Short Sale Vs. Buying The Note
I have heard that it is better to buy the note, than to short the amount owed, why is this true?
In addition how do you even buy a mortgage?
After I get the mortgage note aquired, is the contract assignable?
Example of a deal:
1st mortgage: $230K, Principal: $200k, Penalties:$30K
2nd mortgage:$10K
Repairs: $25K
ARV:$400K
I think the apprisal may go for $425, and I may be able to make a $210K profit. What is the difference between shorting what is owed, and buying the note outright?
I really would like to know the formulas used to prove that you can buy the note at a discount? How on earth do you do it?
Problem: 1st mortgage was full payout, for some reason would allow note buyout
2nd mortgage, many investors told me it is better to short the 2nd, and buy the first
Can I buy both notes?
Can I short both notes?
I am new to this, and any assistance would be appreciated.
A DBA is still a sole proprietorship. The mortgages will still be in your name, even though you may be doing business under a ficticious DBA.
Thanks. As a single person, is there a way to set up the business so that I can report to the business credit bureaus?
You can always setup a non sole-proprietorship business. Some states (Nevada and Delaware too) will allow one person to be all the "roles" of a business. For example, in Nevada you can setup a corporation and list yourself as the President, Secretary and Treasurer.
Hi, I am developing a business plan and see myself in the same position in the future. it seems that after 10 or so properties, it becomes difficult to finance property. the personal income to debt ratio also suffers which makes things more difficult.
I did not know about the FICO score decreasing with a purchase is this really so???
How does one go about building a portfolio of say 20 properties in the long run? is there such a thing a as financing a business and not an individual? the collateral (the property) is sill good...???
Thank you
JP
btw the tax id with a sole prop and a single member LLC is only needed if you have employees. those entities are pass thru and do not file taxes. but the LLC (even single member) does offer some liability protection as far as i know.
[ Edited by woland on Date 01/28/2008 ]
[ Edited by woland on Date 01/28/2008 ][ Edited by woland on Date 01/28/2008 ]
Thanks 1ezsell.
Can anyone suggest a good rehab book?
Cap rates and other ratios should be used more for early screening than for buying decisions. You did not mention the type of properties you are looking at. For multi-unit buildings a cap rate may be used to estimate the value of a property, since there may be a prevailing cap rate for a neighborhood.
For buying decisions you should do a cash flow analysis using a spreadsheet or one of the TCI tools. Keep in mind that you will likely see the largest variability in maintenance costs. You should also determine how strong the rental market is where you are looking and definitely check out the neighborhood. You can repair houses, but not sick neighborhoods.
You also did not indicate what you are trying to accomplish with your purchases, i.e. long term appreciation, quick sale, rehab, etc. You need to check if the location supports your goals.
[ Edited by edmeyer on Date 02/05/2008 ]
A lot of people will say that as a quick and dirty sorting rule a single family rental should get a monthly rent of at least 1% of the total cost to you (purchase price, loan costs, rehab costs, etc.) This is something like the break even point, although of course the exact point depends on local tax rates, interest rate on your loan, vacancy rates, insurance costs, etc. etc.
I shoot for a rent value of 1 1/2% of my total costs or better. This ensures that it will cash flow. Usually this means I am not buying a turnkey property- substantial rehab is the typical scenario.
Chris
These are duplexes, triplexes and fourplexes. The primary purpose of my investment is to generate cash flow while gaining some appreciation. I am looking at Indiana and Ohio since those appear to be the most attractive based on cap rate.
Keep in mind that there may be risk with higher cap rates. I have a property in Indianapolis that I bought from a bank several years ago. While I bought it way below market, it has been very hard to find tenants.[ Edited by edmeyer on Date 02/06/2008 ]
I had a rental property in Ohio from 1986 to 2001. I also bought it as a bank REO. During my ownership, I never was able to raise rents because the market economy was so bad, and the rental market was so soft for so long. I eventually sold the property to my tenant for a little less than twice what i paid for it.
My net profit covered the rehab and capital improvements during my ownership. My only profit on the deal was the monthly cash flow -- $55 per month for 15 years. All in all I got a pre-tax 3% return on my 15 year investment, or, roughly 0.02% per year.
Chris,
I purchased with 80% financing. Since this was an out of state property for me, my monthly expenses included a 10% property management fee. After operating expenses and debt service, I netted about $55 per month in pre-tax cash flow.
Debt paydown is not a deductible expense, but it does reduce cash flow. Remember the Cash Flow formula is
Cash Flow = NOI - Debt Service
Debt service includes the amount paid toward principal, and is already accounted for in the cash flow calculation.
Yes, there were tax benefits from depreciation, but they only served to shelter my rental income from taxes. Tax benefits did not increase my pre-tax cash flow, just reduced the tax liability during my ownership period. Since yield, or return on investment, is usually presented "pre-tax", I followed that convention.
By "Interest on money invested", I assume you are talking about income earned on free cash flow. At 1% (or less) interest on my checking account and with my mortgage interest rate at 8%, I got a slightly better return by using my cash flow to pay down mortgage debt. I put an extra $50 each month toward principal reduction, which left $5 each month to add to my checking account. The interest earned on that $5 each month was not significant enough to even factor into my calculations.
After rereading my post, it does appear that I made a decimal point error. Here is my annual return calculation -- maybe now it will make more sense.
Profit on sale from appreciation minus the cost of capital improvements, minus depreciation recapture, minus capital gains, left me with nothing to show for my rental property except the monthly cash flow received during my 15 year holding period.
Annual cash flow = $55 month x 12 months = $660
Divide Annual Cash Flow by the $35K purchase price and the average annual return on my investment was around 2%, or a 30% total return over 15 years (not 3% as I said previously).
If you want to be more precise and just calculate the return on my invested capital, the numbers get a little better. The 20% down payment and closing costs came to about $8000 (rounded up). If you divide the annual cash flow of $660 by $8000, the annual return on my invested capital works out to 8.25%.
[ Edited by NewKidInTown3 on Date 02/11/2008 ]