or multi-member all having the same privileges the operating agreement would not be necessary.

As far as Filing you will need to have your CPA do the annual filing with the state on your behalf...  basically reporting what profit/loss was reported on your K1 for the previous tax year...  consult your CPA on this one, I just know it's a requirement they can tell you more.

That should get you rolling in the right direction.  Hope this helps.

Jeff V

Shay,

Will you be selling these Tiny Houses/RV's?  If so do you have information or details about them?

I have a rental with a double lot and one side of it's vacant.  Looks like it might be a good place for one of these Tiny Homes to sit and generate additional revenue.  The City has some regulations on what can be put there, so will need more info on what the product is to know if it's a viable solution.

What do these sell for and are they completely finished ?

Jeff V

So I've been doing some digging and reading on the use of leverage and how to use it properly to exponentially increase your ROI.

I've written out a hypothetical deal below in which I use the BRRR method to purchase, renovate, rent and refinance a deal where I'm all in at 60% LTV and then use the 40% equity to purchase a note with the sole purpose of increasing ROI and to hedge slightly against vacancy expenses.

After running the numbers I realize it's not possible with the entire 40% due to banks lending on 80% LTV max, but looks like it's doable with only 20% equity as well.

This is just a theory of a possible strategy. Looking for some advice and to poke some holes in the plan.  Also if your using a similar strategy, that's proven successful I would love to hear it.

Here are the numbers:

Cash Purchase

ARV 100k

All In 60k

Rent 1,000

Expenses 480

Cash Flow 520/mo or $6240/yr

Property Cap Rate 10.4%

Unleveraged ROI 10.4%

------------------------------------------------------------

Refinance Terms 20 yr @ 5%

Down Payment 3000

Financed AMT 57k

Payments $376.17/ mo or 4514.04 /yr

Loan Constant 7.9%

Spread 2.5%

Cash Flow after Financing $1725.96/yr

Leveraged ROI 57.5%

-----------------------------------------------------------------

Note Info to bank (Expenses) --- Basically Taking a second for simplified math real world would be full 80% LTV Loan.

Principal 40k

MTG Info

Interest 5%

Term 20 yr

Loan Costant 7.9%

PMT 263.98/mo or $3167.76/yr

Note Info to Investor (Income)

Interest 12%

Term 20 yr

Spread 7%

PMT 440.43/mo or $5285.16/yr

Arbitrage Cashflow $2117.40

-------------------------------------------------------------------

Total Cashflow Rental + Note = $3843.36

Total Deal ROI 128.11%

-------------------------------------------------------------------

What are your thoughts?  I haven't seen any similar strategies in the forums so figured I would post and get some feedback.  

Benefits Include:

Additional Cashflow, Hedge against Vacancy Expenses, Additional Cashflow to Pay off Rentals Faster, Additional Cashflow to supplement retirement income.  Note is actually more profitable than the rental with less headache.

Drawbacks:

Possibly over leveraging, if note defaults may put rental into negative cashflow situation.

Roger,

Lets run some numbers and see what we have...

Purchase Price : 60k

Down payment : 9k

Loan Amount : 51k

Interest : 5.25%

Term : 15 yr

Monthly Pmt : 409.97  (Annual 4919.64)

This gives you a loan constant of : 9.6%   (Formula for LC = $4919.64 / 51,000)

What does this mean to you...?? If your CAP rate is higher than 9.6% then you are positively leveraged and your ROI will be higher exponentially. If CAP rate is = 9.6% you are neutral. If cap rate is lower than 9.6 then your negatively leveraged and your ROI will be lower due to financing.

Not enough information in the post to determine your CAP rates, but so long as you have a spread of say 2 - 3 % where CAP is higher than your Loan Constant then your in good shape and positively leveraged.

In an ideal scenario you want your CAP rate to be a few points higher than the Loan Constant and the interest rate of the loan to be lower than the area's appreciation rate to be positively leveraged for appreciation.

A good rule of thumb is to figure your Loan Constant for multiple loan packages and pick the one with the lowest Loan Constant. That's the loan that will give you the best spread so that you can be positively leveraged and increase your ROI.

Hope this helps.

Jeff V

Jorge,

I have only bought 1 successfully but it seems they are more willing to negotiate the longer it's been on the market.  From what I have read, the close it is to closing their books for the year motivates them as well to get the non performing asset off the books before their cut off date.

Short answer is they do negotiate. 

Way to go Leah.  It never hurts to build multiple streams of income!

Good Luck in your endeavors!

Jeff V

OP - Being you are asking the question, I would assume that you are new to real estate investing.  I would advise to put the money into a safe investment for 1 year such as bonds or something that you are comfortable with that is low risk.

Then take that year to educate yourself on the different avenues of investing in real estate.  You should decide based on your studies and individual goals what form of real estate investing that matches your strengths, skill level, education level and goals.

An example would be...  If you want to invest into flips, but don't have the team, experience, skill or time you may decide that your best bet is to partner with someone with those assets and has a good track record and be a private money partner.  You could then go along on every phase of the project and learn those skills along side someone who is well versed to minimize your mistakes and make money in the meantime.

Once you do this a few times, you could then use the knowledge, education, skill to put together your own team and fund your own deals to strike out on your own following the same established process.

Another option might be you like the idea of a monthly paycheck, but don't want the hassle of tenants.  You could opt to invest in mortgage notes, which would provide a stream of income and growth of your seed capital.

The main thing is, you need the education before you put your money at risk, OR to partner up with someone who has the education and track record.  If not then your money will soon part from you without an education.

This is why I make the suggestion to put into a safe investment for 1 year while you read up on the various strategies and methods.  You will never know everything, but if you learn to avoid 1 or 2 large mistakes then that education has paid for itself.

Just my 2 cents.

Years ago, I had a large sum of capital come into my hands only to squander it away quickly because I didn't have the financial education on how to properly deploy that capital and let it work for me.  Don't fall prey to the same thing and invest foolishly because your in a hurry to make some money.

I hope this helps you in making a decision.  Good Luck with your investing and future endeavors.

Jeff V

First thing is don't bank on selling at the highest comp you can find.  That would be best case scenario.  I'd be on the cautious side and say you will want to list at slightly below for a quick sell.

I would look for an exit around 10% below the highest comp just to give you a cushion.  You could still list for full but base your numbers on a more conservative number.  If 255k is high end 90% would be $229,500 basically $230k would be ball park exit price.  Then work backwards.

70% rule is the max you would want to be all in at...  so I would shoot to be all in at 65% or $149,500 to give you 5% additional cushion.

Then, if you say 60k + 20k would be your repair values totalling 80k you subtract that off your all in price.  $149,500 - $80,000 = $69,500

If there are 80k in repairs, I would imagine at least 3-4 months renovation time and another 3 months to sell depending on your market...  ball park 5k holding costs

You will also incur closing costs, realtor fees and possibly need to pay closing costs for your buyer...  lets call that 10k in purchase and sell expenses.

That brings the asking price to around $54,500.    ($69,500 - 5000 - 10000 = $54,500)

This will get you an all in price of $149500 and sales price of $230,000 and potential profit of $80k.

Keep in mind, I don't know your market, but if your coming in from the get go at $162,500...  I'm not sure that will be enough cushion to make a good profit based on this quick math.

Take it with a grain of salt, but these are my thoughts on the deal for whatever it's worth.  I would have offered way less for a property needing $80k in work.  Hopefully this will help at least clarify some of the expenses you will incur to do the deal and you can prepare for them beforehand.

After doing 2 major renovations now...  you always want to err on the side of caution because once you start opening walls you will find things that you didn't expect and you can't go back and change your purchase price.  Also don't skimp on the inspections, it's best to know before hand everything you can to minimize the things that you run across that you weren't aware of.

Also have multiple exit strategies....  Would you be able to rent the property if repairs ran over another 10k and the property sat on the market for 6 months for some reason.  Would the deal still cash flow if you had to rent the property?

Hope this helps in some way.

V/R,

Jeff V