All Forum Posts by: Patrick Britton

@Sean Elliot yeah, what @John Warren said :)   Mark Ainley is an invaluable resource.  drop me a PM I've bought 12 properties on the southside over the past few years (4 of them were BRRRs).  

@Mark Vazquez hi!  I'll send you a PM but suffice it to say it sounds like you need a investment-minded/experienced realtor to start with.  He or she would be able to help you find a lender.  

@Corey M.  IMHO everything starts with having an amazing realtor.  

An “amazing” realtor isn't just simply great at their job. They have connections. Lots of connections. They should also know everybody you should use and everybody you should avoid. They should have at the ready whole list of home inspectors, property managers, contractors, and should be willing to share all of these with their clients.

Find an agent in the top 20% in your area in your specific category, such as investment properties, and I'm pretty sure the rest will follow rather easily.

send me a PM and i'd be happy to connect you with an agent in the top 20% anywhere in the country.  

@Will Barnard and yet, since my last post I have yet another major issue with yet another appraiser.  It's only a matter of time until some 13 year old programmer upends this business and sends it to its long-overdue grave.

@Mikhailangelo L. anybody telling you that you should do ALL this or ALL that is giving you some pretty lousy advice. This is an REI forum and guess what the traders on another forum have to say about real estate? That it's junk!

It's not about investing in this OR that. It's about doing what you're comfortable with. Risk and reward go hand in hand, don't let anyone tell you differently. And keep in mind, like most things, luck plays a big role in REI. In fact, it's much bigger than anyone with a small ego can admit.

Want a simple answer, do both.  At least for a while and go from there.  

@Ayyub Omer  notice how someone who sells courses on real estate investing is telling you to take a course on real estate investing?  And be weary of the man who tells you they make $$$$$$$$.  This is a public forum and there's no way to confirm any numbers that anyone provides.  And just because someone else is currently doing well, by taking high risks, doesn't mean that's what YOU should do too!  

IMHO, your plan is very conservative, which is fine, if that's what YOU need.  Some people need to hit the casinos to feel alive, others are just fine being comfortable.  There's no right or wrong investment.  There's only what's right for you. 

1.)  8 - 10% from both cashflow and appreciation is very reasonable.  

2.)  The absence of leverage helps to reduces risk and there's nothing wrong with that.  

3.)  "I don't mind negative cash flow for the first 8 years either, but I want to retire after 8-10 years."  Sounds like you live in a very expensive area.  I'm going to guess either Vancouver or Toronto. 

Anyone who tells you that higher reward does NOT mean higher risk is wrong.  Reward can only outpace risk for brief periods of time AT BEST.    

But please, consider using a property manager for any rentals you're going to keep "long-term," whatever and however "long-term" is defined by you.  

@Richard McCaig II I also consider myself to be tax illiterate :) And while there seem to be some tax advantages, most of those advantages can be applied to your personal tax return through a schedule E. So quite frankly, given the additional costs of forming an LLC, maintaining the LLC every year, paying someone to do the taxes on the LLC, paying a significantly higher interest rate because you're using a commercial loan because it's an LLC, etc., I don't see how the tax advantages exceed those costs. They certainly do not in my specific case.

But full disclosure, I am not a CPA, I'm not a tax accountant and I'm certainly not an attorney. I am however someone, who did exactly what the textbooks tell you to do (use an LLC to buy rentals financed by a commercial lender) and I will be paying for these mistakes for the next decade.

As for losing your own house in the event you get sued and whatnot, I had a very lengthy call with my attorney a few weeks ago about this very matter. He reiterated that no fewer than six separate, horrific things would have to happen for your primary residence to be at risk:

1. something has to go horribly wrong with your property/tenant
2. the person who is “wronged” would have to file a lawsuit against you (this means they would need some money to get the process going as well as some education on how that's actually done)
3. arbitration would have to fail
4. it would have to go to court
5. you would have to lose
6. you would have to lose so much that the only way to make up for the difference would be to take equity out of your house

And sounds like you're in the position of being able to lean on the equity in your house as opposed to being forced to sell it.

Yes, the probability of all these things happening is non-zero, but it's still incredibly small.  In a way, you are paying for “insurance” against an event that we hear about on the news sporadically, but doesn't really happen very often. It's like asteroid insurance. Sure, your house could get hit by one, but what are the chances?  And more importantly, what are the costs of that insurance?

Also, my attorney reiterated that simply having adequate homeowner’s insurance, especially with an umbrella policy, would be a much cheaper alternative.  Not surprisingly, this was confirmed by my insurance agent.

@Richard McCaig II What advantages are there (to you) if held in an LLC? Keep in mind, while there are some benefits to owning property in an LLC, those benefits vary significantly from person to person, from deal to deal.  Most "regular" investors, such as myself, receive no NET benefit from an LLC.  

If you buy and hold a property in an LLC, you'll be FORCED to use a commercial lender, and they will NOT allow you to live there. Your interest rate will be much higher, there will be a pre-payment penalty, and the lender will charge excessive fees, points, and will likely make a number of mistakes YOU will pay for down the line.

Even if the property is truly worth $150,000, if you're buying it for $110,000, the FHA appraiser will say that it is worth $110,000. I'm sure there are some exceptions throughout the course of human history, but I have never known an FHA appraiser to give the property more worth than the purchase price in as-is condition. And I've been a part (as an agent, lender, investor, homeowner, etc.) of over 100 appraisals.

"With the fha part, the house is worth 150-160k as it sits, so i was i guess kind of hoping that the loan of 130k could be split, 110 towards the seller 20k for me for repairs."  

If you are going to use an FHA loan, the minimum down payment is 3.5%. so in this instance it looks like this:

Purchase price x 3.5% plus closing costs minus seller credits (if any) = total cash to close

This means that a good chunk of your $20,000 will be going mostly to the cash to close assuming the following rough numbers: $110,000 x 3.5% + FHA upfront mortgage insurance premium (1.75%) + $2,000 (depends on local customs)
= $3850 + $1857 + $2000 

= $7,707

So you're left with about $12,000 for repairs in this instance.

And I'm very sorry if this is not what you want to hear.  But it's the truth.  And it's better to know now, before you get too eager and excited about this place.  

@Richard McCaig II  In short:

• There is no real advantage to using a lender local to your area, unless you're getting residential financing from a credit union.
• You should really start contacting a number of Realtors as soon as possible, all of whom should be able to explain to you exactly how things will play out
• You should also have some conversations with licensed loan officers. Considering the purchase price and the required down payment, you might have a little bit of difficulty finding a lender who will work with you. Lenders are paid based on the loan amount and unfortunately, most lenders are more interested in big loan amounts and commissions than in helping new investors such as yourself.
• If the property is priced at $110,000 and requires $20,000 in work, it's very likely that FHA will not give you financing at all. FHA loans are decent ideas on paper but fall apart when you actually try to utilize them, especially if the house itself isn't 110% absolutely perfect. And if it needs that kind of work for that kind of purchase price, I'm guessing there's a lot going on with that property the FHA will have a problem with. Sure, there's the FHA 203(k) loan, but the restrictions and issues you'll have with that terrible program will cause you enormous suffering.
• Lastly, and I cannot understate the importance of this, avoid using a commercial lender at all costs!!! There are plenty of very good residential lenders out there and commercial lenders are not bound by the regulations and restrictions of Frank-Dodd, and frankly are in existence solely to take your money.

But also know that in any real estate transaction there are going to be a whole number of people to assist you. In no particular order, they include:

• -Your real estate agent - try to find some agent in the top 20% in your area who is also investment minded and familiar with all forms of financing
• -Your loan officer/originator - please use a residential lender. Your future self will thank you.
• -A title officer - depending on your jurisdiction, this might be a real estate attorney
• -A closer/escrow officer - these are the people who helped coordinate closing and should be able to clear up any confusion about the process
• -An appraiser - this will depend on your financing but most likely an appraiser will be involved at some point
• -A home inspector – optional, but always a good idea to use one

What typically happens is that you will find a property with the help of a real estate agent, submit an offer, get it accepted, deposit earnest money within two business days of the seller accepting your offer, secure financing over the following days and weeks and you will be notified well in advance about who gets your down payment, when, and how it is to be handled.

If I were you, right now I would focus on trying to find two people in particular: a real estate agent and a licensed mortgage loan originator. The rest is pretty easy 😊

@James G. yeah, it is early to get pre-approved.  I'm a realtor in WA state and a licensed loan originator in MI, OH and FL, and I own 11 rental properties and frankly, pre-approvals are worthless pieces of paper.  They provide no support, have no power, and are designed entirely to protect the lender.  

Instead, in preparation for seeking financing, you should do the following:

• 1.  make sure you've filed taxes for the past 2 years (in fact, get all your documents in order)
• 2.  save money!!!  the more you have saved up, the easier everything will be 
• 3.  increase your credit score - typically done by lowering balances on your credit cards, but I don't know your particular situation, so maybe have a licensed MLO run your credit report
• 4.  bother realtors.  bother as many as you can.  just make sure they are aware of your timeline.  Lots of agents won't work with someone unless they are ready to buy today 

To answer some of your other questions:

1. What type of place should I look for?  fourplexes offer the greatest bang for your buck

2. Where do they exists?  all over the place, but work with a realtor on this part

3. How much do I need to save for this unicorn? depends. if using an FHA loan (which has its own set of drawbacks) you'll need 3.5%.

I hope this helps.