All Forum Posts by: Bryan Casteel

Jeff, the numbers look good for both a fix and flip and a fix and rent. Off the top of my head it seems like you have a few options:
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Get the house under contract and try to sell the contract to another investor that does have the money. If your numbers are right, you could probably get $3K - $5K for the contract. It isn't the biggest payday but you still get to profit from finding the deal.

Use a hard money loan to buy and fix and then get a conventional loan when you are done to payback the hard money loan. Hard money lenders are all different in the types of deals that they will do, but you can usually find one that will give you 70% to 80% of ARV (after repaired value) minus points. It will be tight, but you might be able to make it work. If you have decent credit you could refi and maybe even put a few bucks in your pocket. You will have to run the numbers.

You could make an all-out effort to find a private investor. You would give them a first mortgage position in the property to secure their investment and then when you are done with the rehab you could refi the property and pay back the investor plus 10% (as an example). You should put together a package that shows the investor a solid plan with timelines on the project along with a lender that will refi you when you are done.

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Take a hard look at all of the areas where you can find money that you may have available to you as well to put into the deal. A loan against a 401k or a home equity line of credit. Credit cards can work, but make sure you can pay them off quickly when you are done (and use one that gives you reward points so that you can go on vacation for free when you are done :D ).

You pretty much have the right idea, just a couple of notes:

1. Joe Buyer should NOT be the trustee. The trustee should be someone else that Joe Buyer chooses (could be a lawyer or a very trusted friend). The trustee should have a different last name and preferrably lives out of state.

2. Warranty Deed transfers property ownership to the Land Trust (not the trustee). The trustee is the legal guardian of the Land Trust. Once the property is in the Land Trust, then the beneficial interest in the Land Trust is transferred to Joe Buyer.

Nobody needs to see the trust agreement unless absolutely necessary. DO NOT record the Land Trust - that would defeat the purpose. Only the transfer of the property to the Land Trust is recorded so that the owner of record becomes the trustee.

By law a bank can not interfere with the transfer of a property into a trust. This mean that they can not invoke the "Due on Sale" clause just because the property transferred.

Successfully executing a sub-to deal is VERY complicated and involves a ton of paperwork. I have done several of them and I am comfortable with them now, but the first couple were a lot of work to get through because I had to learn as I went.

I am sure there are several courses on the market that teach this technique. The one that I use and I have been very happy with is The ABC's of 'Subject To' at http://www.getthedeed.com.

Good luck.

I have no perspective on pricing in CA, but from everything else in your post, this is sounding like a good deal to go after. One of the biggest hurdles is getting a seller to understand and consider creative financing. You also mentioned a very key item - which was their wishes to defer capital gains. This will give you some leverage.

First, I want to answer your question about renting it out. YES, you can rent out a place that you have a lease/option on, just make sure that your lease/option agreement with the sellers doesn't forbid subletting. When you sign a lease/option agreement, you gain the rights to occupy and enjoy a property. You will then transfer those rights to someone else by having them sign a lease with you.

I wouldn't suggest that you go this way unless it is the only thing that the sellers will do. The reason is that you are put into a weak position in the deal and you will not be able to do anything to the property without their permission. Don't get me wrong, you can make it work, but if it is possible, you should go for a land contract (or whatever "payment for deed" is called in California). This type of deal is probably a win-win for you and sellers as well.

For you, you get all rights of ownership on the property. That gives you much more control and should give you the right to sell the property if you find a buyer and you want to flip it (unless that is not allowed in CA or if is not allowed in the contract that you sign with the sellers).

For the sellers it softens the capital gains blow. They lock in the sale price now (instead of the future) but they only pay capital gains taxes on the recovered principal amount during that tax year. Since you are making relatively small payments to them that include only a small amount of principal and mostly interest, they will not have to pay very much in taxes on an annual basis. If you structure the land contract for a period of time that is longer than their life expectancy, then the remaining capital gains will be wiped out upon their death and the contract transfers to the heirs.

Thats great Grinder. You have a goal of getting 2 deals done this year, now work backwards to what you need to do every week this year.

Use your own assumptions, but here are some that I use:
20 offers to get one deal
10 leads to find one good enough to make an offer

When I say lead I mean any type of potential deal that is brought to your attention. The lead can come from your marketing, driving around, an agent, a friend, etc.

Those are decent numbers for someone getting started. You will improve upon them as you get comfortable with what is going on.

If you take my assumptions, then you need 400 leads this year that you will use to produce 40 offers in order to get your 2 deals.

Assuming you work on real estate 50 weeks out of the year, that means you need to dig up 8 leads per week. In my experience, if you stick with these numbers you will have your 2 deals with plenty of room to spare.

You make a great point on the ethics of accepting credit cards. EFT out of the checking account is a no-brainer though. The credit card issue might be a case-by-case basis on your properties depending on the quality of the reters.

One area that I have been considering getting a merchant account (to accept credit cards) is for security deposit and possibly first month rent. That is a one-time large hit on the bank account that you might be able to help the renter out by having them charge it and pay it off over time.

If you have automatic withdrawal and the account doesn't have enough funds, then I am sure you are going to rack up some "bounced check" fees. That could be a problem as well. Also, what about the times when a tenant says "don't deduct from my account for another day because I have to move money around"? I usually have a 3 days grace-period on rent and if automatic deduction happens on the 1st, you could run into problems of Non-Sufficient Funds. I guess automatic withdrawal could happen on the 3rd or the 4th to be sure.

In this whole discussion, we are concerned about getting rent paid on time. I know some landlords who are happy to accept late rent with the penalties they have in place. The penalties are a whole revenue stream for their business. Another ethical issue.

First of all, congratulations on an excellent investment. If your home does sell for $1.6MM, then making $1MM in 8 years ain't so bad I'd say.

You do not need to buy a "like" house for any tax reasons. The only way you will get to take advantage of a 1031 exchange is to move out of your house and rent it for 4 years then sell it. If you need to sell it now, you can take the first $500K tax free and the pay our Uncle Sam on the rest. There may be some creative loopholes available to you, but you will need to get that accountant or lawyer to explain. I am sure you are not the only one in CA dealing with huge capital gains on your primary residence right now.

As for finding an accountant or lawyer, I would look for the tallest building downtown. Go to the top floor of that building and find the most important person you can find and ask them. That is tongue-and-cheek of course, but what I am saying is to ask around. The last thing you want to do is just open the Yellow Pages to find someone - get some recommendations and then interview the candidates. You are dealing with a lot of money, so it is worth the effort.

Wow, landlording in the 21st Century. The online rent payment and automatic monthly payment are great ideas. Of course, this only applies to renters with internet access and checking accounts. Maybe accepting credit cards for the lower-end renters as well.

I am not quite sure what exactly P and S stand for in this case. The advice from Stefanie is correct in this case though. You want to get a purchase contract with the seller signed first and also get a letter stating that you can talk to the bank about the seller's account. Then go to the bank and inform them of the increadibly terrible situation that they are in with this particular property and offer to bail them out.

Great thread, but lets bring it back to the basics. HillBilly, here is the good new and some more good news. First good news: YES you can do these types of creative deals like you read in this thread. Second good news: you don't have to worry about all of that for your first deal. What you need to do is search hard for a good deal and then figure out how to get it done.

My first deal was a 5 property package from a Mortgage Banker. I read in the classified section of the paper that they were coming to town (from Florida to Cincinnati) to unload the properties. I called the number and asked as many questions as I could to get ready for their visit. I met the two reps from the bank and went to each of the properties with them. That night I visited them at their hotel with some ideas for a deal. They told me that there were several people making offers on 1 or 2 houses. They also told me that they really wanted to dump all 5 and be done with Cincinnati. I scheduled a breakfast meeting with them the next day and went home. That night I crafted a couple of different options for them. All of my options included them selling all 5 properties to me. The next morning I met them for breakfast back at their hotel and presented the offers. They gave me some feedback and told me that they would take my offers to the President of the company. The next morning they called me and told me we had a deal. THAT WAS A RUSH! The only problem was that I didn't have the money.

I called up a guy that I had met previously in some classes that I knew was already starting to do a couple of rehab jobs. I told him the story and also told him I didn't have the money. He came with me to see the properties and he agreed to finance the deal with some of his private investor capital for 50% of all profits made. I obviously agreed and he became "my money guy". I immediately started to market the properties for sale (even before I owned them). Out of the blue came a buyer who wanted all 5. We negotiated a package deal and set up for closing. Once the deeds were ready, we needed to double close. In the morning, with my money guy at my side, we bought all 5 properties with cash and then went to lunch. After lunch the buyer came in and we sold all 5 properties for cash.

After all closing costs and everything the deal had a profit of $51,350 which I split with "my money guy". That was a good day.

The moral is that there was no seller carrybacks, no land contracts and no subject-to. Good old fashioned hard work, some sweating, some scrambling, a lot of praying and a hell of a pay day. The reason that it worked was because I found a great deal. When you find a great deal and let other people know, the money will appear. Just give it a try - it will work.

First month free seems to be a good incentive to getting people in the door. Also, offering a small discount on rent if it is paid before it is due can help. Of course there should be a sharp stick if they are late as well.