All Forum Posts by: Alex Breshears

Hi Tam! I just closed on a HELOC for my primary last week. They are definitely still out there. I would also suggest you look at the lock out period. Many banks in the process of tightening up are only allowing you to draw funds for 2 years, and then anything out stays out, so you lose the line of credit aspect. If this is important to you, really ask about the terms of the loan and how long you have to use it as a line of credit. The HELOC amount will depend on the amount of the loan you already have on the property and the upper limit as a percentage of the value of your home. For example, if the lender will do 90% of the home's value, they will allow a combined loan total (including a first mortgage if present) up to 90% of the $350k, so $315k. Depending on what your balance is for any other liens on the property, that will dictate how much you can take out. So far 90% is about the highest I've seen as standard practice for HELOC's on a primary residence, there may be some outliers in there somewhere that would go higher, but I think banks are baking in a bit of a downturn right now and like you have experienced, tightening up their loan portfolio to weather a storm.

Hi Nicholas! Welcome to BiggerPockets.  You are definitely in the right place, as there are tons of people in this community always looking for capital.  My best suggestion would be to figure out what your competitive advantage is in your marketplace.  If you can tell a borrower, hey we can do X where as most everyone else can't, that will drive business to you! Good luck!

Hi Robert! We actually had a great time talking about this in our biweekly private lender discussion group last night! Well timed! The payment structure can be all over the map. Some private lenders don't want monthly payments and would rather be paid when you exit the loan, through sale or refinance. Some want monthly payments, and others may want prepaid interest. Knowing that ahead of time is crucial! As for your numbers, the $7000 is spread out over the course of the year, and you would only be paying interest for the length of time you have the loan. For example, if you have a buyer for the property and it is sold in 6 months, they you will have cumulatively paid $3500 in interest with $1400 in origination points when you bought the property. Generally, private lenders do simple interest only loans as a way of calculating interest, which is different than most conventional loans that use an amortized scale, so more interest is paid upfront while the principal balance slowly gets lower and lower. The promissory note should outline HOW the interest due is calculated, when that interest is paid, if there is default interest when that kicks in and what it is, and how you make those payments. Some lenders may choose to set up loan payment processing with a loan servicer versus having a borrower mail a check etc. Also - keep in mind many private lenders are looking at a loan to cost model, with an upper limit on loan to value. For example, a lender may say they will do 80% loan to cost (so the 60k +10k renovations, 8-% of 70k is $56k), but also keeping an eye on the equity buffer after renovations, and go up to 70% ARV, so 70% of 85k = $59.5k. Rather than focusing on the interest rate, really ask about the terms of the loan, what capital they are expecting you to have to actually close the deal. If your lender is using only ARV, then your loan amount will be $59,500 as an upper limit, but if they are looking at a loan to cost model - you will want to find out what percentage they lend on. Personally as a private lender, I would not do a 100% loan with a first time borrower, especially when my loan is at 80%+ of the ARV, and the borrower wants to keep it as a rental. Rate and term refinances are going to go up to possibly 75% of the ARV, which means as a borrower you are bringing money to closing to get out of the private loan. Depending on your available capital, this may not be an option and that would force you to sell it. Always keep the exit strategy in mind, and if you can get preapproved for a conventional or DSCR loan of a certain amount, showing that to a private lender to see you have been prequalified can help your chances of getting the loan with the private lender as well.

Hi Kyle!  I agree with the other posts on here about private lending. What you are likely seeing is there is currently a bit of a struggle between hard money and private lenders.  The hard money space is attempting to rebrand themselves as "private lenders" because they have made a bad connotation associated with the term "hard money".  They claim they are doing this to help avoid overregulation on the industry, but taking over that term leaves those of us who are "truly" private money in a bind.  The models between hard money and private money are very different in my opinion.  To me, hard money is usually institutionally backed capital, or they sell their loans on the secondary market in order to become liquid again to loan out again.  They have their place in the marketplace, I'm not vilifying them at all. But hard money lenders in my mind have money that comes with a lot of strings attached. That is why anyone who has ever had to obtain a hard money loan feels like they had to jump through so many hoops. You either fit the mold or you don't.  With my definition of private money (lenders lending out capital they directly control), there is a lot of "wiggle room" to do loans.  We may have a few boxes that MUST be checked (like only lending on nonowner occupied properties), but generally we are free to offer rates and terms that will create a win win scenario. For example, I have a few borrowers that I just have to get a text message from with the address, closing date and amount needed, and I Can usually run some rough numbers to give them a yay or nay pretty easily. We have a history of working together and they have always paid me on time and made me whole, even if the deal went south. My version of private lending is very relationship based, not a transaction.

As others have said, no one is giving out a 3% loan.  If it sounds too good to be true, it probably is a scam. These people are not lenders at all, but scam artists. No money should change hands before closing, so never ever send them some upfront fee for anything.  It is needs to be paid (like possibly a small fee for a credit check or maybe pre-pay for an appraisal) ask to pay the vendor directly. As others have mentioned you can ask the name they close their loans under in your area, and then do a public records search for that name to see what has closed.

Hi Olga! You are in my market! Small world! When you say subordinate notes, are you talking about 2nd liens on the properties? You will also want to disclose who the first lien is held by, if the property if non-owner occupied, and also any sort of underwriting documents you may have collected as part of the process to qualify the loan. The more of that you can provide, the better the price you will receive for the note. Now 2nd liens are a smaller pool of buyers, and you are unlikely to get 100% of the unpaid principal balance unless you really have some very very low CLTV notes on nonowner occupied property with great payment history and lots of due diligence documentation. There are groups on FB where you could learn more about the buying and selling of notes, and also there is a BiggerPockets book about note investing you could also check out. I do know someone who brokers notes and may be able to help you find a buyer as well, so feel free to send me a message. Good luck!

Like others have posted, the answer to this is "it depends" and the part that is depends on is the type of financing you are trying to get for the property. For example, if you are doing a conventional loan, maybe buying it as a "second home" to be used for you and your family a few weeks a year and then offered as a STR the rest of the time, they will generally not use income from the property because you are buying it as a second home in the eyes of the lender. That will be something you must qualify for and your DTI can support. Second, if you are looking at more of an asset backed loan, DSCR or maybe even a private loan or reaching out to a hard money lender, they may include the rental income. I've talked to lenders that will allow a certain percentage of the income that is stated on AirDNA, especially if the property doesn't have any income history to show at all. Really get the lender dialed in and then look for the property.

Another point I wanted to bring up, bigger is not always better. I own STR's in addition to lending out my own capital. My business model caters to DINKS (dual income, no kids) so our properties are smaller, set up for pets, and are close to things our ideal guest would want to do. We look for properties that have a 0.01% nightly rate compared to purchase price. When you find those, generally the property pays for itself in 7 to 10 nights. Depending on where you are looking to invest, there is likely a sweet spot of purchase price to nightly rate you will want to figure out before investing, along with decide who your ideal guest is. Right now with record inflation, a lot of leisure travel is getting cancelled by Americans who are feeling pain at the pump and the grocery store, so wherever you decide to buy really look at WHY someone would be there, HOW long are they staying, WHO are they, and would they come here frequently enough to pay the debt and offer you some cashflow for your time spent managing it (which can be a lot, especially when standing up a new unit!)

Hi Justin! As a private lender, I will tell you find the capital and their requirements and then find the deal for a smoother acquisition process. Also, start an account with a local community bank, get to know them and what they are looking for. Sometimes the best loan products on a larger scale can be found at these local community banks because they will hold the loans as an investment rather than try to sell them off on the secondary market.  It will also give you an idea of the loan terms they are looking for.  For example, if you are doing something like purchasing a stabilized triplex. It has paying tenants and no real major repairs needed, the bank may want 20% down and you are looking at a 25 year amortized loan of roughly X percent.  Knowing that upfront will help underwriting analysis as you are trying to evaluate cash flow, cash on cash returns, or any other metric you qualify an investment on.  Having a rough idea of what the debt terms will be will be ENORMOUSLY helpful when you do find that property because you can act fast because you know you have the financing in place and know your numbers.

Hi Jon! That's a great goal! Are there any particular styles of investing that intrigue you? With so many to choose from it's hard to offer directions for resources! But BiggerPockets as a whole has a ton of them, so picking one method to studying for a bit will really help you learn the ropes so to speak.

Hi Liz! I love that you have reached out for help and guidance! That is a great first step because analysis paralysis is definitely a thing! Now onto the next part of the question. I can suggest that potentially joining a local REIA investing group to get to know other people in your market would be a great first step that is not costly. If you start surrounding yourself with people who are doing what you want to do, and you see them doing it time and time again, eventually it becomes more familiar and less scary. You will rise or lower to the level of normal of your circle, so be choosy who you let in. I would also say learning about the type of investing you want to do, how that suits your needs as an individual and the time committment each style you are thinking about doing has on you. A lot of people start investing in real estate because they want to quit their W2 job, where in most cases what they really want is more time freedom. Depending on the style of investing you are pursuing, it may evolve into just working yourself into a another job! So take a moment to stop and think about that aspect of it.

Another suggestion to get over the analysis paralysis is actually looking at properties and running the numbers. As you do it more and more, you will be able to spot a good deal faster, and you will have more confidence about it because you have run so many before! Pull up Zillow and look at homes for sale in your market, start researching their numbers, figure out a process for how you find the data points you need, get very clear on the assumptions you are making on the analysis, and then when possible see how close you were on those assumptions. Basically set it up so you could teach someone else to run the numbers for you (like a VA for example), and if you can teach others how to do something you KNOW you know how to do it!

Good luck! Feel free to post questions in the forums here on BiggerPockets

Hi Nick! Welcome to the BiggerPockets space! You are definitely in the right place to connect with others who are interested in investing in real estate.  What sort of data does your analysis platform bring up?