All Forum Posts by: Jeffrey K.

Hey Michael, 

The severity of this discrepancy here depends on what stage of the loan process you are in. "Loan estimates" are used at the beginning of the process and some of the numbers can vary. "Closing disclosures" are used in the final stages of the loan and should be more accurate.

Mistakes still get made! If I were in your shoes, I would have the title company order a payoff independent from your lender and compare. The payoff that you got through consumer channels are often flawed, so having title get an official copy will help corroborate the correct amount.

Hey,

I could be reading too far into this as a loan officer, but I think there is some nuance here worth delving into. 

Usually, Heloc's are lines of credit similar to having a credit card backed by the equity in your home. These are usually associated with a variable interest rates. One of the benefits of a Heloc, especially in the context of investing, is that you do not accrue interest until you actually advance funds. Due to the 10 year draw period on this loan, I suspect this is a Heloc and it would be worth double checking.

 Conversely, Heloan's (home equity loans), are usually fixed rate loans where a lump sum is deposited in your account and you pay interest immediately. This loan can be beneficial if you think that rates are going to increase.

Either way, I would recommend against using these vehicles as a substitute for a regular 30 year loan as you will pay more in interest. These loans can be useful to use as short term funding for rehabs or to fund the down payments. 

@Johanna Kerns using a Heloc for a down payment is most useful when using a hard money 30 year loan. If you use conventional financing, instead of hard money (DSCR), you will have to show enough income to include the Heloc payment in your DTI. If you can support the negative cash flow, and are an appreciation oriented investor, this can work. However, most (if not all) lenders view negative cash flow as a red flag.

Feel free to message me to chat more :)

Hey! 

A HELOC can actually be a great source of funds for down payments and some HML's will also let you use available credit to satisfy liquidity requirements. However, a major down side to HELOC's is that they tend to be adjustable and the cost of you money can increase.

The best source for gap funding is likely private, individuals. The pros here are that these individuals are usually more likely to do personal notes or put a second on another property. I got my first investors while working at as a barista and having casual conversations over the counter. I talk to investors everyday that talk about how the were able to rapidly scale once they got comfortable at having this conversation. Its worth remembering that your knowledge can bring value to individuals with liquidity that don't have the time or expertise to carry out RE projects. 

The reason why I recommend HELOC's and individuals for gap funding is because gap funding lenders can be few and far between. A risk mitigation concept in lending is that the more equity a borrower has into a project, the less likely they are to walk away and default on the loan. Colloquially, this is referred to as skin in the game. This is also why higher leverage and 2nd liens tend to create difficulties when secured by the subject property.

Hope this helps :)

Hey, 

Currently, I am seeing 80 LTV purchase loans able 1% above conventional (as a rough rule of thumb). However, one of the pros to being a HML is that we don't source large deposits. I have a good amount of borrowers that utilize gap funders or equity partners to source the down payment in order to go as little out of pocket as possible.

Alternatively, leverages tend to me higher on acquisitions you are fixing up because lenders are able to give some credit for forcing appreciation. If you are looking to scale, the best strategies will likely be sourcing your down payments with out needing to put a 2nd lien on a property or forcing appreciation like in the brrrr method. 

Let me know if there is anyway I can help:)

Hey Dolev, 

I always think about whether or not to tap into equity as a question of opportunity costs. Boiled down, can I make more money with that money than the interest being charged on the loan. If you can identify a property and execute in a reasonable timeline, its likely worth doing a cash out to scale your business. When you add in the tax benefits, appreciation, principal paydown and cash flow. the likely answer is yes. 

With extremely low leverage, I have most clients getting mid to low 6's right now on a DSCR 30 year. Let me know if I can help run a scenario.

Hey Sarah,

I am a HML and you can feel free to direct message me if you would like to chat further:)

To add some value to this post for anyone in a similar situation - Since HM loans have the option of being originated to an LLC, HML's are often able to use other partners on the operating agreement for credit score qualification purposes. I like to joke that some of my borrowers will never leave their significant others or friends because they have the good credit scores.

Let me know anyway I can be help.

Hey Blaine,

Unfortunately, I am seeing this situation more and more with the current volatility in the capital markets. To get a little in the weeds:), Basically, the recent increase in rates means that mortgages that were originated with lower rates are less desirable to investors and the secondary market. Therefore, many banks and credit unions ended up with large balance sheets of loans that they could not securitize or sell. Often, capital sources get nervous and dry up during uncertain times. 

If you are still looking, I would be happy to assist you! Feel free direct message me. 

On the contrary! 

Here is my 2 cents: As rates rise, it is likely that markets will shift from the seller's market that we have been seeing for the last couple years to a buyer's market. Additionally, problems are easy to solve with money. Many primary residence borrowers have either tapped into equity during the refi boom or may not be able to refinance in the current market. This creates more opportunities for RE investors to solve problems and get genuine deals. 

Additionally, as rates increase, fewer potential home buyers are able to make the transition from renters to homeowners; i.e. a higher rate results in a higher monthly payment which means the home buyers money wont go as far when conventional DTI qualifications are used. This creates a space for investors well versed in HML products. Furthermore, the increase number of people continuing to rent will increase demand in the rental markets and likely increase rents.

Shifting markets create opportunity! 

Hey John,

This has been experience with fourplexes. Full disclosure, I went under contract for my fourplex without seeing any of the units. 

There are many possible reasons for a seller doing this such as: it can be difficult to coordinate with 4 tenants for showing, it could be a way to weed out the tourists that have no intention of buying, etc. 

I was okay with offering site unseen because I kept my inspection and appraisal objections. I usually use these milestones as a way of getting into every unit to get a full read on the property. If the seller is trying to hide something, it should become clear very quickly. Plus by retaining your objections you have an out that will let you walk away from a bad acquisition with your earnest money in tact. 

However, I would be VERY wary of a seller who wants to sell the property "as is" without seeing all the units 1st. 

Hey Katrina,

My outlook is that I almost always have to get rid of inherited tenants. If the current owner had wonderful tenants that alway paid on time... they probably would not be selling the property. If the current tenants are month to month it should be relatively simple to give them 30 days notice to vacate. 

Review the leases to make sure that you know the terms to get them out! The obvious risk is will the leave? If you have to file for an eviction on day 1, this can make your purchase significantly more expensive. If you have a good working relationship with the seller, you may be able to ask them to issue notice. However, if you are under contract the seller really has no obligation to do this. 

Basically, its all risk mitigation! Is there enough in the deal to cause you to tolerate an eviction? Presumably your are fixing the place up to get higher rents. Inherent in getting higher rents is getting tenants that are willing to pay higher rents. This is rarely the case when you are picking up a property that has deferred maintenance.