Rental Property #7 - Melbourne, FL

[Matt Leber]

Just closed on our 7th rental on 2-14-2020. The property is in Melbourne, FL. For the last year, I was having a hard time justifying market prices in our area and how thin the margins would be on properties I was analyzing. In January, I stumbled upon a For Sale by Owner in Melbourne, FL that was listed at $99K. This really caught my eye because its really rare to find properties in Central Florida under $130-150K that aren't in a terrible area or really bad shape. However, this property was in surprisingly good shape, with not much work needed other than an inside paint job. We offered $95K and the seller accepted. I was planning to list for $1200, so we were well above the 1% rule, which has worked well for us in the past. However, when I called the Brevard County Housing authority, they told me they would approve my rent for section 8 at closer to $1400! On top of this good news, I found a local credit union through a friend that offered us a 30-year fixed rate mortgage at a very low interest rate, 3.75%! When I ran my initial numbers to evaluate the deal, I ran them conservatively at 6%. So, this low rate approval was awesome news! In then end, we are listing our new property at $1375; and after setting aside 5% for vacancy, 5% repairs, $150 capex, and paying PITI, we will cash flow about $450 per month on this property. Over a year's time, that is above 15% cash on cash on our capital invested.

[Jonathan Paz]

@Kerry Baird Hello Kerry. I have not used portfolio lenders. Both my wife and I were in the military (she still is), so we were each able to qualify for 10 financed properties/conventional loans using various lenders (Dyer Mortgage Broker, SunTrust now Truist, etc). We also paid off a lot of properties from cash flow, or others that we had just purchased cash from savings. So we got about 10+ HELOCs and HE Loans for 10+ other properties. We used GTE Financial (limit 1 product per person, so each of us had 1 HELOC/1 HE Loan), each of us have 3-4 Space Coast Credit Union HELOCs, and we each have a NFCU HELOC (which has higher interest, don't recommend very much). Last year I had a few more properties I owned free and clear but getting HELOCs was getting tougher due to DTI limits, but we found a workaround when we did a commercial loan. I bought a portfolio of 4 duplexes + half duplex, and then used the equity of 2 properties I owned free and clear as collateral. This allowed me to basically cash-out refi 2 more properties at I believe 80% LTV, using that equity to cover the downpayment requirement of the commercial loan. So I was able to take down the package deal without any money down, just a few closing costs. I still have a few more properties free and clear, will likely tap into their equity same way again in the future by moving to an LLC as part of a commercial deal/commercial financing. The bank I used for the portfolio loan with collateral is CoreVest Financial. If you know of a good portfolio lender, let me know. I was just talking to CenterState Bank which has good rates, but their DTI requirements for Portfolio loans is even more strict than conventional at 43%. So they don't seem like they are the best for that. Their recommendation was to move a bunch of our properties/wife's debt to an LLC that my wife doesn't own, and then freeing up her spots again to do more conventional financing. Personally, I don't really like that idea very much because we worked really hard to get a bunch of really nice low interest loans, so moving all that to a commercial loan means we would be increasing our interest rates and shortening our terms (basically worse debt) just so we can buy more residential real estate. Instead, I'm going to go bigger as soon as I move to Florida this summer and focus on commercial that is actually supportive of growth and doesn't care about DTI. But a portfolio lender that will go 10+ loans without strict DTI requirements would be great to have...