Posted by Bill Jacobsen on October 07, 2009 at 15:58:58:
Thank you for the added information.
I know you were paying a flat fee but I was trying to convert it to an annual % in order to add it to your loan rate. If you pay $15K on a $170K loan that is held only 2 years the rate is about 4.4%. If held longer or less than $15K is paid the annual rate goes down. This is an added cost to your loan rate.
You seem to be making the money because you are buying so cheap. Why not sell the property once it is worth $300K and then do the same thing over again?
Trying To Rebuild RE Portfolio but… - Posted by Joe W - NJ
Posted by Joe W - NJ on October 05, 2009 at 07:56:07:
After a rough year I’m finally coming out of my financial rut and eliminating a lot of debt. I expect to finally be debt free by the end of the year. I am now looking to accumulate some rental properties, build my net worth and accumulate some cash flow. However my credit is a little damaged by a credit card I had to default on and so I will surely rectify that situation before I rebuild my real estate portfolio.
But my question is how do I acquire rental properties with my shoddy credit history (no bankruptcies or foreclosure)? My plan is to purchase from the bank cheaply and using all cash (like I do for a living now), renovate and refinance at 55-65% ltv using a cosigner. I will then pay the cosigner $10-15k for co-signing and will refinance them off the loan in 2-5 years. Does anyone see a problem with this plan? Any other ideas?
No time to list all the ways this plan could go awry, but must give one caveat: Do not do anything that depends on credit getting easier or property appreciating in such a short time. There is a long & bumpy road ahead & the various folks in charge of our economy don’t have really good records; in fact, many were part of the greed problem. I don’t think we have the ability to see around the corner yet.
Does this mean we can’t make $$$?–heck, no, but we can’t do deals in 2009 the same way we did in 2005. Remember, dealing in ca$h means receiving, as well as spending–
Posted by Bill Jacobsen on October 05, 2009 at 12:05:10:
Congrats on working to becomed debt free. I am a little confused by your question though. If you become debt free and build cash so you can pay for proerty with cash and renovate, why do you need good credit? I would recommend that you buy renovate and sell and not partner with someone. Do not go into debt again. It is debt that got you into trouble in the first place.
Please run the numbers and include everything. Let’s say that you buy a property and renovate it so that you can obtain a cap rate of 10%. You borrow at 6-7% plus pay the cosigner the equivalent of 2-5%.(This all depends on size of proerty and loan amount.) You are paying 8-12% on property generating 10%. Of course, you have the possibility of appreciation. Your real numbers must be much better than that for your plan to work.
I know you can make 30% on your money buyin, rehabbing and selling without using debt at all. I have been doing that for a number of years. If you now have cash and no debt that is what I would recommend.
Re: Trying To Rebuild RE Portfolio but… - Posted by Joe W - NJ
Posted by Joe W - NJ on October 06, 2009 at 20:06:22:
Thanks Sailor:
Maybe I need to clarify a little more about my “plan”. I’ve been rehabbing fulltime for several years. In fact, one of the reasons I fell into a bit of a crunch was because I stopped rehabbing and relied too heavily on wholesaling in a declining market. Alas, I returned to what I know best and so far it is working out quite well for me.
So now that I have the buy, fix and sell thing under control I will be looking to start buying, fixing and holding starting next year. It’s the “hold” part that I need clarification on.
So in your opinion will a bank refi me using a co-signer and the previously mentioned numbers (at 55-65% LTV)?
How does a real estate investor in my position start building again?
Posted by Joe W - NJ on October 05, 2009 at 22:28:09:
Hi Bill. To clarify, I use a hard money lender and buy with cash so I need to refi the hard money loan.
Please clarify what you mean by paying the co-signer 2-5%. I was thinking of paying them a flat fee to co-sign.
I was thinking that I would buy a property for $100k, put $70k in and it wold appraise for $300k. I would then refi the $170k loan, add an extra $10k for the co-signer and rent the property (it would likely be a 3 unit dwelling).
Re: Trying To Rebuild RE Portfolio but… - Posted by Christen
Posted by Christen on October 10, 2009 at 24:55:09:
I am in the same boat however here in Central NY, I can get a nice 4 plex in need of work for 20k, so i am going back to buy it fix it sell it to acquire my rentals. I can pay cash. I am not sure about your cash out refi, first of all if it is a refi then the co-signer would need to be on the deed in the first place, if the co-signers credit is substantially better put it all in his name then after the fact transfer the deed to a joint llc or something. Yes it triggers the due on sale clause however in this economy no bank is going to foreclose on a preforming note.