All Forum Posts by: Account Closed

Did you get notice of a multiple bid situation? Fannie will counter both parties-- you need to figure out the most you can offer and not lose sleep if you end up getting outbid. The other party could hold their offer or increase their offer of unknown magnitude (over original list even). A strategy that worked for me in a Fannie multiple bid situation (use at your own risk!) which was successful-- don't increase your offer by the full amount your willing to pay only a fraction. If the other offer beats you and you get a notice, quickly resubmit a bid and you will prompt another multiple offer round. The only reason I can think of this has worked for me before is because Fannie is so slow on paperwork that after accepting the winning bid it takes forever to officially go under contract-- they are obligated to consider other offers in the meantime. By increasing your bids in smaller increments you have a better chance you are not going to best the other bid by a large margin, and can quickly recover if you lose the round.

I would look at IRS publication 550 (Investment Income & Expenses). My thoughts are you intend on keeping the property as a rental and will ultimately report income expenses on schedule E. You cant report some income/expense on schedule E and carve out the interest expense from the line of credit and call it an investment activity and an itemized deduction on schedule A. You have to group the activities together. The only scenario I could see schedule A is if you held onto the house as an asset and portfolio investment and didn't intend on it generating any rental income-- it sat idle for example, no renters, waiting for a quick flip, etc. Those are my thoughts you might find some other advice or direction on this board from those practicing CPA's that have direct experience.

Wendell- it seems as if your are a bit farther along then deciding to purchase the property if you have a site plan developed already. On second thought I am not sure I like this proposed development. The way the property would be sandwich between two older MF units. I just looked at arial views. Do you think this area can support this level of investment? Property sold for 370k a couple years back-- is there another parcel other than 2107? I am not getting how you got to $1.1m in land.

Liz - I have a hunch putting a modular town house on the property in a nice suburb of Chicago would not fetch the 650k+ per unit the OP mentioned. The numbers look good to me I would jump all over this opportunity-- a partnership with a GC in the area that you can get a solid referral from and has a good reputation for honesty and integrity. A track record for success.

A very interesting real-estate finance class indeed. For all those BP'rs on the boards that earned their MBA on the streets and don't advocate for a formal education--I have to say it would be hard to overstate the impact it can make in a professional career (real-estate or otherwise). The very next week after hearing this Blackstone MD talk, the prez of the Related Companies (whose bosses name is on the b-school) came and spoke for 2 hours about their Hudson Yard project-- the largest private real-estate development in the history of the US. Very exciting!

I heard a Blackstone MD talk a few months back in an MBA class with a guest lecturer.

The MD of the largest owner of SFR in the nation had a few things to say about the nearly $3.0b investment they deployed in the past couple of years. First, he talked mainly about the fundamentals--supply and demand. He posited the nation needed about 3.0m housing starts annually to fulfill growing demand; household growth, obsolescence, etc. With the nation hovering around only 1.0m of housing starts annually, the supply demand curve pointed towards continued upward pressure on prices. These are micro-economic considerations which drove their analysis and not pro-forma cash flows. Clearly there are localized markets and pressures / externalities, but he laid out the general business case: buy in underperforming and distressed markets poised for growth with an exit strategy in five years. While they were able to leverage cash flows and issue the first RMBS deal secured by rental cash-flows in history, their strategy was one of growth in market prices within a short term and predictable time horizon. This may not put the debate to rest or provide any meaningful insight, but I thought it was an interesting anecdote to share.

I started a mortgage brokerage when I was in undergrad and managed a call center with 10 of my friends and b-school buddies working the phones. The one thing I observed is it takes very little skill or confidence to give a 30 second pitch when someone answers the phone. For example, "Hi this is mark d calling from blank capital group. I was calling about your mortgage with XYZ bank that is set to expire and begin floating in December (researched ARMs for leads at county register of deeds). Have you thought about refinancing ...interest rates are at about 6 percent?". Pretty simple! Managing objections and being persuasive is clearly a skill developed with practice, but isn't a 30 second pitch sufficient to start calling your leads? You can practice the rest as you progress! If after your quick pitch you determine interest the rest can happen naturally. My advice - jump in and get your feet wet.

I have thought about doing my first spec build with the builder that will be building our personal residence. Similar situation in that I would find the lot and obtain financing; however, the builder would work on a cost-plus basis (15 percent margin). Maybe this is a regional thing. Under this arrangement I would have never considered splitting the value or profit created in development. After running the numbers though the arrangement your describing it would result in the builder capturing more profit than my scenario. As an example: Cost plus-- 300k land + 450k construction costs (150/ sq ft inlcd builder margin)+ 50k soft costs= 800 all-in cost. 900k fair value (300/ sq ft) for a total personal gain of 100k. Partnering--300k land + 390 construction costs (builders cost) + 50k softs costs= 740 all-in cost. 900k FV for a personal gain of 70k and builder gain of 70k (profits 50/50). If the variable fee based build isn't a possibility (cost-plus) than partnering may be the best alternative to doing nothing. Assuming the risk tolerance is acceptable. I will be curious to hear how things progress if you are inclined to share!

To the OP- what was your arrangement with the builder in the construction of your current residence? Cost plus arrangements are most common in my neck of the woods-- full transparency and accounting of all costs with a 15 percent mark-up. What risk is the builder sharing with you to earn 40 percent profit? They don't seem to be sharing any of the downside with you assuming all financing. If this builder operates on a cost plus basis I don't see how your spec build is any different than your current home that was built with them other than you are checking a different box on a mortgage application. How is the builder partnering with you and earning a profit split? It seems like they are performing the same service they did in your original build. my two cents- I don't like the arrangement...you found the lots that you can monetize...you assume all the risk... and someone gets to GC the job and earn 40 percent profit?

I have some experience with this auction style website and a couple sales.

Here are a couple things to consider. Background- certain Hubzu homes are all cash b/c a financing offer would usually require an appraisal which is not possible while occupied. I was able to convince a PM to accept financing because I befriended the tenant who would allow access. Tough strategy- you have to overcome the obstacle of the tenant, and the PM.

The home’s lease is the prevailing document and the tenants have rights to continue to remain in the home through the duration of the lease. In the absence of any lease agreement, they would still require 60-90 day notice (research protecting tenants at foreclosure act or something similar).

I think hard money would be a stretch to because how could you present any information on the condition of the property inside or perform due diligence.