What is happening, YouTube? Welcome to this Mentorship Monday program. My name is Matt
Faircloth. My company's called the DeRosa Group. I want to bring on my partner-in-crime, Mr. Justin
Fraser, who's out on the road today. Hey. Hey.Q
Cool. What's up, Tim? Hey Matt.
How's it going, Tim? Tell me in your own words what's
going on, and how can we help you today? I live here in Indiana in a duplex home. I've
owned it for 11 years, and I'm looking to invest into another property. Also, looking into possibly
putting the house into an LLC, and I don't know if I should do that or when I should do it, and
if it's possible to use the equity if it's in an LLC or not, how that might benefit me or not.
Okay. Got it. Certainly. Happy to help you. What's the property worth now? Okay. So,
you still owe $55K? Or you have $55K in equity? I owe 55 on it. I bought it for 120,
11 years ago. Oh, I see. Okay. Today's market
might yield you a 75% loan to value, but I don't think it will. Or, 80% loan to value on a rental
property. Let's do it at 75%. Okay.
That puts a loan to value that's potential to get a loan on the property at 90. Is the $55K through
a traditional lender? Traditional bank? It's FHA loan.
You think it's still worth $120K? I know you have an appraisal, but-
I've done- ... everything is going nuts lately.
I've done quite a bit work on it. Huh?
I've done quite a bit of work on it. It's got a new roof on it. It's had quite a bit of repairs
done in the inside. I would definitely hope it's worth quite a bit more than 120.
Okay. What do you hope it's worth? Wishful thinking.
$150K, I think- $150K is realistic? Okay.
Mm-hmm (affirmative). All right. Okay. Here's what I would
do. I need Justin to verify this. Here's my idea. Okay? I say that Tim goes and gets a FHA-backed,
PMI-loaded-up mortgage, and does max cash out on a 95% LTV mortgage, which would yield him
$87,000. What do you think? How do you get $87,000? Oh,
above the $55K that he owes. Yes. I took a buck 50, I multiplied it by .95.
Yep. That tells me how much he can pull out.
I take out the 155K. Yep.
He's left with $87,000 in a fixed-rate mortgage.
Yeah. That's cheap right now. So, if you can leverage up, and go to 5% and get a loan for 95%
at these rates, then it seems pretty smart. The question for me is, what are we going to
do once we get that money? What are we going to go do with that? And is that enough to do what
you want to do? Okay.
Do you want to move anytime soon? Yes, I do.
Do you have plans for the money already? So, we've talked about possibly finding
some land with a rustic cabin on it or something, I mentioned to you about the yurt.
Maybe doing something temporary. Getting a little cashflow going on something that's
already there with Airbnb or something. Somebody on Facebook figured out that
you're in a yurt, by the way. They already said, "Is Tim sitting in a
yurt?" And I had to write back, "Yes, he is." So, let's talk about the yurt since it came up.
Okay. Let's talk about
this a little bit. What are your thoughts on what you could do with a yurt on this land?
Well, I had mentioned the Airbnb thing. It could be a temporary place for us to stay
while we're working the land and building a house. Something for us to stay in while we're
going back and forth, because more than likely, we wouldn't just move out there
right away. We would go spend some time out there, come back to Indiana. I would work here, go out
there, kind of a back-and-forth kind of thing for a little while, possibly. Is one option.
There's the clean way to do it. And then there's the way to do it with the most
money out. When I say "clean" not being legal. I'm not telling you do anything illegal or whatever.
I'm just telling you, this is a little easier. The easiest way to do what you want to do
to get cash out is to refi that property in your own personal name on a 95% leveraged
FHA PMI loaded-up mortgage, and pull the most out you can, which is about 87 grand,
that's what I came up with. Now, because you want to move, either
you would leave the property in your own personal name, which can get a little weird. I know I tout
a lot on YouTube about like taking properties out of your personal name by refinancing it or doing
a quick claim deed. I would not advise you to do a quick claim deed it out of your personal name, and
hold it there long-term. I would advise that. There are ways that you can hold a property into
your personal name and still protect yourself. You could increase your insurance. You could set
up an LLC, and have that LLC be the landlord to where Tim Schweizer is not the landlord, the LLC
is the landlord. Does that make sense? So, if there's a slip and fall, whatever, there's still
an intermediary between you and the person and it's not Tim Schweizer as the owner. You're the
owner, but it's that LLC. ABC, LLC is who's on the lease with them. Does that make sense?
Yes. Yeah.
Yes, it does. That's max cash out,
okay? It's weird. It's a little funky. You're still legal, but I would not advise
you to the quick claim deed situation in this circumstance. Okay? Or, you could do it, which is
max coverage but a lot less cash out, and that, you're going to quit claim deed it now,
then refinance it in the LLC, probably get a five-year fixed rate mortgage like 70 to 75% LTV,
probably pull $40 grand out of the house, but you'll get it clean. It'll be in the LLC. You can,
air quotes, "sleep better at night," but I would still sleep just as well the other way too. So,
you could do that in the LLC swap. Okay? I could tell you that I would rather you do max cash out,
and do the option one. Personally, if it were me, that's what I would do in that
scenario. Why do you need the house anymore? I guess we're planning on moving to another state,
and we're not sure how that's going to go. We kind of feel better about holding onto the house
maybe for a few years just to see, get our feet settled on where we're going to move and make
sure everything goes through well, and we like where we're at and don't want to come back.
Then you don't want to do the LLC swap. Because if you do the LLC swap, and then you move, and if the
experiment you're doing with the land and the yurt and all that kind of stuff, if that doesn't work
out and you want to come back to the house, then it's like you're moving back into a property you
own in an LLC, and you've now given up all of the benefits in owning the property in your personal
name gave you. You've walked away from all that. Now you're like a tenant in your own home.
That's not going to work out. So, all the tax benefits, all that stuff all goes away. And then
you have to go move back out of the LLC [inaudible 00:06:52]. So, certainly don't do the LLC idea.
Okay. You have that backdoor to fall back in, and I get
that. You're stretching the edge of comfort level here, and everything like that, so I get you want
to have that backstop. So, I totally get that. What do you think? What do you think, Justin?
Yeah. So, it sounds like, Matt, the way that you're recommending it is that
he'll end up with about 40 grand after the refi, are those the right numbers?
87. 87?
Yep. Okay.
Tim's telling me, because he's an awesome craftsman and he's made that
house himself handily worth from 120 up to 150 grand through all his handiwork,
right? Yep.
So, $150 grand is a new value. 95% loan to value is what he's going to get on that FHA mortgage.
He's going to pull 140 out of the property in new debt. That's going to pay off the 55,000,
and 87 left to go in his pocket. Perfect. Perfect. What are we
doing with the $87,000, Tim? Finding this piece of property,
hopefully with a little rustic cabin on it, somewhere out in the woods.
Is that enough? Is 87 going to do it?
I think it'd be kind of pushing it, for what we're looking for. That helps having something
to start shopping for. We really haven't been able to look too deeply into it because we really don't
know what we have to work with. We didn't want to sell the home. We only have so much saved up.
What you could do is, if you walk into the door on the landowner ... Actually, as I understand, Tim,
a lot of folks that own land ... It's funny. Land and businesses get sold a lot on seller financing.
When I say businesses, I mean you want to buy a laundromat, or you want to go buy an HVAC company
or something like that. Because it's actually hard to get bank financing on those things,
and it's hard to get bank financing on land, too. As I understand it, and I haven't done that many
land deals and I've never bought a business. But as I understand it, those two transactions get
zero-financed a lot. You could find a piece of land like you're talking about there
and find a seller that's willing to float, not a ton of it, maybe 50% of the purchase price to you.
So, you plunk your cash down and you make them a monthly payment for the rest of the debt.
Yeah. That might be an option for us. It sounds a little more manageable.
It opens up more possibilities for you. For sure. I like that idea.
Being limited to how much cash you have, and if you're going to do additional improvements
to the property, meaning if you're going to get in... Is your vision to make this
land deal a income-producing property, or, it's just a lifestyle shift for you and your spouse?
Lifestyle shift. We have a young daughter that we would like to raise in a little bit different
environment, and so it's more about lifestyle change. In the long term, eventually having a
place where maybe we build some little cottages on the land, do a bed and breakfast, Airbnb kind
of stuff, have workshops kind of thing. But that's long-term. The first several years is just getting
our roots, getting our feet planted, and- Okay.
Yeah. What I was going to say was, I'm trying
to figure your exit out of seller financing. Okay. You're planning on working and generating other
personal revenue when you're down there? Oh, yeah.
Yeah. Okay, good. So when you do that, you could pay off the seller financing that way,
or you could just add value to the point where. Dude, if you buy the land for
90 ... I don't know, I'll make it up, $120,000 for probably five acres. That's probably about
the right number for the rustic kind of look you're looking for. Right?
Yep. So, let's say you get on
and you build your homestead, and then down the road, a piece, you build some other homesteads
and some other yurts and you lease those out or whatever. You could eventually refinance that
whole thing once you show that you've got cashflow coming in from the other short-term rentals that
you develop on the site. That's your exit from the seller financing. Does that make sense?
Yes. So, you either
pay it down [inaudible 00:10:56] your way out of it, out of the seller financing debt, or you add
value and build out that land to create value to it, or subdivide it or whatever you're going to do
to it, build out value and let that value add be what pays off the debt. Does that make sense?
Yeah. I like that approach, too. I think that's more of what we would lean towards.
Yeah. Well, I would do the latter, too, just because that's the way my brain works, but
it's all about the deal. I'm super curious how this thins man. So, please keep us in the loop,
and maybe me and Justin and our families will all come out and hang
out with you guys in the yurts. Come hang out in the yurt.
Hey, there we go. I love alternative living, man. I want to
hear how it goes. If folks want to hear more about your journey or your yurts, man, I don't do this
very often on Mentorship Monday, but I'll throw it out here. How do people get ahold of you, if they
want to hear more about what you're up to? Man, I'm not on Facebook. I don't
have, really anything. I bet you're not, man.
I'm not. Not going to be where you're going, man.
I can throw out my email. If you're open to that. That's okay. Go for it.
00tschweizer@gmail.com. The number zero, not the word "zero."
The number zero, zero. You got it.
All right. 00tschweizer@gmail.com. Awesome. What part of the world are you looking to head to?
Where the woods meet the water. Wherever that's at, man. Somewhere in the United
States. [Inaudible 00:00:12:20]. All right.
I would hope so. Okay. Where to woods meet the water. Love it.
There are people doing what you're talking about exactly in Colorado, although it's cold there.