All Forum Posts by: Mason Liu

You wouldn't be able to give him first position lien on the property because your primary lender is going to take first position lien. 

In terms of offering another property as collateral to securitize the lien against, I'd say talk to an attorney about that but it does seem potentially viable as long as the value of that property is above the lien amount (200k) and he doesn't mind taking over that property.

Or you could potentially just look at a DSCR loan at a slightly higher rate, but avoid the DTI pitfall. Last option would be to have him carry the entirety of the loan, give him first position lien, and offer him a higher interest rate.

If you're still just hearing about concepts such as the 2% rule, I would say you still want to educate yourself more on Real Estate investing basics. Listen to free R/E Podcasts, read some books on R/E investing principals and concepts. From then on, start evaluating some markets such as the one you will be moving to to see where the opportunity lies. Some markets do better with flips, others do better with long term rentals, some do better with short term or medium term rentals, it all depends. From then on, start networking with local investors, agents, lenders, etc. Your direction will become a lot clearer after that.

Door knocking, direct mail, cold calling (be sure to scrub on DNC list), cold texting (check regulation on this as well)...all methods will work if you are persistent and do enough.

I'd also add that if you are not able to come up with earnest money yourself (which typically isn't going to be a substantial amount of money in the scheme of the deal), you probably are not in the financial status to buy the property in the first place. The amount you ideally want to have in reserves for repairs/CAPEX is multiples of your earnest money in general.

So it sounds like you're trying to calculate maximum allowable offer (MAO), not ARV.

As @Chris Seveney mentioned, ARV is the value of the property after it has been repaired, and that is derived from comparable sales.

Maximum allowable offer will differ depending on the profit margin YOU want to make, given your liquidity position.

I may be perfectly fine with a 30% profit margin, you may want a 35% profit margin. Our MAOs will hence be completely different.

Basically, determine the ARV of the property, and then use that to back in to your MAO. Subtract your renovation cost, your expected profit, all fees associated with financing and closing on the deal, and you have your MAO.

This definitely needs more context, more specifically the average prices of those comparable SFH in that neighborhood, as well as the amount of repairs needed for this "cosmetic fixer".

My personal rule of thumb for flips in the market I operate in is the minimum 30% profit margin or $30K, whichever is higher.

If the reason why @Mike Wilcher Jr was considering the DSCR route is because for some reason he and his wife are not able to qualify for a conventional loan at the current moment, I would say that a DSCR loan in itself is not necessarily a bad idea. It just means you have a higher cost of capital in financing the deal, probably also have a prepayment penalty, and probably have to put down a higher downpayment. I think the biggest thing here is the prepayment penalty as that does affect your exit strategy. As long as the numbers work and you have the cash, downpayment and interest rate isn't as much of a big deal, especially since the spread between DSCR and conventional investment loans isn't that big now.

I do agree with others though that if you have the ability to qualify for a conventional loan, it still is the better option, all other things being equal.

If you are having parking and overall space constraints, do not allow for couples, plain and simple.

For tenant screening, use a third party software (Rentredi, Avail, etc) to do a credit report/criminal history, eviction reports on all prospective tenants. Get references from their previous landlords. 

So right off the bat, if we are assuming a 5/5/5% CAPEX/Maintenance/Vacancy reserve, that would mean you are setting aside 15% of $2100 ($315), making your income after reserves $1785. Your full monthly expense is $1780 with the HOA, so essentially you are not cash flowing at all here after factoring in for reserves.

On top of that, you're needing to put down 50k either as a downpayment or through seller financing (which it sounds like what you are opting for), which would immediately put you negative COC.

If you truly believe in the growth story of both the city as well as the neighborhood you are in (both from a value and rents standpoint), and you are willing to manage the property for free or even pay to manage the property for a few years because of your conviction in the market, then you can definitely go for it and try to structure the equity payments of the 50k for as long as possible. When it comes to seller financing, everything is negotiable, so if you explain the numbers to the seller they may be able to work with you.

Personally, unless you have a way to increase the rent potential or add value to the townhome, this really doesn't sound like a deal even though you have the 3.1% mortgage.

In general, there's not really much benefit for the retail investor to create a business entity for the purpose of holding equities or fixed income.

However, completely different story if we are talking about estate entities like a living revocable trust, but that gets more into the estate planning side of things.

Talk to a qualified tax advisor or estate attorney if you want more details regarding your situation, but if you're just looking to buy some stocks/bonds/ETFs/mutual funds for investment purposes, you're probably just fine using a Transfer on Death account (individual or joint account with benenficiaries).