All Forum Posts by: Ken M.

Ken M. has started 165 posts and replied 1866 times.

Buying an "Off Market" property with "Subject To" and "Wraps" & Selling "Lease / Option"

When buying a property to cash flow, you need to know what your expenses are. The following is one I actually purchased in Phoenix that was a pre-foreclosure. The seller and I negotiated the terms. I did not offer a number to him, he told me what he needed. This first portion is the end result. The following portions are how we got there. Click on images to enlarge.

The house was not suitable for the MLS. The seller had waited too long to fix the problem and just wanted out. He said he needed $10,000 so he could move back to his home state. So, this is how we put the deal together.

First, you determine ARV (After Repair Value) so you can see if this one is actually worth buying. In this case it’s worth $245,00 fixed up.,(ARV).

You enter the Blue Numbers only, the rest are calculated. Enter the ARV (it's MLS value after it's all fixed up) on line 23, you get that number from looking at "comps". On line 24 you enter the payoff amount. We’ll take care of the arrears in a minute.

We always go through Escrow and Record, so we need to account for those costs. We Record because it’s the right thing to do and we want to know about any actions that come up against the property. Some people say don’t Record because of the Due On Sale clause, or to use a Land Trust to defeat the DOS which is bad information. If a lender wants to enforce a Due On Sale, a Land Trust violates the DOS anyway so it is ineffective in stopping the Due On Sale call.

Line 35 is always negotiable, but the seller needs enough to rent an apartment and move their belongs or they will become squatters which causes serious problems. There will be closing costs.

And of course, since this is a pre-foreclosure, the arrears have to be brought current.

Sometimes, a property will have a second loan or lien. Usually those can stay in place, but sometimes you have to pay those to buy the property. You can get the payoff amount from the lender. There is a specific process for doing that properly. If you are new, I would have someone help you with the process.

So, on this property, I paid line 37 $13,628 (which included $10,000 to the seller & closing costs $3,628), brought the loan current $10,597 line 48, took over the 2nd loan of $11,592 and took over the main mortgage of $118,145. I paid $153,862 and got a $245,000 property. But, I didn't need all $153,862, I only needed $24,225 to do so.

When you are new, looking for lenders & considering Fix & Flip, BRRRR, or rental, as a buyer, learn to ask the owner/seller to be one of your private lenders with creative financing. This works in Southern California (CA), AZ, WA, and GA & TX. Slight variations work elsewhere.

1 Vote

Quote from @Marcus Auerbach:

In May of 1960 you could have bought a new construction home in Milwaukee for $13,999! That even included AIR CONDITIONING - modern technology!

It took the buyer 30 years to pay off that mortgage. I have the original newspaper ad and found the address; it's worth about $360k today. Let that sink in.

How many sq ft and what were the finishes?

0 Votes

Quote from @Henry Lazerow:

It cost a lot to build in USA. I do not see that changing. Even if rates fall, it will still be very hard for many working class Americans to afford homes. 70 years ago there was less permitting required, less litigation risk/builder insurance required and way less labor regulations resulting in cheaper builds.

and 70 years ago houses were 1200 sq ft with no granite, stainless steel, or nice tile.
Things have changed. Expectations have changed. Not always for the better. :-)

1 Vote

Quote from @James McGovern:

@Jay Hinrichs the issue is with employer's telling people where they need to live

Doesn't an employer have a reasonable expectation that an employee is actually working. Studies show that productivity improves when employees are closely monitored.

The Constitution says I can build my empire anywhere I want, as long as I work for myself :-)

0 Votes

Quote from @Charise Manuel:

Interesting and thank you for the information!

Don's comment "Wholesalers can “come clean” and be transparent upfront by either (1) informing the seller that they will only close if they can find a buyer at a higher price or (2) enter into an option contract usually with an option fee commensurate with the option period."

Some states have enacted this into law now.

1 Vote

Hammond, Indiana

Quote from @Glen Fitzmaurice:

Quote from @Aaron Zimmerman:

Glen - are you in a position to house hack? To me, that's always the #1 option in my book and the way you can best leverage.

If not, you could start building your portfolio through BRRRR. However, I'd caution you on doing a full gut rehab on your first property unless you have the right team in place. Perhaps do a cosmetic rehab first and then work your way up to a full gut. Making sure there's enough cash on these BRRRR projects is crucial because there will likely be times you need to front money to keep the project moving. Make sure to have plenty of reserves!

Thank you so much for your response! House hacking is a possibility for sure. And I may do that at some point in time.

I'm thinking right now I need to do what you're talking about and find a property that's not the greatest but also not a full rehab.

I'm hoping I can do a few BRRR's then have a decent down payment on a 4 unit.

My goal is to get up to $20K/month of net income. I'd like to think I can do that in the next 5 years but not sure if that is a realistic goal.

Your comment: "My goal is to get up to $20K/month of net income. I'd like to think I can do that in the next 5 years but not sure if that is a realistic goal."

It's an admirable goal, however if it was easy to do on your own, you would have done it by now. With the age and timing you mention, unless you have unlimited wealth, you need creative financing, someone who knows how to put that together for you and someone who will hold you accountable. :-)

0 Votes

Quote from @Nicholas L.:

@Benjamin Dolly

hello. I have good news and bad news for you. The bad news is that the market is genuinely terrible for new investors right now. That doesn't mean you should give up, it just means you should be cautious.

and the good news is that you don't have 'analysis paralysis.' that's a made up condition by the people selling the things to get you to buy the things. because they make money even if you buy a bad deal. and so, there's no reason to buy before you're ready.

(can you house hack? if you already have a primary residence, or your lifestyle doesn't permit it, that's fine. but i always have to ask because house hacking is such a great way to get started.)

OK. on to out of state. if you have limited capital, should you buy a random property thousands of miles away, just because you found BP and now have to do a deal? nope, nope, nope. again, the market is tough right now for just about every strategy, with prices and interest rates high. and for LTRs - there isn't any cash flow initially. none.

the first few years of ownership of an LTR will be INvesting - as in, you putting your hard-earned money into the property. you may know this from having a primary residence, but even purchasing itself is expensive as you have to pay a bunch of closing costs out of your own pocket.

so, i vote for building initial capital and also trying to stay closer to home even if it's a couple hours away.

how out of state investing can go if not done properly:

https://www.biggerpockets.com/forums/48/topics/1242392-rough...

https://www.biggerpockets.com/forums/48/topics/1137397-balti...

https://www.biggerpockets.com/forums/432/topics/1231840-sell...

https://www.biggerpockets.com/forums/311/topics/840134-memph...

https://www.biggerpockets.com/forums/963/topics/1195280-expe...

hope this helps. i'm happy to dialogue further / answer any questions you have. i've done a bit of everything at this point and i'm on here to help new investors not lose money.

He says he's "New and stuck in analysis, looking for advice for how to start"
since he hasn't responded to all the helpful information, in well over a week, and a long weekend, I'd take his word for it for his condition. It's an internal problem only he can solve.

0 Votes

Philadelphia, Pennsylvania

Quote from @Andreas Mueller:

Anecdotally: I have 0% vacancy now in my rentals. True that we had an explosion in supply in the high-end apartment market here in nashville. But this is an opportunity for investors. A Cliff is coming and that excess supply is running off fast. I actually just wrote an article on this this week if you care to read it. See that on the BP Blog here: https://www.biggerpockets.com/member-blogs/15226/105397-rent...

Also, a general note, luxury apartment building supply suppresses rental prices at all level levels (A-C class). The data is very convincing on this. I highly recommend a follow to housing analyst JAY Parsons if you wanna dig in more.https://x.com/jayparsons/status/1953124188580982962

Nice perspective!

0 Votes

Quote from @Ethan Ung:

@Alan Asriants
Hello Mr. Asriants,

Thank you for taking time to write such a thoughtful and detailed response. I genuinely appreciate you sharing your perspective as an experience professional here in Philadelphia.

Your advice to house hack a solid property in an establish neighborhood is my long-term goal (2 years). The challenge I'm currently facing is that if I were to leave my parent's home, I would have to start paying personal expenses (groceries, etc.).

I completely understand the risk averse strategy to slowly build equity in establish markets, and the philosophy of "good things take time." As it is now though, I'm going to be extremely careful and picky when it comes to deals to BRRRR.

Again, I appreciate your advice. I'd be happy to connect.

Your Comment "The challenge I'm currently facing is that if I were to leave my parent's home, I would have to start paying personal expenses (groceries, etc.)."

Yes, that is what grownups do. I paid all my expenses from when I moved out at 18 years old coming from a poor background. I paid my own way through private college ( which was not cheap) and all of my advanced studies. So what, that doesn't make me anything, . . . but growing up did.

1 Vote

Philadelphia, Pennsylvania

Quote from @Jeff Cichocki:

My apologies Ken. I went back and re-read it more closely. You talk about how you use and connect with bridge lenders. The way it's written makes it seem as though you may be a broker. The context is a little hazy to me, but I can see how it's my fault for misreading it. Again, I apologize for the mistake.

No problem at all. If I wasn't clear, it's my error.

1 Vote

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All Forum Posts by: Ken M.

Ken M. has started 165 posts and replied 1866 times.

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