All Forum Posts by: Alexander Merritt

@Nghi Le

Also, your friend could get someone to co-sign the loan (parents, family, etc...). That will help him qualify. He would make the payments and then after 1 or 2 years, he can refinance and remove the co-signer from the loan if they wanted.

 That makes total sense. I probably wouldn't rip out brand new carpet either even if it was in a C area. I would just replace it after the tenant moved out.

@Jimmy Mooney

Good decision. To answer your question, I actually look at both. In my analysis even if I'm getting a 15% return but I'm only actually making $3k or something like that, it's not worth all the time and effort for that little money. My personal goal is 10%+ and $7k+ but I'd settle for $5k if I know that it's a B+, A area and I won't have very much problems with tenants.

This is why BP is great because we can present an idea and get different points of view which helps us to evaluate potential deals. On to the next one.....

What is your primary goal? Are you looking to keep this as a rental? I'm confused when you say you want to hold onto it for 5 years and then sell with your assumed appreciation. Everyone says that you can't predict the future so it's best not to plan for time appreciation. If it happens great, if not, you weren't depending on it anyways.

If your looking at a rental, $1600 isn't worth it to me. You could invest your $20K in the Stock market and make the same 8% return for far less risk.

What is the asking price? What happens if you low ball them? Also, you should be using real Tax information and not an assumed percentage. You can find that at the county tax assessors website/office. Have you explored flipping the condo?

I'm wondering why nobody has talked about renting only for the school year? I'm not inclined to pay for a whole year's rent when i'm not going to be living there for 3 months out of the year. Why couldn't you just divide the 12 monthly payments into 9 payments? That way the tenant doesn't feel like they are paying for something they are not using, and you get to have a stable income (provided you take a portion of that rent check every month and set it aside for the 3 month "vacancy" period to cover your costs).

In the case where people rent for the whole year, how do you handle security deposit? When they move back home for the summer, do you give them their security deposit back? do you wait until they return to school and then give them their securit deposit back or do you just hope that they will renew their lease and then you just hold on to it again?

Thanks in advance.

@Tyler Hume

Well your own cash is, IMHO, the best way becasue there is no interest or fees to use your own money.

Having said that, I believe 203K is for homeowerns. I did a 203K on my house when I purchased it and it worked out well. I don't think you can use 203K for investment properties. So unless you plan to live in the house for at least 1 year, then that's not an option. However, it would be a great option if you plan to get a du/tri-plex and live in one unit and rent out the others.

Some other finance strategies include, using a Home Equity Line of Credit (HELOC) (provided you own your own home and you have enough equity built up), Hard Money Loans (HML), private financing / partnerships (aka asking parents, relatives, friends, co-workers, strangers to put up money and you do everything else).

@Michael Noto

 Looking good so far. A couple of questions. (1) How did you estimate the repair value? I've seen some BP members do it themselves and some that just have contractors provide bids. (2) Why did you decide to use carpet for the bedroom flooring? Is your area good enough where the renters won't destory the carpet so you have to replace it all the time?

Thanks in advance.

A Hard Money Loan (HML) is just a loan. Refinancing it is really no different than refinancing a traditional mortgage. While the up front fees and APR is higher, the biggest advantage is the loan criteria (think bank underwriting process) is super fast and way less complicated. I've heard investors on BP get a HML even the same day (normally a few days/weeks compared to a month or more for a traditional bank). Now, that's of course dependant on your relationship with the HML and the numbers/investment package you present to them.

Normally what others have said on BP is that they use the HML as if they were doing a flip. In essence they actually do a flip, but instead of selling it for profit, they keep it and rent it out. As I said before HMLs are more expensive up front with increased fees from "points" and a higher interest rate and repayment terms (usually between 6-12 months). Normally the sale of the property from the flip would be enough to pay off the HML. But if you keep it, then you need some other way to pay back the HML when it is due; hence the refinance to the traditional loan. Also, you'd want to refinance it ASAP anyways, since it has a much higher interest rate than a traditional 30yr fixed loan.

Again I've not done this strategy yet, but others have used it with great success.

IMHO you don't want this person as a tenant. They obviously don't care about the property so why would they suddenly care when they move into the nicer unit? What is your current agreement with them on the hand written lease? Are they month-to-month? Is there a pet policy? Is there a "living conditions" section... meaning the tenant must keep their unit in good living condition and must report things like leaks, mold, cracks in walls, etc... immediately or face X consequence up to and including eviction.

I agree with @Matt Madalis. I have a friend who actually bought his first house with the intention of renting out two of the bedrooms. He was single at the time but he was able to pay off all of his student loans, credit card debt, and car loans after 5 years. Now the only debt he has is his mortgage. He told me just refinanced his house and he's got about $100K in paper equity. That's a pretty solid 5 yr return if you ask me.

Otherwise, I would suggest doing the duplex option. I don't think banks would be so open to lending for an investment propery with someone that has unstable income. Also, as others have suggested, it's additional cost due to closing costs of two separate transactions.

A 4th option might be a partnership. You might try and find someone who you put up the money and then you would take on the role of manager and manage the propery. That way you might not even need a bank loan at all.

A 5th option might be a Hard Money Loan. I've personally never done one of those but there are investors on BP that swear by them. they are expensive with high interest rates and you pay a lot up front in terms of loan "points" but you don't need to go through the exhausting underwriting process that banks do, and you can get the money in a few days if everything checks out with the Hard Money Lender and the numbers work. The idea then would be to do a rate and term refiance into a traditional loan with a bank. It's much easier to refiance one you own the property than it is to get the loan.