All Forum Posts by: Nathan Seltzer

We have the credit and income but should we need more than the property's income as long as our credit is good?

Will a bank lend to us the mortgagees but with the LLC as the owner?

Also, what is a normal method for structuring returns for the investor? In other words, how does he get paid, and on what is his return based? Under what circumstances is he on the hook for additional money or a potential loss of money? That kind of thing.

Greetings! I've been a BP member for awhile and while I have purchased real estate with my own money, I now have a private lender (a relative) who wants to invest with me on my next deal. I am buy-and-hold, so I want to end up with the property at the end of our arrangement. Basically, he will rely on my experience and legwork and provide the money. So, I have some questions.

Even though he is a relative, I want to use a "standard" contract for our arrangement, that has stark clarity, so that there will not be any gray areas or misunderstandings. Where do I start?

• Operating Agreement - Does BP have templates for these? What a typical terms?
• Subscription Agreement - This blog post said we should have this. What is it? Any templates available?

I plan to offer him above average ROI, but I want all other terms to be "standard" in terms of allocating risk and returns.

The thought in my head for structuring this is that he will pay cash for a property, and then we will use delayed financing to get his money back. If we have instant appreciation, can we delayed finance more than 80% of the purchase price? Can we do more than 100% of the purchase price (i.e. similar to cash-out refi without waiting 6 months?).

My goal would be to get him 110% of his money back by refinancing and then pay him from the property's cashflow for a year to get his full return. Is this type of arrangement typical? If not, what is typical. What arrangement works best for everyone?

I want to set up a LLC. Should I do this before making the purchase? I'm planning to finance with a local bank. Should I make him a partner in the LLC or an investor? Apparently there is legal risk in making him an investor, but I'm not asking for legal advice, just what others have done. We are in Texas. Thanks!

It seems like most of your problems were really the same problem: letting others make decisions for you.

If we are to succeed where so many others fail, we can't rely on others--even experts--to make decisions for us. 

• If a wholesaler says something requires $50k in repairs, we can't just assume $60k and move on. He has his own motivations. We need to get bids. I won't even go over my skepticism with wholesalers in general. I just know what type of properties I would "wholesale" to someone else for a quick profit and zero headaches.
• If a handyman is doing work for us, we can't just assume he'll make the property look like we want. We need to define his work.
• If someone is doing work for us, we should be checking it multiple times along the way, not just at the end. We want to know when things BEGIN to go off the rails, not when there is fecal matter in our sink.

Thanks for posting this. It is an excellent reminder that no one can make a decision better than the person most at risk--the owner.

There are good areas all over the city, including the medical center. It's a lot harder to get 10+ with SFR if you are mortgaging 75%. We just bought a duplex that only cashflows at 12% because we are living in it for a year, so we could use 20% down and get a lower interest rate as a primary residence loan. We are "paying ourselves" the market rent to the property account each month so that the property and our personal expenses track correctly each month.

MF is much easier to make cashflow as a buy and hold. Duplex/Triplex/Quad offers many of the advantages of SFR while offering some of the cashflow advantages of a MF. I think they are a good compromise.

Our property is in the Northeast, inside 1604. We intend to do the majority of our buying here because we plan to live near here long term and see an advantage to having the majority of our holdings within quick reach. 

I have looked at the medical center and quite frankly I think that property values compared to rent in that area make it very attractive. But if it were me, I would be very picky about my buys because the transient nature of the residents there make for a high crime rate in some sections. Other sections seem very stable but property values are much higher and these could be right on the border of a bad area.

I basically think you can find good values in almost any area of San Antonio, but you need to be patient/picky and have a firm grasp on your risk tolerance and capital employment. If you are only going to make 1 purchase in the next year, then make sure it checks all the boxes. A mediocre deal comes along fairly often. Wait for a good/great deal.

It doesn't hurt you to offer the amount that will get you to 12% ROI, even if it is way below their asking price. The worst that can happen is they say no.

Thanks for the info. A lot of BP vets look for 12% ROI, which you are well short of. I'm trying to get at least 10% after everything. This doesn't sound like a good buy, but I may have a more stringent threshold than you because I don't have much capital.

The market is cooling. I would run the numbers, see what I need to pay to get 10-12% ROI and offer that. No regrets either way.

You didn't give anywhere near enough info for anyone to make a reasoned recommendation. 

I will say that while you should always be careful about using estimated appreciation as justification for making a mediocre investment, it is especially true right now. The San Antonio market is cooling off, and any purchase now is likely to be near the top of the market, and not a candidate for short term appreciation. 

What investment strategy are you employing? Buy and hold, or BRRR?

The medical center has high turnover and high crime. I would bake in additional margin to make a purchase worth it in that area. 

If you want the seasoned guys to give you decent advice, provide more information. Is this a SFR, MF, or what? What is the price, rehab cost (nothing is 100% turnkey), capex, expenses, current rent, etc. If you know the cap rate or GRM, that would also be handy. You will need to compare those against other properties in the area, so include any market research you've done. Your post seems to indicate it is vacant. If so, why?

Your post is concerning because it would be easy to assume that if you are asking for advice without providing this information, then you may be making a decision without having it. If that is the case, walk away from the deal and do your homework. You might lose a little face, but it will save your finances. 

@Account Closed I assume you're single too? 

If I were in your situation, I would definitely be house hacking, if I could find a good property to make that work. You can buy a 2-4 unit complex as a primary residence, qualifying with your architect income, which would get you a lower APR and down payment than buying it as an investment property. You have to live there for at least 12 months, but this will minimize your cash equity needs and maximize your ability to invest sweat equity.

For a single guy wanting to get into RE, that is a no-brainer. But my wife and I just did it and we have a daughter and another on the way.

The current owner is going to lose it in the quickly approaching RE bust. Bide your time. Yes you should have bought it at 400, but that opportunity may come again if you wait.

@Shital Thakkar nothing needs to happen to "bring a market down." Markets go up and down based on supply and demand. We look at leading indicators to see what supply and demand are doing. These are things like job creation, GDP growth, etc. There is a definite slowing trend. 

Does that mean that foreign investment is drying up? We don't know and it doesn't really matter. The point is that the market appears to be slowing. It could turn out that we're all wrong, but considering that markets generally cycle up and down, we will certainly not ever see indefinite growth. It is not a question of something bringing the market down, but how long can demand (fostered by investment and cheap money) keep the market up.

I don't think anyone can understand all the factors that drive any market, but especially the Texas real estate market, since it is not a closed system. We are merely trying to read the indicators.