This is my FIRST DEAL-HELP ME to do it right !
I have been wanting to get into real estate investing for awhile. I have been looking for the needle in the haystack. I found a duplex in a not so nice part of the city.I bought the house for 14,000 cash (on a credit card), as I do not have any other cash to play with. The duplex is not in bad shape, but needs about $5000 worth of work, to get it going. So I will have about 19,000 invested on a low percentage credit card. Most of the "Comps" in the area have houses listed for the low 30's. The house is tax assessed by the city at 34,100. Once the rehab work is done, I want to get a mortgage on it for 70-80% from a local broker I am working with and possibly cash out to pay the credit card and I will use the property for rental income . I am going to hire a management company to run it as they have been in business for over 20 years here in the city. They charge 8% of the rent +$20 per apartment.
I also started an LLC, because I wanted to transfer title to the LLC for Liability reasons, but I am told that getting a mortgage under an LLC is impossible because the bank wont issue a mortgage to a company (LLC) because of the risk of default. How can I protect myself ?
I am sure allot of people will think I am crazy putting this on credit, but I am interested in hearing from anyone who has been down my same path, and I want to hear about any pitfalls to watch for, especially the legalities of the deal. G
I don't understand why you would have a problem getting finance through the LCC. You just have to sign surety for the loan.
Rudolf
Hello Glhi123, I have never heard of brokerage company not wanting make a mortgage to a person that has their investment property under a LLC. Check with several mortgage companies in your area to see if thise one just got their facts mixed-up.
As to putting the purchase on your credit card is not a bad idea, if you can move ahead with repairs and refinancing at the quick. Your deal sounds like a money maker to me. I just hope you have your dollar amounts correct as to the repair cost. Otherwise, I think that I would have done this deal under the same situation. Thumbs-up
Thank you Vern & Rudolf:
I appreciate your replies. I close on the deal Friday the 10th, and with 2 bids for the work to be done within 10 days of closing. The mortgage broker I spoke to and one other REI told me to aquire the property in my name at the closing and then have the title company perform a quit claim deed to my LLC for liability protection while the building is up for rehab. When the building is completed, then convert the property back into my name and get a mortgage, and then perform another quit claim deed to the LLC to again shield my personal assets.
One local REI told me that most banks or banks thru a broker here in Milwaukee will not give the LLC a mortgage, I would have to get the mortgage and convert to LLC status....but he said to be carefull as a bank could immediately foreclose on me because the mortgage was not enforceble to an individual, but not to worry that most banks just ignore this and assume you will pay the loan.
How can I keep the property in the name of the LLC and still assure the bank that I will pay the loan? I am not sure what the "surety" document entails. As you suggested I will contact several banks.
As for the credit card purchase versus a bank. The credit card is easy to get, has a low percentage rate for up to a year...sometimes even zero. Allows me to write credit checks (paper) to the contractors, and provides the ability to OFFER CASH upfront to motivated sellers instead of a deal with a broker usually way below market value...especially REO's. I can buy a property from a motivated individual(s) for a lot less sometimes.....and the best part of the deal is .....OPM-- Other People's Money.
I have checked my Comps...most of the houses sell in the 30-65K range, so I am confident I have a winner. I should clear almost $500 per month after expenses.
Any other comments welcome. Thank you again for your time. G
Quote:
On 2002-12-18 23:17, glhi123 wrote:
I have been wanting to get into real estate investing for awhile. I have been looking for the needle in the haystack. I found a duplex in a not so nice part of the city.I bought the house for 14,000 cash (on a credit card), as I do not have any other cash to play with. The duplex is not in bad shape, but needs about $5000 worth of work, to get it going. So I will have about 19,000 invested on a low percentage credit card. Most of the "Comps" in the area have houses listed for the low 30's. The house is tax assessed by the city at 34,100. Once the rehab work is done, I want to get a mortgage on it for 70-80% from a local broker I am working with and possibly cash out to pay the credit card and I will use the property for rental income . I am going to hire a management company to run it as they have been in business for over 20 years here in the city. They charge 8% of the rent +$20 per apartment.
I also started an LLC, because I wanted to transfer title to the LLC for Liability reasons, but I am told that getting a mortgage under an LLC is impossible because the bank wont issue a mortgage to a company (LLC) because of the risk of default. How can I protect myself ?
I am sure allot of people will think I am crazy putting this on credit, but I am interested in hearing from anyone who has been down my same path, and I want to hear about any pitfalls to watch for, especially the legalities of the deal. G
UPDATE: 3/14/03:
Well I finally finished this deal. Lots of night sweats, no sleep, and lots of stress, but I finally accomplished what I set out to do. The work that was needed was not 5000 but $19000.0 which brought my total investment on my Platinum Visa to just over $33,000.0 Talk about stress.
Anyway...I still figured that I could be all right with a mortgage. The 19,000 I spent on Rehab, just about replaced every single part of the house that could need fixing or replacing. The house was appraised about 10 days ago and was appraised at $58,000. I got a mortgage for 75% at 6.125, which left me a loan amount for 43,500 minus loan costs, I actually signed the mortgage papers for a cash out and walked away with a Check for $40,000. Of Course $33,000 will go to pay off my credit card, and the other $7000 will stay in my business account to pay off any improvements or repair that the property needs in the next year or two. The management company has the keys and is showing the apartments everyday. I soon should have tenants, and a positive cash flow of around $450 per month.
The best parts of this deal were>
I bought a foreclosed REO from a bank-through a local realtor.
I used none of my own money (almost)...I originally applied for 4 credit cards. 3 with 10,000.0 and the other that was a credit union visa...$30,000. The 30,000 card had a yearly apr of 9.9 %, the remaining cards had low introductory rates like 1.7%. I did almost all the work with the $30,000 card (using the cash advance checks), and then transferred the balances to the lower interest cards immediately. It actually cost me about $400 dollars for all of the cash advances.
**be carefull using the cash advance/transfer checks because some companies have different rules regarding them. Some treat them as cash advance checks...at a higher rate.....and some treat them as transfer checks...the lower APR.....and one card company told me that the first check you use is always at a lower rate than the rest that you use...Interesting....(sounds sort of like a trap).
The use of a Property Management Company, frees me up to look for other property, so I am not held down by credit checks, screening. Just do your "homework" and find a good Management company.
If you have any questions feel free to post.
First, I must say -
Thank you, Thank you, Thank you, sharing your experience is sooo helpful and motivating to we newbie investors. It shows us that it can be done if you are persistent. It shows that risks are involved, but can be overcome.
One question though, if you don't mind sharing? About how much do you have to pay that management company? I am sure you feel that whatever you are paying is worth it because you are free to look for other property. Cheryl
The Management Company charges 8% of the total rent (Both Apartments) Plus $20 each apartment, so my total income is $1000 X .08= $80 + 40= $120 per month to manage it. Maintenance is extra, so I budget in $50 per apartment per month for contingencies.
I decided to go with a management company because they screen, do the paperwork, find tenants, maintenance if you so choose, and other tasks. I would rather just look for more properties and get them rented as fast as possible so I can increase my cashflow.