All Forum Posts by: Philip Cutting

Hi @Matthew Rogers 

On a normal home considering financing and savings for maintenance $150 might be cutting it close from my experience, but I would still consider the deal.  

From what I understand about mobile homes, this profit is too low, but you might be leaving out the reasonable upfront move in fee (down payment). I would try to negotiate it down.  But as a first deal it might be a great way to get your feet wet.

Check out this podcast with John Fedro about mobile homes (podcast #75) :  http://www.biggerpockets.com/renewsblog/2014/06/19...

That link has some resource on there that might help also.  After listening to the podcast you could probably contact him and share the details with John to see if it makes sense.  

@Sam Harris  & @Raymond B. 

 +1

Nope, too skinny (initially).  Is this a 9% return after using the BP calculator? By 9% return, i'm guessing that you are talking about less 

Give us some more numbers and details.  It sounds like you are looking for a rental? Are you considering the 50% rule? 

Talk soon,

Phil

How long does it take to evict someone in Virginia?  

These are almost always problems.  The abuser usually follows and damages your property.  If you do accept her, get atleast 2 months rent.  Let her know that any broken glass or damaged property is her responsibility to be fixed and needs to be fixed within 2 weeks or you'll charge her for the repairs.  

I wouldn't rent to her.  I have in the past and it usually ends up in damaged property and evictions.  This is a hard problem to fix, after all, if it is both their son, she has had this problem for a long time (13+ years).  It's hard for people to change.

I would rather look at why my property hasn't rented.  Rentals are a commodity.  They don't rent for a reason.  Figuring that out might be more worth while.

You sound like a good guy, good luck!

Phil

@Hattie Dizmond is right on.  If the private lender is not using a payment processing company and they are not experienced you may have to draw up the document yourself.  If this is the case, ask the title company to help you prepare the document and ask the lender to review it and sign off on it.  It can be quick, but it can also talk a while if you don't have good contact with the private lender.

On the form, put in a daily interest expense incase the closing take longer than you anticipate so that you don't have to redo the form.  

Good luck @Andrew Malik !

Talk soon,

Phil

Hi Cody,

Gray Maine is an interesting market. I have lived in both the Augusta area and Portland. Because I haven't checked the market in Gray, I can't give exact details on what is a good strategy for that market. Tim Callahan has a REI (Real Estate Investment Group) in South Portland Maine. Email [REMOVED] and ask about their events. Also, try to call Lynda at [REMOVED]. She is my first real mentor. She invests in maine, PA, MA... She will help give you some great advice and may even invest in that area (i can't keep up with her, but I know there is a chance that she knows the area). She and her husband are just great and would be a great contact for you.

I'm not sure 10k is enough to really invest if you have no other credit.  If something goes bad, then you are in trouble if you have no other sources of cash.  Hard money might be a good option for you, but with only 10k it might not be enough unless you have a smoking hot deal.  

Being that you are a good salesman, I would consider getting your RE sales agent license.  Also after that, I would try to get a Hud property, move into it and rehab it up, then sell it after a year.  I say this because it'll be easier to get financing.  

Isn't there an article on Free home Hacking here on BP?

Have you considered some wholesaling?  What is your monthly income? With 10k, you should be able to do enough marketing and driving to get some deals under contract.  If you are working on building your credit, this might be a great way (with or without a RE license) to build reserves and get to know your market!

As far as are single family homes better than duplexes in your area it would be best to take a local appraiser out to lunch.  Be careful of anyone that gives advice to one or the other without knowing your market.  

Do you have a good idea on how to build your personal credit?  It can take a little while, but it's not really hard to do. Especially with you planning so far ahead, good job!!

Give us a timeline, how aggressive do you want to be? How soon do you want to buy stuff. Do you have parents, friends, colleagues that could invest with you? I would definitely check out that REI in S. Portland.

Talk soon,

Phil

PS: Listen to the podcasts from these guys.  There are a lot of great nuggets of information!

Hi Alpha,

I hope you have time to call him.  If you are a new investor you will not regret a free phone call :).

I would love to connect, but it'll probably have to be next year.  I wish you a great deal of success between now and then! 

Talk soon,

Phil

Hi @Steve Baldwin 

Most of my marketing is direct mail.  I like out of state landlords.  I'm working on learning some internet marketing skills.  It's pretty interesting, but I don't think it'll match the results of good old fashioned snail mail :) for finding sellers, but I think it'll be really strong for working with buyers.

I'm working on the sales funnel for that buyers list and I'll definitely add you to it since you asked :)

Are you part of an investment company/group? I'm evaluating the benefits of joining up with a company or just going it on our own(ish).

Talk Soon,

Phil

Hi Alpha,

It's probably late to chime in, but let me see if I can add something of value here.  I also invest in PA.  I think it's a great state to invest in! Entity formation in PA is cheap!!  

Attorney Referral: Brad Dornish  412-765-2726.  He is a very active real estate attorney, ask one of his courses on entities and ask if it's still up to date with law changes in the past couple years.  If you work with him, ask for the operating agreement(s).  I'm sure you won't have to ask, but just incase someone forgets.

What I did is made a few LPs to hold the properties and an LLC to be the general partner. I say to use only one LP. This is to save on taxes through strategic entity formation and maximize limited liability protections.

Entities in PA are so cheap (and don't have annual fees that it's totally worth it to get them.  Trusts in PA are weak and I kinda don't recommend them in most cases.  I have friends that use them well. 

 Also, it's very easy for you to form your own entity and save on the attorney fees.  I think brads training (for $99) will teach you all you really need to know.  But call an attorney (preferably Brad) and get a consultation.  

Talk Soon,

Phil Cutting

PS: The point about insurance is important, make sure you have enough insurance to only take a small loss if there is damage, more than that is more expensive than it's worth in most cases.

Rational vs Emotional choice:

Quick answer: Go with the Arm. Key considerations are 3.25% for 5 years, after that, for the next 5 years the worse case is that you have a 5.25%. With 10 year average of 4.25%, it's still better than the fixed rate loan of 4.625%. If in year 10 to 15 they raise it to 7.25% then you can refi or sell or even wrap the loan to another buyer. A lot of people expect rates to go up in the future. This may still be less then. Hopefully you have added value and enjoyed great cash-flow.

Considerations you need to know to help make the choice:

What net income do you expect to get?

What do you have to invest to get it going?

What deferred maintenance will you push off for 1 to 5 years (ie, do you need to change the roof in 3 or 5 years, are your water boilers 6 or 8+ years old...)

What are the area vacancy rates?

What is your ability to pay down the loan quickly if things go bad?

If things go bad, can the property's income afford the 11% worst case scenario?

What will the property resell for right now if things aren’t what you expected?

Options:

Arguments for Fixed rate loan:

It depends on your goals, situation and experience/confidence/comfort to risk. If you have low and inconsistent cash-flow, but enough for the fixed rate loan then you may want to go with the fixed rate. By cash-flow, I mean cash-flow outside of this property. Once you add leverage of any kind, you ad risk and responsibility to your life. I am a firm believer in using financing, but avoiding over leveraging.

The reason the fixed rate loan has higher interest is because the bank is assuming the risk of a long term loan with rates that will definitely go up. The arm rewards you for taking on that risk and takes a more savvy investor to take advantage of it. Taking the fixed rate loan doesn't mean that you are not savvy, it just means that you prefer to having a “Known” condition in the investment.

Arguments for Arm and paying it down in 5 years

If you have high cash-flow then you can afford to do the arm and paying it right down. This will save you some money but if it's a long term investment then it might not be the best option because until a year 15, you are saving money over the fixed rate loan.

Comparing:

Table of rates over the years: Years - Avg Int Rate

5 - 3.25%

10 -4.25%

15 -5.25%

20 -8.33%

25 -9.06%

30 -9.90%

5 Years:

Arm for 5 years

Principal:$43,000.00

Interest Rate:4.25%

Term in Months:60

Total Interest:$4,806.25

Total Payments:$47,806.25

Fixed Rate for 5 years

Principal:$43,000.00

Interest Rate:4.63%

Term in Months:60

Total Interest:$5,245.77

Total Payments:$48,245.77 

10 years:

Arm avg over 10 years. (3.25% * 5 + 5.25% * 5 )/ 10

Principal:$43,000.00

Interest Rate:4.25%

Term in Months:120

Total Interest:$9,857.77

Total Payments:$52,857.77 

Fixed rate for 10 years

Principal:$43,000.00

Interest Rate:4.63%

Term in Months:120

Total Interest:$10,788.88

Total Payments:$53,788.88 

15 years:

Arm avg over 15 years (3.25% for 5 years + 5.25% for 5 Years + 7.25% for 5 years) / 15 years

Principal:$43,000.00

Interest Rate:5.25%

Term in Months:180

Total Interest:$19,220.14

Total Payments:$62,220.14 

Fixed rate for 15 years

Principal:$43,000.00

Interest Rate:4.63%

Term in Months:180

Total Interest:$16,706.14

Total Payments:$59,706.14 

We can see the savings if we pay it off, or sell it at 10 years. This will save you some money but if it's a long term investment then it might not be the best option because until a year 10, you are saving money over the fixed rate loan. Even if you go into year 15, you are doing fine.

What would Phil do and what would Nevie(my wife) think about it:

Because I don't need the income to live on, I would be more aggressive and not pay off the loan in 5 years. 4 plexs can produce incredible cash-flow, and if you don't need it to live on, you can pay down that loan really fast if you finally decide that you don't like the terms of the loan! If it were me, I would go with the arm because I would reinvest all the savings and cash-flow That rate is great, and because my rates of returns are much higher than the 3.25% to 5.25%, in 5 to 10 years I could make much more money with that 43k then paying it down in the 5 years. Then if they do start raising the rates, the 4plex should be well established and cash-flowing consistently so you can then focus on paying it off or selling it. Also, if you have reinvested all that money then you should have plenty of other assets working to pay down that loan fast. I would use the cash-flow savings to invest in marketing, options and purchases.

The key for me is that I do not live on that income. If you do live on the income, and want stability and to not invest in more properties then maybe the fixed rate loan is best for you.

Well, sorry for the short answer, but I hope it gives you something to think about.

Good luck,

Phil