Posted by Anthony (CA) on March 16, 2006 at 15:26:23:
John - I am indeed a new investor. My partner is a contractor and the reason why I wish to partner up with him is due to the fact that he is the one that located this property and wishes to share it with me. I have been flying out to Maryland 2 weeks out of the month for the past 3 months to become familiar with the market out there and my brother-in-law who currenlty resides and invests in Maryland introduced me to my partner. Taking my brother-in-laws advice, we have formed an LLC and have applied for a loan together under our names and will later transfer title over to our LLC. We discovered that transfer taxes will not be applied on our first title transfer.
As far as this first property is concerned, we are looking to fix it and sell it.
I reside in Santa Clarita, CA. What other markets are you refering to?
How Do I Purchase My First Investment Property?? - Posted by Anthony (CA)
Posted by Anthony (CA) on March 13, 2006 at 14:14:03:
Hello All,
I have finally encountered my first deal in Maryland and need to decide how to purchase this property ($120,000). I have a $100,000 LOC and my partner, unfortunately doesn’t have enough capital so he will have to apply for a loan for the purchase (he’s stretched pretty thin with the other properties he owns). My question is would it be advisable for my partner and I to apply for the loan together, or should I just use my loc for my half? Or is there some other creative approach I can use to this purchase? I would like to keep as much of LOC as possible and use it as leverage in case any additional properties may come up. It is currently under contract with a friend of his who is ready to assign the contract over to us. Any advise would be greatly appreciated. Thanks to all in advance.
Re: How Do I Purchase My 1st Investment Prop?? - Posted by John Corey
Posted by John Corey on March 14, 2006 at 24:55:32:
Anthony,
Based on this post, a second one just above and the ‘(CA)’ I take it you are buying out of state and you are new. In the other message you are asking about buying with an LLC and how to finance the property.
You have ample cash to do a deal with out a partner. Even if you have trashed credit you can use the LOC to get the LTV down to the point where a lender will not care about your credit. Such lenders will lend to an LLC.
My concern is I can not tell if you are ready to do a deal. What are you trying to accomplish with this deal? Why take on a partner at all? How are you going to hold title? What is the division of labour and the plan for the eventual exit?
Are you looking to hold this property as a rental? Will it cash flow when you blend in the LOC interest payments? If you are selling short term then there is no issue about cash flow.
Where in CA are you? If you invest outside the local area in which you live, how are you doing your homework to get a handle on what a good deal would look like?
There are a number of markets that an investor with a $100K LOC could be successful. Hence you have lots of choices so should not rush to do a deal. Focus on your objectives and expect to learn a lot on the first few deals. You want to make a profit. More important is to learn and to make sure you live to do more deals. Hence you can be a bit conservative in the early stages as you do not know what you do not know. When you have the cash it is easy to make mistakes.
BTW - This first deal could be great. You just have not said much about the deal so I can not offer any comments. Post more or send me an email.
Most people want at least break even cash flow on a property. This determines the down payment and loan amount. How big a down payment do you need to get to break even cash flow? Adjust as you like from that starting point.
Do you even need a partner? Say you need 20% down. You put down $24,000 from your LOC and borrow $96,000 yourself.
Using your LOC to come up with $60,000 seems risky. The LOC is a lien against your current home (or personal credit). It looks like a cash payment to the seller. The remaining LTV is only 50% at most. Is your partner coming up with half the down payment? Let’s say he gets a loan for the full $60,000 (whether you co-sign or not). (Why should you co-sign if it benefits him and not you.)
Let’s say the house gets trashed and it goes into foreclosure. It sells for $80,000. The bank forecloses and pays off the $60,000 loan in full and hands you the remaining $20,000. The missing $40,000 is backed by your residence (or personal credit) and it will go into foreclosure if you don’t keep your LOC current. You could be making payments for years on something you no longer own.
I suppose you could try to make a contract to share the pain, but you should at least understand the problem.