All Forum Posts by: Albert Ngo

Hi everyone, I am looking to properly structure my portfolio in the least vulnerable way. Being plumber that does moonlighting on the side for contractors/homeowners, closely managing rehabs on my BRRR's, and working a full time plumbing job (grabbing overtime when available) this leaves me open to a lot of different liabilities.

My portfolio is I currently have 4 properties (2 - triplexes and 2 - singles). One of the single family is my primary already deeded in a revocable trust and the other I own with my sister free and clear (joint owners). One of the triplex is deeded in a revocable trust and the other just in my personal name. 

My CPA (also owns 2 duplex's) advise that I do not open up LLC's just yet as it would only overcomplicate my portfolio. Given the brief description on my portfolio above being worth over $3,000,000 my fear is for example: Doing a side job for someone and something worst case like a water or drain line leaks and destroys somebody's home and they put me liable. I want to structure my portfolio so I can continue to do side jobs without worrying some homeowner will sue me for my assets.

My goal is to buy and hold long time more small multi families and eventually open up a property management company which would manage all my rental homes. What advise would you have on structuring this portfolio? Would a trust owning LLC which owns each individual property make sense? Would just a simple trust be good enough? As I already have a trust structured in my triplex should I open an EIN number for this to open a separate credit card / bank account ? I just finished a BRRR and wish I had a separate credit card/bank account as this would have been MUCH EASIER than saving 100k worth of receipts. 

Sorry was so mad I didn't proof read lol. I now realize lots of gaps...I told my awesome loan officer (vice president BTW) I wanted to PAY OFF my HELOC and purchase another home. PAY OFF in banking terms means pay balance to zero and close account. The term I should have used was PAY DOWN ....Almost a 320k mistake. Luckily i caught in time.

Anyone know any good lenders that understands real estate investing ?

Attempted the BRRR and thought I was in the clear until the "repeat" step when I discovered my HELOC (which was used as my funding for construction) has now been closed for the past week. My plan was to keep the HELOC open (why else would i refinance for a loan 2% higher) as I am actively searching for my next opportunity to purchase a fixer upper but now my HELOC is not not an option.

Has anyone ran into this before? Can I reverse this mistake?

Quote from @Andrew Postell:

@Albert Ngo hopefully we know a little bit more here but make sure you are speaking to your lender BEFORE you are executing on a property.  All of the seasoning issues here could have been avoided if we would have structured the transaction a little differently in the beginning.  But now that we are here, there's a couple of concepts I want you to be aware of:

To me there's a couple of main points of difference between a fixed rate mortgage and a HELOC/Line of Credit:

1. Lines of Credit have low costs but the rate adjusts

2. Mortgages are fixed Rates but have higher costs

What this means is that a Line of Credit is NOT designed to be a permanent financing solution. Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. Rates are higher now...but what will they be in 5 years?, Who knows? That's called risk. Unknown = risk. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC, 10 years later it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when it matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.

What HELOCs are designed for is to be a giant credit card. And just like any credit card, you need a plan to pay it back. So if you use it to say....buy another property. Then flip that property...thus paying back your Line of Credit. Then that's perfect! Because you will never get surprised by an adjusting rate or keeping a balance on it. Lines of Credit are PERFECT for people who have a plan to pay it back.

On the other hand, if you were going to use that Line of Credit for the downpayment on a property that you were looking to buy and hold for 30 years....this would be very counterproductive. The 30 year fixed rate loan would be a better fit for this purpose.

CASH FLOW

Will you cash flow in this environment currently? No, you will not. At least, I want that to be your expectation. Make your offer a little lower because of it (on your future properties). Also, don’t forget you will increase your rents in year 2, year 3, year 4, etc. So you WILL cashflow eventually but go into the property expecting not to cashflow now.  I wrote an entire article on this topic that you can read HERE.  

Hope all of that makes sense.  Thanks!

The HELOC was and still is a temp solution. My question was to either keep it for the next 6 monthes until I can lock it into a 30 year fixed due to seasoning periods but I found a lender willing to do a portfolio loan and can work around the seasoning period. Thanks for your post!

Quote from @Colin Kelly-Rand:

@Albert Ngo

What about selling it and doing a 1031x? 

At the moment your two options are pretty low cash flow with varying degrees of interest rate risk. If you can sell for $1.1M, and use the ~$200K to purchase another property for $800k, get a 600k mortgage closer to 6.5% (2% over FHLB). You would only need that property have a rent roll around 6,800. 

DSCR loans has some benefits, but they still are not cheaper than what I have seen banks offer for rates, hence, they can not get you to a great cash flow. They can potentially cash you out more, reduce variable risk but hatchet your cash flow (some DSCR loans ignore expenses when determining DSCR - they just take PITI into account - which I find...curious...very curious...)

Its hard to part with a new property you have puts some sweat into - but you seem to be in a rock and a hard place. 

Brokers like @Lien Vuong might be worth reaching out to regarding finding a new property. Worth a phone call in my humble opinion. 

 I would 1031x but inventory is very low in my market. Very very low...I found another lender looking to put this into their profolio so no seasoning period and 1% less in interest so all my numbers work out now. Thanks for the input though 

Quote from @Lien Vuong:

You are correct to proceed in my opinion and clearly have a strong understanding of the Boston market so go with your tried and true method. Go with your gut!

Thanks !

Quote from @Scott Johnson:

Quote from @Albert Ngo:

Hi bigger pockets, I have 10 plus years of experience as a licensed plumber and have close relations to various trades which helps me greatly as I invest! I am a buy and hold inventor. My market is in the greater Boston area and I own 2 triplex property, 1 of which I am trying to BRRR.

I purchased the property for 815k in Jan, used a HELOC on my other triplex (interest rate is prime plus 2% as most banks dont give HELOC on investment properties) to fund the down payment and renovation costs.

Total renovation cost is 85k, down payment of 205k, amount due on HELOC 290k. Interest rates have been spiking so I used some reserves bringing my principal balance down to 180k. I have all units lease totaling $7500 per month.

My current mortgage on the property is 600k with 5.5% on a 5/1 ARM (planned on BRRR so why pay more in interest and closing cost) which amounts to $4800 with P&I, tax, and insurance. Average monthly cost for HELOC is roughly $1500 based on a 10.25% rate bringing my monthly costs to $6300 per month and leaving me with $1200 which I then factor in utilities, vacancies, etc.

Due to the seasoning period changing to 12 months I decided to try a DSCR loan (loan amount 825k, 7.8%, 30 year fixed, estimated mortgage with tax and insurance $7,100). My appraisal came back at 1.1 mil which with 75% LTV and the money I cash out would pay off my variable rate HELOC. I would leave 100k in the deal but my pros would be tax write offs, appreciation, raising rent, peace of mind knowing my payment is mostly fixed for 30 years, got this newly renovated awesome asset for 100k and some sweat equity, and most importantly I can repeat and reinvest again. My possible cons are I would only break even (long term I will get cash flow) and it could be possible I refinance if everyone's wishes come through and rates fall.

I am leaning towards the refinance into 30 year fixed because of the volatility in rates. There is some hesitation as the majority of my loan on this property is fixed for 4.5 years at 5.5% and allows me to cash flow nicely and seeing that only 180k is variable the rate would have to raise significantly for me to balance out the 800$ I lose by fixing my loan but my driving factor is I am a buy and hold investor in this for the long game which means if I have to break even for a few years while I still get appreciation, tax benefits, and raising rents than I am willing to make that sacrifice. Alot of investors I know are pushing me towards cash flow and leaving the current deal as is until interest rates get better but this of course cuts me off from the repeat in BRRR. My question is honestly a sanity check if what I am doing makes sense? Any advice on this would be much appreciated!

 This may be just me, but get the heck out of variable interest rate debt. The credit crisis is real and there's a high probability you'll get scorched. 

I follow Ken McElroy who actually did a 'bail in' and paid an additional $900,000 to lock in/lower his interest rate on one of his properties. 

 Thanks for the advice !

Hi bigger pockets, I have 10 plus years of experience as a licensed plumber and have close relations to various trades which helps me greatly as I invest! I am a buy and hold inventor. My market is in the greater Boston area and I own 2 triplex property, 1 of which I am trying to BRRR.

I purchased the property for 815k in Jan, used a HELOC on my other triplex (interest rate is prime plus 2% as most banks dont give HELOC on investment properties) to fund the down payment and renovation costs.

Total renovation cost is 85k, down payment of 205k, amount due on HELOC 290k. Interest rates have been spiking so I used some reserves bringing my principal balance down to 180k. I have all units lease totaling $7500 per month.

My current mortgage on the property is 600k with 5.5% on a 5/1 ARM (planned on BRRR so why pay more in interest and closing cost) which amounts to $4800 with P&I, tax, and insurance. Average monthly cost for HELOC is roughly $1500 based on a 10.25% rate bringing my monthly costs to $6300 per month and leaving me with $1200 which I then factor in utilities, vacancies, etc.

Due to the seasoning period changing to 12 months I decided to try a DSCR loan (loan amount 825k, 7.8%, 30 year fixed, estimated mortgage with tax and insurance $7,100). My appraisal came back at 1.1 mil which with 75% LTV and the money I cash out would pay off my variable rate HELOC. I would leave 100k in the deal but my pros would be tax write offs, appreciation, raising rent, peace of mind knowing my payment is mostly fixed for 30 years, got this newly renovated awesome asset for 100k and some sweat equity, and most importantly I can repeat and reinvest again. My possible cons are I would only break even (long term I will get cash flow) and it could be possible I refinance if everyone's wishes come through and rates fall.

I am leaning towards the refinance into 30 year fixed because of the volatility in rates. There is some hesitation as the majority of my loan on this property is fixed for 4.5 years at 5.5% and allows me to cash flow nicely and seeing that only 180k is variable the rate would have to raise significantly for me to balance out the 800$ I lose by fixing my loan but my driving factor is I am a buy and hold investor in this for the long game which means if I have to break even for a few years while I still get appreciation, tax benefits, and raising rents than I am willing to make that sacrifice. Alot of investors I know are pushing me towards cash flow and leaving the current deal as is until interest rates get better but this of course cuts me off from the repeat in BRRR. My question is honestly a sanity check if what I am doing makes sense? Any advice on this would be much appreciated!