All Forum Posts by: Stephen McKee

Yes, they'll accept it as long as it is a non related individual or trust. If the lender is a corp or llc it will have to show a history of lending as one of it's primary sources of income.

Unless of course it is a corp or llc located in belize where their are no transparency laws. I do not know of anyone setting up an off shore company yet but I was told by an attorney that this is the vehicle he uses.

I'm with Dan. Buying with a Trust is subject too but you can name the trust after the current owner on title to mask the transfer. Is there something else I don't know about in a SUB2 transaction that works better.

OK, I see where I'm not explaining properly.

If purchasing an REO, your transaction can not change after your offer is accepted without the risk of the transaction falling apart or a severe delay. So I purchase as follows.

1. The accepted offer is an all cash offer for 70k.

2. My friend who is also my lender draws a note for...
70k purchase price + 30k rehab + closing costs = 103k
at 1/29 1st year no interest or payments / 29 years at 10% interest only. This is just for CYA. Were good friends but business screws that up some times.

3. He wires 103k into my new bank account. I open a new account for every property I buy. Makes taxes easier.

4. At COE I wire the 70k+closing to escrow.

5. I walk the note in to the recorders office on the same day my transaction closes.

You can also have title do an accommodation recording so it records concurrent with your deed. I can not add a loan or lender instructions to my escrow without a college educated, under paid, asset manager freaking out and asking 1000 questions. They think you lied to them and the transaction was not intended to be cash. The truth is it really doesn't matter because it is a non contingent sale anyway.

6. I complete my rehab.

7. I apply for a RATE & TERM refi for 103k and stack my costs into the interest rate. Some time I pay closing if it's worth it.

No, No fraud. Me and My partner trade loans. He lends me money and I lend him money. Money really exchanges hands and is really owed to the other person. I buy a home for 70k + a 30k Rehab + all other costs and he loans me that money. It is transferred from his account to mine and a note is attached note to the property. The only reason it doesn't fund through escrow is because the BANK(seller) flips out if a loan shows up last minute. Even though I have the cash on hand I am choosing to borrow it from him. When the project is complete I refi RATE and TERM and he gets paid off. I do the same for him in return. We just write the notes as 1/29's 1 year no interest, 29 years at 10% int only. This also lets the bank know we are looking for a better term than our current loan.

The key word you are using is CASH OUT. If you stack a note at your first closing the sale appears to the lender to be a RATE & TERM. I have a lender I use regulary. If you want his info PM me.

10% non owner / 90% owner. Whats more interesting though is the last few months. I heard from 1 escrow company that 70% of the transactions they closed in March were cash. The depression babies have been bailing out there baby boomer kids. The parents are taking lines of credit out on their paid or nearly paid off houses and have been buying homes for their kids who went into foreclosure. The parents get the write off and the kids get a low payment.

Jon I like your numbers.

I made a call after I shot my mouth off and it's 5.9-6% at 80% LTV no cost rate and term refi. My broker is cheap and very good at his job.

You can get a decent refi as a rate and term right away. I am recording a note at COE for the total amount of the future refi. The note is payable to a partner with a different last name. Because the note is recorded the same day as the purchase and is for the full amount of the future refi I can get around the annoying 6 month refi problem.

Jake

1) With unemployment being what it is in the IE, how worried are you about the stability of your tenants? As I'm sure you've figured out, lots of tenant turnover kills your numbers.

I have several partners and friends that have had rentals out here for 15 or more years and are experiencing the same 2/24 month vacancy they always have. The simplest answer is section 8. They will pay $1290 for a 3 bedroom and $1580 for a 4 bedroom. These tenants are easy to find and never move. It takes 5 years to get a section 8 voucher and the state deposits the money direct into your account. Section 8 is always my back up plan but it is a very solid one.

2) Along the same lines, I recently read a DB Analyst report that had the IE pegged as having the projected 10th highest % of distressed inventory for all MSA's in the country. You don't think that will continue to drive down price?

No one has the answer to this. Inventory is below 2 months and every property has multiple offers over the asking price. Last month showed a .25% price increase but I suspect were very stable now if not on the way up. My most recent research showed us to be 29% below value. Median 2 parent household income is 60-65k and last months average FHA payment was $1150. We are obviously experiencing very high affordability

3) Since you probably just mentally disagreed with me... the same report projects a 14% decline before a "bottom" is reached in the IE. I'm just sayin...

See above.

Now, I'm all for the "if the numbers work" mentality just like you are, but shouldn't you want SOME shot at appreciation if you're going to buy and hold?

Appreciation is obviously the end goal here. Because these prices are so artificially I'm going to go out on a limb and say prices will double in 7 years max. This area has an indisputable specific cycle.

However, I don't hold properties that do not make sense. My clients have been buying with me from mid last year and will continue until the numbers no longer work. You can only eat a hippo one bite at a time.

Tim

I was going to keep it until I saw the inventory plummet and I through and extra 7k at it. This place was in pretty bad shape. It is a 1550sqft 4bed 2 bath built 1979. It had holes in the wall so big I could see all the way through the house. Believe it or not 31k was cheap. I used to do rehabs myself and I only paid cost+10% to my contractor.

Moving markets are like most places, summers about double winter. This year was different. We closed just under 500 sales this November as apposed to 68 sales November 2007. To put that in perspective we were closing 250-250 units a month in the summers of 2003 and 2004. I suspect all of 2009 and a lot of 2010 will be the same. If the back log of loan mods finally fails and we have a steady stream of 1000 listings or so the market will remain stable and priced very well.

Side note: The way people live in the IE is what gives investors such an opportunity. Everyone has rims, a bigscreen TV, and rents. The majority of buyers using a loan are FHA (97% or so) and most sellers pay closing costs. Homes that don't qualify for FHA tend to sell for 20-40% less than their counter parts. Big opportunity here and believe me I'm not the only one who knows this.

I must not understand the 50% rule. I figured PI had to be 50% gross rent. Expenses would be vacancy, taxes, insurance, and repairs. Giving the condition of the property after rehab the repairs would be knocked down to almost nothing. However, If I give 3 months rent for annual vacancy and repairs it should be more than enough.
Cash flow to me = gross rent minus expenses.
I just cant see paying someone 10% for 2 hours of work a month to manage my properties.
I get a better rate because it is a rate and term. This comes from the way I structure the purchase. 75-80% LTV rate and term NOO are below 6%.

Note: I chose to flip the above property and its in escrow for $150,000.

Latest example

Purchase price $71,100 cash
Closing cost $1,600
Rehab $31,000
No cost Refi at 5.5% $103,700
New Payment $760 a month PITI
Monthly rent $1,400 (low for a rehabbed 4 bedroom in MoVal)
2 months vacancy brings net rent to $1166.67
I manage my own properties so no cost there
Net monthly cashflow $406.67

The house has been remodeled from top to bottom. I could throw 1 more months rent in there for vacancy and still meet my numbers.