All Forum Posts by: Nicholas Morgan

Hello everyone! 

I'm currently raising private capital to have available so I can purchase a fixer-upper property this year and to follow the BRRRR strategy. As I'm talking to potential investors, they often ask how I'll structure the deal and the question almost always comes up about the ability to foreclose on me if necessary. My plan has been to give 12% annual ROI and have unsecured loans from the investors.

However, I do want to investigate the possibility of making it a secured loan. Let's say I purchase a property for $100k and the capital comes from 4 investors at $25k a piece. How would I structure it all so that I can still do a cash-out refinance but allow the investors to foreclose if something goes awry (it won't, but I hope this helps potential investors feel more comfortable with investing with me). 

Should I buy the property with an LLC where each of the investors are members and have it written such that if time expires and they want to foreclose that the property is to be sold and the returns are split amongst the LLC shareholders based on % invested in the deal?

This seems like a hassle, but thought I'd understand the option. If it allows me to do a BRRRR deal sooner, then the extra headache would be worth it. I do like unsecured much better though.

Thanks!

Update - Received Insurance quotes: 

SFR - $57/month - Insured up to replacement cost

Triplex - $143/month - Insured up to replacement cost

Triplex - $90/month - if insured to essentially how much I pay for property ($150k) 

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Essentially, insurance is $100/month cheaper than originally calculated numbers with. Which means with triplex fully rented and me living in SFR, the Difference would be a ~+$40/month.

When I include renting current residence, that brings it to +$780/month 

Thanks for all the replies. Let me see if I can clear some of this up...

- The SFR is on 2 acres so combined I'd have 5 acres (which is great for me - this is the kind of property I would see me and my family living at for the next 10+ years)

- I would live in SFR and rent triplex in entirety to offset all expenses

- My current residence is a SFR I would rent as well when I moved into this new SFR

- Triplex is listed for $155k 

- SFR is listed now for $140k

- I hope to purchase the properties together with a single loan product. 

- Good call on asking for closing costs. Paying for a small reno and evicting definitely won't be ideal, but shouldn't be awful. I'm hoping to do a cash for keys with the tenant, but we'll see. 

- The numbers for the triplex work are good by itself. I wouldn't be opposed to purchasing the Triplex on its own, but because of my low cash on hand (can't put 20% down) and the inability to get another low-money-down loan product (because I have to fulfill my 12mo at my current residence before a bank will offer that product) I'd have to have some portion seller-financed. However, she doesn't seem she'd be willing to accept an offer where she doesn't get her $130k cash to purchase a house with

-Agreed, the $72k purchase price and now the "breaking even" discussion seems interesting. Not sure the situation there. 

Hello Everyone, 

Please give me your input on this situation. Does this seem like a good deal to you...?

One thing I did not mention previously is the seller is trying to sell a 3bed/2bath SFR right next to the triplex as well. She is open to combining the two properties (she mentioned this in her MLS listing). Up until a few days a go, the SFR was under contract and fell out of contract now.

Additionally, I've spoken to a lender who may be able to provide a loan with the following arrangement. They provide 80% of the sale price, I bring to the table 5% of the sale price, and the remaining 15% is seller financed. 

Quick recap: 

- The triplex is owned free and clear

- The SFR has a mortgage still due on it, the amount I'm not sure. County records show it was last bought by the seller's late husband in 1995 for $72,000.

- SFR was originally listed at $175,900 and now after it's fell out of contract it's listed at $140,000

- the seller wants to move out quickly to be with her grandkids after her husband passed 6 months ago, hence the low pricing

- The seller will not do seller financing on the triplex because she wants ~$130k to purchase a house with cash near her family

So here's what I'm thinking: 

I offer $275k for the combined properties

Together, the bank and I bring $233,750 to the seller

The remaining $41,250 is financed over the next 20 years with a monthly payment of $250/month (That's 4% interest) 

After realtor fees (total of 6%) the seller will have $217,250 cash in hand

Assuming she spends $130k on a new house, she will have an additional $87,250 to pay off her mortgage note on the SFR

The seller mentioned to me that when she had the SFR under contact that she was "essentially breaking even" on the sale. So I don't know what exactly that means. The last recorded sale price was the $72k in 1995, but maybe they refinanced at some point and that's not recorded? I'm not sure. So as long as her note is less than $87,250 she gets what she wants: purchase house with cash, move quickly, and $250 check in the mail for the next 20 years.

My monthly financials would look like this: 

Triplex Tax = $217

SFR tax = $142

Total insurance = $300 (this is a guesstimate. Should be very conservative. Should have an insurance quote today)

Mortgage = $1200 (assuming a 5% interest rate. I haven't yet got numbers on this yet, but hope to hear back today)

Seller Financed Payment = $250

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Sum of Expenses = -$2,108

Triplex income = $2050 (650,650,750 = rents)

Difference = -$58

Move out of my current SFR and rent = between $800 - $900 (savings of $650/month by not paying mortgage and then cash flow of $150-250/month depending if I rent for $1000 or $1100 a month. Additionally, not considered is $200/month is set aside for vacancy, CapEx, and maintenance)

If renting current residence is considered, the financial gain compared to current situation = +$742/month (or $842/month)

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I realize I'm not taking maintenance or vacancy into account on the Triplex property. 

What do you think of this scenario? 

Would you take the deal as the seller?

Would you make this purchase if you were in my shoes? 

What would you change? 

Thanks so much!

Nicholas 

Hello Ryan!  I'm also from Cincinnati. Near Mason/Loveland area. I'd be up for meeting up for coffee sometime to chat about real estate! 

We just held our meeting on tuesday, but the last tuesday of every month we have a REI meetup group led by Joe Fairless. It's a great time and we often have a large turn out. It's listed in the BP meetups.

Thanks for all the input! We bought our property in the late fall when things were dead, and in the last couple weeks a bunch of Hosta plants have popped up quickly all around the front of the property where I was looking to plant some stuff. They've filled everything in quite nicely. From what I've heard, these plants will come back every year and require essentially no maintenance. Which seems to be the case as I've done nothing and they all seem to be thriving. I think one or two of the shrubs @Dennis M. would go well in this area too. I just might plant one here soon.

Hey everyone, just wanted to provide an update on this triplex: 

Seller financing is not an option. She needs the property bought outright from her due to her situation. Situation being she wants to move and has no income to qualify for a loan. She will want the large chunk of cash from this triplex sale to buy a new house in cash. 

To be clear, yes I would like to live there. It checks all of our boxes for the type of property my wife and I want to live in for the next foreseeable future (5-10 years). However, at the end of the day it's all based on numbers. If the numbers did not make sense, we would not be pursuing the property. 

Moving forward, it seems that we will have to pass this one up unless we are able to find a small bank that will hold the note and give me a loan. Or if I find a private lender who wants to loan the money either long term or short term until I can get a conventional loan in ~6months or so. 

I appreciate everyone's input! 

Agreed. It is on the MLS...has been for a month or so. But it just dropped to 155k a few hours after I toured it.
I don't think it's got a lot of steam to how old it is and where it's located. It's more in the country near a state park. My wife and I want to live there because it's where we want to be (10 min from her parents and 10min from our church and it has a large creek and 3 acres of land for future kids to run around on). We plan to live in the 3/1.  Anyway the location is a little further from the main city area where most people (I feel) are looking for investment properties. 

I think my only options moving forward are: 

1. Private lending for the 155k purchase price. (If anyone is interested, PM me! haha......but seriously) 

2. A purchase option similar to what Tim mentioned above (tho, this still doesn't give her an immediate influx of cash for a purchase near her family)

I agree - the 5k in hand won't be helpful to her. Plus she doesn't have an income so she won't be able to get a loan. 

I appreciate all the insight! 

Let me see if I understand this propertly...

I giver her $10k which buys me the opportunity to purchase the property 1 year from today for the $155k. In the the next year I give her the $2k in rent each month which goes towards the downpayment of the 155k purchase price. 

In one year from now, I would then get a bank loan for the remaining balance due her? i.e. $155k - $10k - ($2k*12months)  = $121k 

Is that correct? 

Thanks for the info. I haven't considered this idea. 

So here's another piece of info I didn't discuss just to not muddy the water any. Although both of the 2/1 apts are rent-ready (as in no rehab needed) the owner is living in one ( which isn't an issue becasue she'll be moving out asap) but the other one has a tenant that will have to be evicted/cash for keys. She hasn't paid rent in 2 months. No lease though. But difficult and has called the cops on the owner for made-up reasons. So that will be a fun time getting her out of the apt. With the 3/1 apt not rent ready and needing some rehab, I couldn't promise $2k/month payments because I couldn't personally subsidize that cost if it takes a while to get the bad tenant out. 

I think I'm going to offer her this tonight:

I will pay all of her closing fees which will be nearly $10k and then I will borrow (don't know from who yet!) $5k to give her some cash in hand.

I then will make a monthly payment of $900/mo for the next 15 years. Which would still be cheaper than a conventional bank loan because of PMI. That would equate to 162k paid out over the 15 years + the ~15k for the property. So essentially paying 177k for the triplex. I think she'll like the sound of that. Only hangup would be the low cash in hand amount.

I'd like to borrow more so I could give her more cash in hand, but I'm trying to find where to borrow that from.

What do you think of that offer package?

I didn't get into sale price and interest on loan and all that because I don't want to confuse her. I think by just saying "I'll pay you 900/mo hassle free which equates to 177k in total paid" is much more inviting and easy to understand.

Thanks everyone! Let me know your thoughts!