All Forum Posts by: Shane Johnson

I pulled a HELOC just to have it for opportunities in the future. I think it makes more sense with flips instead of BAH's in my limited experience.

One option where I would justify using the HELOC for a BAH, is to use it to purchase the rental, and use the cash flow from rents to pay it off immediately. I wouldn't dink around with using savings and paying it back. I would use the HELOC as well for the tax benefit as well. The fact that you have money in your savings to offset any debt in use, is hedging your bets.

I would definitely get more solid numbers. To not know your rehab costs, and ARV +/-5k is ballsy in my book. 20-40 is a big swing, and that 20k could be your profit....

welcome to BP :)

I am in Elk River just about every other weekend to visit my gf :)

In that case @Andres Piedra , here is a few basic guidelines for a HUD home i found via quick google search. Just make sure to cross your Ts and dot your Is and you should be golden. Now post up some numbers for us to salivate over.

http://www.randytempleman.com/files/370198/HUDHomeGuidelinesIII.pdf

Welcome to the game. Buckle up buttercup. :)

Are you using an agent? I hope so?

HUD has specific time frame requirements! I vaguely remember we had to fedex overnight some documents to get them by a certain deadline.

Potential problems

1- History - you should have shown other 2 rentals, and cash flow.
2- Debt to income - You should have a lease in place on the finished property. With this lease in hand, your bank would possibly consider that potential income, against the potential debt they are trying to qualify you for.

3- 6 months seasoning - doesnt matter if you bought it cash, if under 1 year, they will only use the purchase price, plus receipts for their valuation.
4- FICO score. Get it over 700 and your Debt to income and LTV requirements will be adjusted in your favor by quite a bit.

Example - I currently am not over a 700 and was only able to get 80% LTV, instead of 85% LTV (a difference of around $8,000 on my property)

buy her a no slip bath mat, and no slip rubber bottom socks while your at it ;)

Obviously if you had a lease in place, you could make it work.

Pros -tax savings is substantial.

Cons - must be skilled to find another property and get it executed within the necessary time frame. Capital tied up for a year, there is an opportunity cost to that. (aka you cant use your money to buy more property)

Whats the FMV of the home? The basis? The gain?

Here's a really quick and dirty example.

Purchase - $60k
Rehab - $30k
Sold price - $120k (110k yield at 8% closing./comm)

So you are left with 20k taxable profit. at 40% overall tax that leaves you with 8k tax liability, and $12,000 profit.

It comes down to this, based on these numbers, is it worth it for you to wait 1 year to pull your capital out, to gain an extra $8,000 ?

Or is it better to sell it as fast as possible, and maybe do 1, or 2 more deals in the same year, with that same capital. If you replicated this model 2 times with the same capital, you now made $36,000 instead of only $20,000.

So you can see where I am going with this, if you are a serious flipper, move it ASAP and keep going. However, if capital is no issue you could consider holding a year.


Last piece to the puzzle. Appreciation. Will it be worth more in a year? Will it be worth less? This is a very important piece in itself, that you would have to gamble on.

No problem, I would also check craigslist, that seems to be a very active source of rental comps that I like. The only way to tell what something rents for is to either look up the property and contact the landlord, or watch craigslist diligently and pay attention to when the listing disappears and at what price it was last listed at. The method I mentioned would not only yield real results, but it would give you insight to renters who are paying too little or too much, as well as renters who have been there for multiple years. Not saying you should still tenants away from another four Plex owner in the area, but you might be able to mention to those same renters about the availability of your four Plex with upgrades compared to their unit at such and such price. It would give you a leg up on cherry picking the best tenants in the area already, And/or be a lead generation method as they might know somebody looking to rent.

I am confused, in the first post you said it would rent for $1400? Then you said rent is $700, and would go up to $750-800?

Is this a duplex? I see no mention of that.