All Forum Posts by: Tim Stuart

Brian,

I think this is a risky investment for a brand new investor. BUT if you were bullish on the opportunity presented, the starting point would be getting a home inspection (usually $500-$750). This will be your leverage if you decide to get under contract because you can deduct all the line items that need to be fixed, potentially being able to grab it for a deal. Remember that it takes a bit of cash to put a down payment, have capital reserves required by lenders, and rehab the property. We are still dealing with national supply chain issues on certain materials which has driven up the cost of almost everything. Whatever you think the budget will be necessary for a rehab, double it. The last thing you want is to get elbows deep and run out of capital because then you won't even have an exit strategy or a place for your mom to live. Good on ya for taking care of mom, but perhaps this is not the way to do it. Have you looked at house hacking a small multifamily that's not so beat up?

Melanie,

Congrats on making massive progress toward financial freedom. Blast that debt ASAP! You will sleep so well that first night. Just remember the difference between good debt (assets) and bad debt (consumer debit often used for instant gratification). Dave Ramsey has some great books regarding living debt free and budgeting. Also, if you haven't already, read Rich Dad, Poor Dad and tune into his podcast. Good stuff here, I'm excited for you and your husbands investing future!

Hope this helps,

Tim

Hey James,

Thanks for sharing and educating the rest of us. If you are interested, I can share my positive experience purchasing multiple turnkey rentals from @Norada over the last 2 years. I'm glad you're out and can chalk this up as an extreme learning experience.

Thanks,

Tim

Suresh,

Perhaps if you would like some outside perspective on the deal in general, please share the basic numbers so we here on BP can underwrite it with you.

Aaron Chapman with Security National Mortgage (602) 291-3357 is my go to lender. He closed 6 loans all at the same time during covid with no delays. He and his team are legit. Radical dude also...

Hope this helps,

Tim

Hey Ryan,

My CPA has told me that one subpoena will pierce the veil of pretty much any LLc. Wit that being said, utilize debt as protection and maintain a good umbrella insurance policy to combat potential liability. If the properties show debt as an encumbrance, there is less salivating from attorneys vs. if it was recorded as free and clear. 

Hope this helps,

Tim

Spencer, 

I have found the same regarding rental property loans and hard money loans. Every lender is asking 20% down unless it's a primary residence. Consider the 3.5% down FHA financing option if you can use it as your primary residence. Just remember that 3.5% primary residence FHA loans have price limits for Single family, duplex, triplex, and fourplex properties in which 75% of the income from the rental units need to cover 100% of the mortgage.

Hope this helps,

Tim

Hey Anthony,

There are always great opportunities in San Diego to purchase and make the property work. Whether it's purchasing a small house on a large lot and converting or building an ADU or simply house hacking by having roommates/VRBO, it can be done. Looking at the macro picture, the fundamentals of the SoCal real estate market are looking solid. Low inventory, high demand, low interest rates with a potential hyper inflationary environment in the next years ahead. Like you said, you will be $2200/month minimum for rent when you could purchase for $3000-45000 and house hack or rent to roommates or VRBO to make up the difference. The biggest kicker will be the savings on taxes since you will be able to deduct your mortgage interest and property taxes. If you use it as a business instead of a primary residence, you have depreciation to claim against the cash flow. Not to mention the appreciation potential that you MAY be able to capture in the future with a HELOC or cash out refinance. Whatever you choose, buy smart by purchasing with the plan/ability to add value in combination with fixed-rate, long-term debt. If your debt obligation is less than inflation (3-5%) you are winning in the long term. Maintain capital reserves for emergencies and do some sweat equity projects.

Hope this helps,

TIm

Sara, I love the ingenuity and momentum here! Keep it going!

I have recently done a cash out refi and then took a HELOC out to capture some of the remaining equity. The benefit of the HELOC (as I'm sure you know) is the interest only option. We recently flipped a duplex in San Clemente and I used my HELOC since it was only a relatively quick time period. The 35% ROI well outperformed the nominal 5% interest on the HELOC and the payment was very manageable during that 9 months. So to answer your question, a simple refinance to get historically low, fixed rate debt is awesome when combined with a HELOC to capture that left over equity in order to put it to use when you need it. The downside of cash out refinances is a slightly higher interest rate and higher closing costs as well as restarting your interest amortization. Pentagon Federal credit union will lend up to 90% LTV on HELOCs and has nominal costs ($500) to set up. They also offer the ability to lock and unlock your debt payment into an amortized loan up to 3 times during the 10 year draw period. It's a great tool to use responsibly!

Hope this helps,

Tim 

Hey Michael,

Private money is great and probably cheap but its likely going to be much harder to find. Since you are on the BP forums I'm assuming you don't have wealthy family member that you can approach. Remember, there is a difference between Hard money lending and private money lending. Private money lending could look like seller financing or family members lending you their capital based on trust/faith. Hard money is plentifully available but it comes at a cost:

First 2-3 flips you are required to come in at 20% down and hold 10% of rehab budget in liquid account.

Typically interest rates are 8-10%

Usually have to pay 2 points (1 point = 1% of loan)

As you can see, for a newbie its a little tricky unless you have a significant amount of capital up front. The benefit is that they will finance 100% of the rehab, but you still have to have the capital up front. 

I have reached out to Aloha capital and Foundation CREF and received similar rates/terms from both companies.

Hope this helps,

Tim

Hey Jay,

As a fell CA native and buy and hold out of state investor, I can empathize with your current state of affairs. I recently had this conversation with my CPA who specializes in real estate and he advised me that a simple subpoena will pierce the corporate veil of any LLC, despite what LLC firms may pitch to you on their initial consultation.

That being said, what is the purpose of your LLC and would you feel more comfortable having an umbrella insurance policy to cover your liability instead?

LLC structures do not provide any further tax advantages and, based on my CPA's opinion, are not as rock solid as some make it appear. Additionally, there are annual registration costs to maintaining a CA LLC around $800, in addition to your Wyoming or Nevada LLC. So depending on the size and cash flow of your rental portfolio, it may or may not be the most financially advantageous approach. Also, maintaining a high debt ratio on your loans is another defense against liability

Hope this helps,

Tim