All Forum Posts by: Thomas Franklin

Booker Mcarthur To close, in a LLC, the typical terms are an Interest Rate of 5%+, an Amortization Schedule of 15-20 years, a down payment of 25-30% of the Purchase Price, and a Balloon Note of 3-7 years. The aforementioned terms are for Buy and Hold Multifamily Family Properties (2-4 units) and Commercial Properties. In this thread people mentioned Portfolio Loans. From what I have experienced, there are Portfolio Lenders that will bundle a minimum of five Residential Properties, at 75% of LTV offering Commercial Terms. You or someone else mentioned refinancing from a LLC to a Personal Loan, to receive better terms. The following are my thoughts based on experience. Assuming you have a respectable FICO you can buy or refinance, with a Residential Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). The downside is because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own, in your Personal Name. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC. I hope I have adequately addressed and answered all questions, in this thread.

@Matthew Perry Welcome to the community, of BiggerPockets! Be sure to check out the forums, the blogs, podcasts as well as other parts of this amazing website and like minded community. The people here have a vast amount of knowledge and are more than willing to share their experience and provide sound insight and advice. Do not hesitate, to post questions and bounce ideas around in applicable forums. I am a Rehabber as well as a Buy and Hold Investor. Please free to reach out, to me, if you feel I may be of assistance, to your Real Estate Endeavors. Much to your success!

Thank you @Adam Schooley

@Imran Raz Let me begin by stating Real Estate Investing is a business and should be treated as such were decisions are void of emotions. Just because someone has a name and a professional title does. It guarantee that he/ she is proficient, in their field. In essence, you are a "babysitter" and a "policeman" making sure everyone is doing their job, fulfilling their contractual duties, operating with an acceptable level of ethics and integrity, etc. Regarding your Escrow Deposit of 10% is ridiculous as is not wanting you to have a "Subject to Financing Clause." The typical amount placed in Escrow is 2-2.5% of the Contract Price. I owned 500+ units housed in multi million dollar Apartment Buildings. I never placed more than 3% of the Contract Price in Escrow. You need Contingency Clauses, in your Sales Contract. These are your outs. I typically use the following four.

1. Subject to Financing.

2. Subject to acceptance of Inspection Reports.

3. Subject to acceptable review of last two years of Federal Tax Returns.

4. Subject to Clean Title.

I will explain the Contingency Clauses above.

1. Subject to Financing. (Self explanatory)

2. Subject to acceptance of Inspection Reports. (You want to have the major systems inspected such as electrical and plumbing to ensure there are no major issues and the aforementioned systems are fully Code Compliant with the County and if applicable Municipality Building Department. In addition, you want to have the roof and foundation inspected. You also want to inspect random units, of YOUR CHOOSING)

3. Subject to acceptable review of last two years of Federal Tax Returns. (You should assume that 90%+ of the numerical data you receive will be false to have the property appear it is performing better then it actually is. You asked me if the Seller's Accountant prepare the Income and Expense Reports. The answer is NO unless the Seller's Accountant is managing the property. If the property is professionally managed, the Income and Expense Reports should be prepared by the Management Company. ACCEPT NO LEDGER REPORTS. If the property is self managed, the owner generates the Income and Expense Reports. If the owner provides you hand written reports, this would raise a Red Flag. You asked me how do you verify the numbers, on the Income and Expense Reports. This is where this clause comes in to play. A Seller can fudge numbers to initially hook you, but should not be fudging these numbers, on his/ her Federal Income Tax Return.

4. Subject to Clean Title. (Every jurisdiction is different, but in general O&E (Ownership & Encumbrance) REPORTS only cover the last recorded deed, and any encumbrances and judgments publicly recorded against the property (in rem matters). MUNICIPAL LIEN SEARCHES cover anything that is NOT recorded (not in public record) for any and all city, county, and state entities/ agencies' outstanding balances (i.e., code enforcement liens and violations, unpaid utility bills, real estate taxes, etc.). TITLE SEARCHES are searches that examine the chain of title prior to and through the current owner, but includes searches against the current owner (in personam matters) where IRS LIENS may be missed when only relying on O&E Searches. I have years of experience in the title/ settlement agent business and I see this mistake happen more often than not. HENCE, if you are to engage in any due diligence prior to making an offer, spend money on an O&E Search (but make sure your title company includes a search against the person if they don't do so), and a municipal lien search.

If an issue comes up during an executed contract (i.e., code violation, judgment, etc.), renegotiate the purchase price, assess how to clean up the issues that are clouding title, and try to turn it into a Win-Win Situation. Of course, I only negotiate liens/ judgments where the entity will play ball. See the green in liens! If the seller and/ or entity is unwilling to negotiate, I walk and move on to the next deal.)

In conclusion, many of these Sellers need to be educated. I have seen Sellers offering Owner Financing with a 50% down payment which is also ridiculous. One thing that is imperative that you do is have the following three questions honestly answered. Why is the Seller selling? What does the Seller need? What is the Seller's level of motivation to sell? This information will help you, in negotiations. 

Imran Raz In my opinion and experience you need the following, for your analysis: the last two years of Income and Expenses and the last two years of Rent Rolls. DO NOT ACCEPT PRO FORMA DATA! Such information is how a property is expected to perform over time, if you do x,y,z. You should also factor 10%, of the Gross Monthly Income for Property Management Fees. In addition, it would be wise to include, in your expenses, Capital Reserves (10% of the Monthly Gross Income). You build Capital Reserves that are equal to 10% of the Property's FMV. This will allow you to build a fund that will cover major repairs instead of you having to scramble, to acquire a loan or other funding sources. You want to also call a minimum of three Insurance Companies and get a quote. Use the highest quote, in your analysis. Finally, talk with the existing Management Company. This will provide you invaluable insight regarding if there is any Deferred Maintenance, how the owner has dictated Management Policy, existing circumstances, etc. I have walked away, from many potential acquisitions just because the Management Company provided me unique, real time insight that I factored into my numerical analysis.

Kyle Lauriano You can send me a Private Message if you would like to discuss. Your questions deserve detailed answers and more than just an Thread Response.

@Account Closed To find Investor Friendly Realtors, you can create an ad and post it in the BiggerPockets' Marketplace. You probably want to do this, on a weekly basis. In addition, you can attend REIA Meetings and Meet Ups, in your area, to locate Realtors that have significant experience working with Investors. Any Realtor you encounter I would propose that you ask them those four questions as well as ask him/ her, for references from Investors he/ she has worked with, in the past.

@Chris Mullen Welcome to the community, of BiggerPockets! Be sure to check out the forums, the blogs, podcasts as well as other parts of this amazing website and like minded community. The people here have a vast amount of knowledge and are more than willing to share their experience and provide sound insight and advice. Do not hesitate, to post questions and bounce ideas around in applicable forums. Please free to reach out, to me, if you feel I may be of assistance, to your Real Estate Endeavors. Much to your success!

@Account Closed Many Investors that flip homes use the 70% Rule that says 0.7 x ARV - Repairs = Your Maximum Allowable Offer (MAO). What hurts Investors that use this formula is it does not account for Holding Costs, Backend Selling Costs, etc.

I use the following formula to determine my Maximum Allowable Offer (MAO). This formula is the Profit Margin Formula that accounts, for 99.99%, of everything.

ARV - Desired Profit - Closing Costs to Buy - Repairs - 10% of Repairs - Holdings Costs - Concessions - Realtor Fees - Closing Costs to Sell = Your Offer (MAO or Maximum Allowable Offer).

ARV: After repaired value or what you think it will sell for once repaired.

Desired Profit: This should be taken off the top first. Most people run their numbers to determine what their profit should be. That is backwards, you should use your profit to determine what your offer should be. As a General Rule, my Desired Profit is $20,000 or 20% of ARV whichever is greater. To have an offer accepted, one may need to adjust their Desired Profit; however, it should not be below $20,000, or what one feels is acceptable.

Closing Costs to Buy: What is it going to cost you to buy the property? If you are using hard money you need to budget for the points and fees as well as traditional third party closing fees.

Repairs: The money it is going to take you to rehab the property plus an extra 10% of estimated repair costs to account for unexpected repairs.

Holdings Costs: Here is where a lot of investors get tripped up. Start by determining an amount of time that you will hold the property, probably 4-6 months. Then add ALL costs related to holding the property (utility costs, property insurance premiums, property taxes, loan payments, HOA Fees, etc.).

Concessions: Concessions are what you give back to the buyer at closing. It could be for closing costs, unfinished repairs or something else. I typically subtract 3%, of the ARV.

Realtor Fees: What is the commission you are willing to pay your listing agent (unless you are the listing agent) and the buyer's agent. Utilize 6% of ARV.

Closing Costs to Sell: Title fees and other closing costs. You can budget around 4% of the sale price to cover these.

This is a conservative formula. If you come out ahead without Buyer Concessions, on budget, etc., this puts more money in your pocket, when you close at selling.

@Account Closed Since you are initially interested in fix and flips, I propose the following action plan. The first step would find an Investor Friendly Realtor assuming you do not have access, to the MLS. I would suggest that you interview several Realtors and ask them the following questions, to ascertain if they are truly Investor Friendly, or if they are throwing you a sales pitch.

1. How many investors do you currently work with and how many investors have you worked with, in the past?

2. How many transactions have you closed, with investors?

3. Do you currently own any Investment Properties? If so, what type do you own?

4. Are you a member of any REIAs?

The next step would be to work with the Realtor and determine the hot markets, in your County, with the greatest number of sales over the last 90 to 120 days. Personally, I would prefer 90 days because markets are always changing. This list would contain the zip code and corresponding name of the municipality. In addition, a breakdown of the number of SFRs, Townhouses, and Condos, with corresponding ADOM (Average Days On Market), and Median Sales Price, for each municipality. This will be your Farming Area. From this data, you can utilize a website bestplaces.net that will give you a breakdown of the percentage of homes that sold, in various price ranges, for a given zip code. You can identify the two highest retail price ranges, in greatest demand, per zip code where you can list the rehabbed property.

You can use the Realtor to help you find deals and also use Wholesalers. If you acquire a property, from a Wholesaler, once the property is rehabbed and ready for the Retail Market, allow the Realtor that provided you the zip codes, to list the property for sale. This creates a WIN-WIN Situation and gives the Realtor incentive, to work harder on your behalf.