All Forum Posts by: Steve K.

Good point, Jay.....yes, the mortgage company has a say in whether you can sell off the vacant lot (i.e. part of their collateral disappeared.)

@Brandt Miller

@Brandt Miller

I recently had the experience of legally splitting a property into 2 deeds. The appraiser wouldn't use the comparable sales of other "split" properties (in my case a duplex, split into 2 townhomes).....until I completed the legal splitting work myself.

If your property will sell for $410,000 as is....and the rear lot is worth $110,000, would your house on the smaller lot sell for more than the $300,000 difference???? if so, add the value.

I believe you only need to live in the property 2 years for primary residence tax benefits.

Have you researched "BRRRR" investing in fix/hold rentals.

For examle: Podcast #237 with Ian Reeves had an example of buy a $36k home in Kansas City area, fix up for $8k, rent it, put a tenant in it for $975/mo rent. Six months later, re-appraise the improved home for $75k....his $41k invested gave him a $34k profit in 6 months. Repeat....it's possible if you find the BRRRR stellar deals like that!!

@James G. ,

I just listened to Podcast #237. There, @ian reeves said he had zero seasoning by using a commercial loan.

Elsewhere, there are banks that will do 6 months seasoning and it seems to still be a "conforming" loan for them.

@Aaron Christen , FYI there is a lot of debate on BP about the two options:

1) take conforming mortgages in your personal name, to obtain lowest APR and best terms, and try and limit your landlord liability with an umbrella policy, or

2) try and transfer the deed into an LLC (risk the bank invoking the due on sale clause), and use the LLC to limit your landlord liability

@Tyson Fugett , we don't know all of your cashflow assumptions in getting to $530/door cash flow and 9.45% ROI.

I just listened to Podcast #237, wherein @ian reeves earns about $500 per door in Kansas with $41,000 invested. I calculated he's getting 19% ROI. That's a really high rent to purchase price ratio.

Are you self-managing? Is there "instant equity" you're getting by buying 5 homes in one package? Are you modeling that a new home has lower maintenance.

I have to admit.....in Denver, I've never run across a rental strategy where the new construction had the best rent/purchase price. I've always assumed that "new" rentals are a weaker return.

@Jeffery Morgan , you say "private debt equity", and then you're going to get a construction loan (debt). I think your private investors sound like they're "equity".....but you're using the term "promissory note". If I'm wrong, perhaps you are asking these investors to be 2nd lien (behind the construction loan).

I have seen offerings wherein the sponsor tries to get the equity investors 18% return. I've seen hard money lenders as 2 points and 10% APR for a 6-month loan, earning them 14% IRR.

I am aware of 2 speculative builders where the visionary/operating guy earns 50% to 60% of the profit, and a passive investor earns 40 to 50% of the profit for putting up the capital (or down payment and secure the loan). In this case, I estimate the passive investor is earning a 30% IRR.

Your 9% seems light

@Faye Omar

You don't say how much the renovation is. On the surface, being able to buy a $320k ARV for $220k is usually an outstanding deal.

Elsewhere, I'd suggest you're mixing up your ongoing living/consumption expenses with investing. I wouldn't think of 12 months of living expenses as being included in the deal budget.

@Brian Mcmenamin , I don't think 1031 exchange applies to Faye's primary residence.

@Adam Peacock

I've changed my opinion on use of debt over the years (I used to dream of paying off my mortgage; now I love "leveraged real estate investing") It's not for everyone. Some folks are more risk averse and sleep better if zero mortgage.

If you buy (Plan "A") the $100k property to rent for $1250/mo....yes, you're getting 1.25% rent to purchase price ratio (very good; some of us only get half that (i.e. Denver). 

Now, your choice of down payment does effect your cash flow, as you correctly say. I haven't run your numbers, but most markets (with a 1.25% ratio) will allow you to "net" about $250/month net cash flow with a 80% LTV mortgage, as you again say. So "Plan B" is $500,000 in real estate with $100,000 down.

If I do cash on one house, I say $100k invested to earn $1250/mo ($15000/yr)...this says you're still making 15% return, cash on cash. I believe there's something wrong with your assumptions.

I say this because.....to have $100k leveraged into 5 houses at 15% return (Plan B) will look better (cash on cash) than the zero leverage case. I think of that as the first $20k could have been the down payment, and achieved 15% return. The remaining $80,000 is yielding exactly the APR of your mortgage (i.e 5%/yr). So with zero leverage, you have 20% of your money at 15% and 80% of your money at 5%....so you make a combined, weighted average of 7% in Plan A.

If you happen to have $500,000 in real estate, and you experience nice appreciation....you'll also further do better with Plan B, rather than having $100,000 appreciating in Plan A. Of course, in a depreciating environment, that leverage would work against you.