All Forum Posts by: Alex Breshears

I think this will really depend on your risk tolerance and honestly sometimes opportunity just falls in your lap. This is why I think it is a great idea to start networking with lenders and even look for private capital that may be able to fund your deals quickly. The determining factors will be that the property is or isn't owner occupied, typical construction material, state the property will be located in, and the use of the property. When you are talking to lenders you want to find out if they lend on exactly what you have in mind to buy. For example, if you talk to a lender and you ask "do you have any DSCR loans for investment property?" they will inherently answer yes or no. What you didn't ask is if they allow STR properties, how they will calculate the DSCR ratio if they do (some use LTR rental rates for example), and if you are going to use this as a second home in any capacity they may not be able to do the loan at all. So if you are out talking to lenders or looking for private capital being very specific is crucial. For example, since I lend out my own capital, I lend on investment property only, usually single family homes, in Missouri and Virginia for up to 12 months while the property is being stabilized or a renter needs to be seasoned before getting permanent debt in place. When I tell people that, they know EXACTLY what I lend on, so if they bring that to me, chances are we could make something work. Good luck!

This situation might have a couple hurdles that if you talk to a lender you want to be very clear up front about to make sure they understand the loan scenario. Right now you are likely going to run into significant road blocks for ground up construction and STR. Both are sort of the evil step child of lending at the moment because there isn't much of an appetite for it. I would do as another poster suggested and look for something that would be a straight construction loan option, and then see if you could refinance out of it later. Would it be possible to parcel out this new area for the building into it's own lot? That may also make the lending scenario a bit cleaner from a lending perspective, and it would give you two properties to leverage against, should you want to sell one to shore of up capital in the future.

From a lender's perspective there is no advantage to being in 2nd position at 100% combined loan to value on any property, so this exact product is likely to not exist. If you own another property outright, you may be able to do some sort of cash out refi and get cash pulled from that for the downpayment on another property, or depending on the lender for the commercial loan, they may accept cross collateralized properties with enough equity as downpayment. 

This educational talk will give attendees an overview of different options to invest in real estate with private lending. Lead by the authors of BiggerPockets private lending book: Lend to Live, Beth and Alex will be covering private lending, some different methods to participate as a private lender, and what some pros and cons of each option might be for your specific financial goals. Join us on November 29th 2022 at 7pm EST for an hour of private lending education! The event will be recorded and shared with those that register for the event.

Learn more about private lending by visiting www.Lend2Live.com

Would you like to meet the authors of BiggerPockets' newest book on private lending? 

We have a monthly open office hours event on Thursday October 27th @ 7pm EST where you can come ask questions, talk to other private lenders, and learn more about investing passively to live actively. 

This event us a wonderful roundtable discussion where private lenders can come together and ask about best practices, vendor referrals, ideas on how to structure a lending opportunity, or just meet other people who are also lending! Beth Johnson and I would love to see you at this event and hear what questions you have, especially if you have already read the book! Let's chat!

You can register for the event here: https://us02web.zoom.us/meeting/register/tZEpd-igrTMrH9Y04OHFhBOq7IPkXgXOqDB9

The private lending book from BiggerPockets can be found here: https://store.biggerpockets.co...

 Sure Helen! Happy to help! You can post a question here or send me a message.

I'm going to be a bit different here and saying the place to start is asking yourself questions. You say you always wanted to invest in real estate, and I agree that is a wonderful thing, but what is it you want from investing? Are you looking for passive income? Want to build a large sum of money to buy another business or even your father's business? Real estate is a vehicle to your own goals, not THE goal.  There are a ton of ways to invest in real estate, much more than flipping houses and being a landlord. Like TONS more. 

So here are some examples of what I would really spend some time with pen to paper and think about.

1. What is my personal goal? How will I know when I have achieved it?

2. What do you want your life to look like while investing? (Various methods require different amounts of time on your part in order to continue moving forward, flipping houses falls into one of the most time intensive options). Do you want time freedom? Geographical freedom?

3. Who else would you want on this journey with you? No man (or woman) is an island. Figuring out who you need with you to accomplish the goal can help you be on the lookout for when those opportunities arise.

4. What's your timeline to get to the goal? Real estate is not a sprint, it's a marathon! How quickly you want to get to a goal or need to get to a goal will eliminate some options and bring others to the forefront.

5. How do you see your life once you have hit your goal? Yes, owning 20 single family homes as rentals sounds great in podcast titles, but I know plenty of landlords that are just tired. They worked for years to build and buy rentals, only to find out they spend a larger portion of their time fixing issues or doing book keeping, or the sundry number of things involved with owning rentals. Yes you can hire property managers, but you often still have to manage the manager, plus keep the books for tax time, plus have capital reserves for surprise repairs or unit turn overs. It's a lot to manage. So knowing what your expectations are after you have hit your goal can also help eliminate some options. 

Think of the long term plan first, and then work backwards!  Good luck!

HI Justin!

I love where your head is at! I want to challenge you to think not just about the acquisition of the property but also what are you going to do to keep it. I see a lot of investors spend a lot of time doing analysis and finding comps, and they come up with a business plan to renovate it etc, but there isn't a lot of thought given to keeping the property. How can they make it cash flow, and cash flow well. I bring this up because the real estate mantra of getting to X number of doors rarely translates to the real goals many people have. If you bought 1 property with cash, and your cash flow was enough to pay the HELOC on your primary and then some extra, how many times would you need to do that to reach your goal? Would you rather have 20 properties that cashflow $150 a month after CapEx and maintenance, or have two properties that cash flow $1500 a month? There isn't any real right answer to this because your goals are personal to you. But realizing truly what your goal is versus just buy buy buy because you have been told that is what a successful real estate investor does can be far more powerful than figuring out access to cash.

Now to answer your question directly, if you pull money from your primary residence with a HELOC to make a cash offer, just realize you are putting your home up as collateral for the new investment property. While that second property will be owned free and clear, it did incur debt to your household budget. If the new property will cash flow more than your debt payment on your primary, that's great and move forward. If you refinance and it becomes negative on cash flow, are you really ahead financially with this new property? These are all things to consider when you are putting the roof over your head on the line.

Hi Brent! I see this question a lot right now because so many investors have low rate mortgages that they want to keep in place.  Before we dive into should you or shouldn't you access the equity, I want to ask you about your overall goals. For example, would 2 properties entirely paid off give you the cash flow you want? Are your goals even centered around cash flow? Do you want to trade up at some point and buy a larger multifamily. Thinking long term in real estate is very much needed, especially right now.  So here's a few longer range options to think about - which will then dictate a path forward.

If you want to acquire more properties in general (for whatever reason), could you buy/find additional properties that would cash flow what the other two properties were doing, and then some? If you can get that $500 per property plus some additional, then you end up ahead. If you take out that capital and it makes less than the $500 per property then you are net negative overall to your household budget (which is how I look at things).

Would selling the properties to unlock 100% of the equity make sense and then you could 1031 into something larger with more cash flow? Then you are building more equity (think of 5% appreciation on $750,000 versus 5% on $300,000), and with a larger multifamily the value is largely focused on the cashflow that can be generated and less on the market as a whole like single family properties do. This may be a great option if your goal is to break into the large multifamily or even some other asset type (industrial, office, retail etc).

Another option would be accessing the $140k, then doing private lending with it, so you get straight cash flow without the overhead of another property. You'd probably be able to get $1400 a month from lending that amount of capital, so that would cover the $500 per property loss, and then you would be up $400 a month total to your household budget. And you don't have to worry about qualifying for a mortgage right now, the overhead of a PITI payment, tenant issues, or surprise costs for maintenance and repairs.

I think this is relatively common terms, but the thing that is even more important in today's lending environment is the ability to close. Just because you have a pre-approval and a term sheet doesn't mean they can and will close. The environment is very much like the 2nd quarter of 2020. The secondary market isn't buying as much, and definitely aren't overly interested in DSCR as they were a year ago. If the lender needs that secondary market to sell the loans to recapitalize and they can't sell it, then there is a chance they won't have the liquidity to close your loan. Also - underwriting criteria are changing mid-stream on investors - requiring more of a downpayment, higher reserves, better credit scores, etc etc. So while loan terms are a serious factor to consider, right now the big one is can they close.