All Forum Posts by: Jeffrey K.

Hey Ali, 

Determining ARV's is a bit of an art and will likely be an ongoing struggle :)

This is definitively the value that a good, investment oriented agent will add to your team. Unfortunately, I find that every agent will tell you they are good at determining ARV's but many are optimistic with their values. So always double check that the numbers make sense to you.

From a comps perspective, there are some general rules to follow. In addition to making sure your properties are similar in size, bed/bath count, age, etc. you will want to use properties within a 1 mile radius (and no more than 3 miles) of your property. A common mistake is comparing the total square footage of the properties instead of "Gross living area." GLA is the livable above ground square footage. This excludes items like garages, sunrooms, etc. Additionally, basements are not usually counted as GLA. Restated, a second story is worth more on an appraisal than a basement. Basements still have value, just not as much. 

There are some online tools that project ARV, like privy, but algorithm's shouldn't be used as a substitute for your analysis and an agent with local market knowledge.

Hope this helps. 

Hey,

Ultimately this is going to be dictated by your market and the logistics of the conversion. However, it is unlikely that this will be beneficial.

1st, I would double check that this conversion is feasible. Zoning districts often draw a hard line between 2-4 unit areas and 5+ unit areas. The flexibility to do either is relatively rare from my experience, but ultimately this is specific to your municipality. You may also want to check the difference in the tax mill levies between the 2 asset classes. 

Next, you will want to do a little leg work to verify that this will increase the appraised value of your property. 1-4 unit properties are evaluated using a residential appraisal and the resulting value is dictated by a comparable sales approach. I.e. what have similar properties sold for near your property. Alternatively, 5+ unit properties are appraised with a commercial narrative appraisal and the value is determined by the cash flow on the property. It would be prudent to determine your NOI and the gross rent multiplier of the area to ensure that change will actually result in a significantly increased valuation.

Finally, loan products on 5+ unit properties tend to be lower leverage. So, even if you increase the value, you may actually get less money out. 

Again, there could be a situation where the conversion would work in your favor, but there are some hurdles to address 1st. Hope this helps

Hey,

I have a DSCR 30 year that can do rural properties at 65 LTV. Feel free to message me if you would like to chat through the details.

Hey @Murray Clark

I have a loan program that allows you to uses projected cashflow from AirDNA's rentalizer to qualify. Feel free to message me for details. 

Alright! I think I have just the move for you, but it is predicated on you having some retirement savings or life insurance policy. 

There is a very cool carve out in the conventional guidelines. Any loan backed by a financial asset does not count toward your DTI. So, if possible, you can take out a loan against your 401k/IRA or life policy to pay the tax bill. Additionally, the loan from your 401k will be less than the rate on your credit card. If there is any additional room to borrow from your 401k beyond the 20k tax payment, you might also consider consolidating some credit card debt. This would have the added benefit of reducing your monthly liabilities so you are not over extended on your finances.

Hey @Paul Gomez

Very clever! I am curious about some aspects of the back end mortgage. Would you transfer title into the end buyers name? Would you record the note?

A common objection to Sub to is that is triggers the due on sale clause of the seller's current mortgage. However, you usually get 30 days to get a new loan should the original lender call the note due. I have even seen a company that will give you "insurance" on the mortgage if this happens. 

Things that seem sticky to me:

1. If you pursue foreclosure, wouldn't you need to alert the original lender and possible cause them to invoke the due of sale clause? 

2. How are the notes going to be recorded? 1st lien Bank->Seller, 2nd lien Seller->you, 3rd lien you->end buyer? This seems problematic if the end buyer tries to refi.

I am very interested in the logistics of transaction! Maybe instead of a wrapped mortgage you could use a lease option?

Hey Everyone,

To piggyback on the discussion here, I started an IUL policy with the intention of borrowing against it in the future. However, my understanding of my policy is that the loan needs to be repaid within the same calendar year to avoid reducing the cash accrual. Is this the case for all policies or just mine?

Thanks!

Hey Clayton, 

You are largely correct! However, there is a threading the needle scenario I will go over.  

For conventional financing, borrowers must state whether part of the down payment is borrowed or if they are obligated on a note. Checking yes on either question is going to be a red flag for the underwriter. The underwriter will then want to include the seller carry in the borrowers DTI and will double check that the borrower is meeting minimum contributions. There is a world where the seller carry could be below the CLTV/TLTV cap for a loan program. However, these issues effectively nullify the benefit investors are looking for with a seller carry.

It is possible with DSCR loans, but you will want to read the loan docs very carefully! You are correct that most, if not all, hard money lenders will not tolerate a seller carry on the settlement statement at closing.

Here is how seller carries can be structured: The borrower brings their standard down payment to the closing table. Then, after closing the seller reimburses the buyer for the down payment out of the proceeds from the transaction. Some buyers will even use a gap funder for the down payment and repay the gap funder with the seller reimbursement to avoid going out of pocket. Depending on the legal language in your note, you will want to be careful what you use as the security instrument for the seller carry. In some cases the seller can record a second on the property after closing. If the buyers note doesn't allow for 2nd's, there is another work around. Instead of using a 2nd to secure the loan, the seller can be added to the LLC and the debt repayment terms added to the operating agreement after closing. You will want to avoid ownership percentages for the seller in excess of 25% as this can technically trigger the due on sale clause. Operating agreements are not filed with the secretary of state making this unlikely, but better safe than sorry. As a final option, I have seen the seller carries guaranteed with a personal note or filed as a second against another property the buyer owns.

Its convoluted and a legal minefield, but its possible. Feel free to message me with any questions.  

As a side note, 

If you can't qualify with the HELOC payment included in your DTI, hard money DSCR based lenders won't count this against you.

Feel free to message me if you want to chat more about this option.

Would you mind elaborating on why you don't want to guarantee the loan?

In the current lending climate, I have seen that many lenders that still have non-recourse loans have expanded their "bad boy" carve outs to try to further protect themselves. The two main reasons why I see people go for non-recourse are:

1. The transaction is being funded by a self directed IRA.

2. They have lines of credit or commercial loans with a separate bank who only care about the recourse debt the borrower has. 

I look forward to hearing other scenarios where this might be advantageous.