All Forum Posts by: Steve K.

@Caleb Coblentz , search the BP forums....there have been many recent posts of similar to your idea: "how do I structure a partnership with my general contractor?" I think you could learn from those.

As I recall, a couple GC's chimed in and were against it....just agree to a price for my work....don't call me your "partner".

If you're on the hook for all the financing, can't you be the "speculator" yourself? ....and reap more of the profit? If you solicited bids, could you get more than one GC interested in building for $300k (actual costs?) plus some GC fee (10%????). So, I'd challenge you to rethink who's contributing what $, or time or know-how. Should the GC make $30k or $100k for his contribution??? What % should you earn for contributing all the financial risk?

That being said, if this is a bank REO property, would they give you an acquire and construction loan package? I don't think you need to assume its' a hard money lender. I believe you can find a local bank to give you 5% APR construction loan....at about 70% LTV on the whole costs, as long as your finished plans/specs appraise for ~$600k-ish.

@Rob Haines ,

this thread had useful thoughts, similar to your question; 

https://www.biggerpockets.com/forums/48/topics/462...

@Tarcizio Goncalves 

This subject comes up often at BP; you may benefit from search on the topic. Here's one such thread I was reading recently:

https://www.biggerpockets.com/forums/12/topics/464...

Decide how fast you want to grow your wealth, and are you comfortable with leverage/debt to do it faster?

I learned BRRRR method of acquiring rentals 18 months ago; wish I'd learned it 30 years ago. An ideal rental (not achievable in all markets) can achieve 10% to 20% ROI. If you're comfortable with leverage/debt, it grows your wealth faster than paying off the 4-5% mortgage (i.e. 15 yrs vs 30 yrs). Get inspired by some recent successes:

@Joshua D. , @William Collins and @Austin Fruechting did in 5, 2.5 years and 7 years, respectively, buy using https://www.biggerpockets.com/forums/223/topics/459415-500k-net-worth-in-5-years-im-30-today?page=1

https://www.biggerpockets.com/forums/48/topics/429980-officially-financially-free-at-32----exciting-day

https://www.biggerpockets.com/forums/223/topics/445367-full-time-employee-multiple-brrrr-side-hustle-2875-to-goal

For buy and hold rentals, there is a continuum of perspectives. I know of one widow in Denver who put her life savings into a $225k rental duplex...paid cash, no loan/leverage. Has just one property and is thrilled that it cash flows and there is no mortgage payment. Thrilled that it has doubled in value in 7-8 years (Denver appreciation has been great) and she's averse to debt. She is truly a real estate investor....but on the conservative (not comfortable with debt) end of the continuum.

Others could have taken that same precious capital and invested it in 4 similar properties, with 25% down payments and 75% loans/leverage, and controlled $900k in property that doubled to $1.8M by now. They'd be wealthier, because they used 75% leverage. Admittedly, if a nationwide recession hit, and property values and/or rent dipped 15 or 20%, this person is subject to loosing 15-20% of $900k in properties, rather than the widow's 20% of $225k.

Then, if you use the BRRRRR method, the cash-out refinancing, once you have enough equity (usually through remodeling the property, but sometimes through market appreciation) allows you to ideally grow a portfolio of rentals with 100% financing....and zero of your precious equity left in the property.....I know of a BRRRR investor that turned $80k cash into 30 rental properties worth about $8million ($5million in loans, $3million in his equity) in 5 years....granted, he bought at the bottom of the 2006-08 recession and benefited....but much of it was the buy at a discount and remodel profit.

Then decide if the risk/reward is right for you.

You can say "look what I did with low leverage" (slower)....or "look what I did with maximum leverage" (faster). Good luck!

@Michael Dunn , No, you don't pay tax on the full amount of rent collected. You pay tax on the "profit" each year, as defined by the IRS.

if your 'gross' rent is $14,000 , you get to deduct many expenses from that before you (and your accountant, if you use one) calculate the "taxable income".

Deductions include:

• all of the interest you paid on mortgage(s) on the properties (but not the principal repayment portion of the loan)
• the cost of property taxes
• the cost of insurance
• maintenance expenses
• fee of a property manager, if you pay one
• and "depreciation" (defined as the cost of the building (excluding the land), divided over 27.5 years. So, if you had a $60,000 property, and you view that the land is worth $15,000 you get to consider depreciation on the $45,000 allocated to the building. $1636 per year or so, deducted.

Some landlords find that these deductions allow them to pay tax on just a fraction of the rent received. (A few even say that they have a taxable "loss" at the end of the year, based on the depreciation calculation and how much interest, etc.)

Good luck

Also, several threads on BP about the merits of properties inside LLC's vs in personal names, the financing issues and the liability/insurance. Suggest you do a search and read up on helpful info.

@Laurent Feral , I'm curious....why you wish to sell with seller financing?

Since you're improving the value with the rehab, have you considered fix/hold? What about the BRRRR strategy?

@George Pickett , do you have Excel spreadsheet? Learn to use the "=PMT()" function. Principal and Interest on your example loan is $1178/month....the rest is the insurance and property tax escrow that could be very location specific.

@Jason C. , welcome.

I used to think conventionally (35 years ago), paying off mortgage first, etc. But on a site such as BP, you'll likely hear that real estate investing can earn you 10% to 20% yield....why earn 4% by paying off your mortgage?

Are you up to remodeling a rent/hold property? Have you read about the BRRRR method. If it's for you, get inspired by what other investors did with very little capital. You could even begin today....then really be in an envious position in 2 years when the trust is available to you.

Read some real life case histories of @Joshua D. , @William Collins and @Austin Fruechting did in 5, 2.5 years and 7 years, respectively, by using BRRRR method

https://www.biggerpockets.com/forums/223/topics/459415-500k-net-worth-in-5-years-im-30-today?page=1

https://www.biggerpockets.com/forums/48/topics/429980-officially-financially-free-at-32----exciting-day

https://www.biggerpockets.com/forums/223/topics/445367-full-time-employee-multiple-brrrr-side-hustle-2875-to-goal

Good luck to you

@CherTong Her , you might want to search on the BP forums about what other MN investors are getting in rent. If you bought this duplex for $260,000 and it rents for $2400 (both halves), you'd view that as rent is 0.92% of the purchase price. (I think others are targeting 1.5% to 2.0% in MN......so your deal may or may not be that special; check your market).

Secondly, I agree with others here that "hacking" subsidizes your own cost of living and is desirable because you get your first investment property for 3.5% down, instead of 25% down because of owner-occupancy.

Some here on BP are hacking in a duplex, triplex and/or quad-plex to try and get "free house" subsidized by the tenants. To help you re-consider the math: 

If that coincidentally worked out in each of those three cases, then it requires a duplex to rent for the full mortgage (your question), or a triplex to rent (each of two rentals) for half the mortgage, or in a quad, each of 3 units to rent for 1/3rd of the mortgage....so that the 1 owner-occupied unit is fully subsidized. These each imply a different xx% of purchase price as the rent.... so it doesn't always coincidentally work out to be fully subsidized hack.

Wow, didn't realize @Ben Leybovich wrote the book! Congrats.

I rent my quad-plex in Denver (all 4 tenant occupied; I don't hack).....turns out my rent is only about 0.82% of purchase price...common to the high-priced Denver market....it takes rent from 2-1/4 of my units to pay the mortgage. So, it would be a decent hack. However, I just got it re-appraised and am cash-out refinancing.....BRRRR method. Now, my rent is only 0.6% of re-appraisal (ARV), and the mortgage will be higher....it will now take the rent from 3 units to cover the mortgage. Would still be a good "hack"....but notice how the LTV of my loan determines how well the rent covers the mortgage.

Good luck in your decision.

Welcome to BP, @Divan Steve .

Are you up to remodeling properties? Have you read about the BRRRR method?

I believe it's a strategy with highest ROI (in fact, can be viewed as "infinite ROI" if you BRRRR and essentially have 100% financing on each rental.

I believe you have 5x or 10x times the starting capital of what some successful guys on BP did; you could replicate 5x this success in the same time:

Read some real life case histories of @Joshua D. , @William Collins and @Austin Fruechting did in 5, 2.5 years and 7 years, respectively, by using BRRRR

https://www.biggerpockets.com/forums/223/topics/459415-500k-net-worth-in-5-years-im-30-today?page=1

https://www.biggerpockets.com/forums/48/topics/429980-officially-financially-free-at-32----exciting-day

https://www.biggerpockets.com/forums/223/topics/445367-full-time-employee-multiple-brrrr-side-hustle-2875-to-goal