All Forum Posts by: Andrew Garcia

A lot of good points are being made here but I think we are missing the point of @Chris Seveney's post.

Let's stop underwriting deals at a 3% interest rate and spend time ensuring you are in a good financial position to take on the payment. If you are an industry professional, ensure you are advising your clients on how to properly build wealth. 

Regardless of whether interest rates are at historic lows or high relative to the last decade, we should be helping clients and investors achieve generational wealth through real estate. Do not advise your clients to take on a payment because "interest rates will go down sometime" so you can get a sale. Likewise, if you are a client, do not use that same logic to buy a deal that you are not prepared to handle the negative cashflow on.

I believe that is all Chris meant in the post, not to have a debate about whether interest rates are high right now or not.

Hey @Jamaal Smith, I am sure that there are a lot of great agents that will reply to this thread but I know a few investor-friendly agents in the area if you would like my recommendation. Feel free to reach out.

Hi @Marlon Perez, there are a few things to take into account.

1. You put the down payment down now but do not start collecting rents until the property is completed and you find tennats.

2. Lower maintenance costs. Assuming your contractors do good work, you should have minimal maintenance costs. 

3. Construction could run over budget or take longer than expected.

These are just a few considerations but there are many more. Biggest thing is hiring the right team.

Hope this helps! Let me know if I can ever be of any assistance.

Hi @Chris King, first, I would talk to a loan officer and a real estate agent to get a comparison between selling your home and pulling equity out.

Then, you can start to explore some options. If you have refinanced in the past two years and have a rate that starts with a two or a three then refinancing may not be the best option for you. You can explore a HELOC or a HELOAN so you can keep that low interest rate.

Hope this helps! Let me know if I can be of any assistance.

 @James Pecora, great question. Illegal in that it goes against federal law. Specifically, it is a violation of the SAFE Act under section 105. HERE is a link to read the law itself.

@Chris Seveney, also provided some good information. Go to consumer access to check on a company or individual to check if they are licensed.

Note that private money and hard money lenders may not have an NMLS number since they make business-purpose loans, not residential loans. Therefore, they do not need to be licensed.

There are legit hard and private money lenders that are not licensed but there are also LOTs of scammers. Do your research or stick to lenders with an NMLS license. There are no shortage of options of licensed lenders that provide loans to investors.

Hope this helps!

@Michael Baum, yes, basically.

Generally, DSCR based on LTRs have slightly better rates and may require as little as 15% down. However, DSCR based on STRs typically requires at least 20% down and might be slightly higher in rate.

This is because there are hundreds of lenders that offer DSCR based on LTRs so their rates have to be more competitive whereas DSCR based on STRs is more of a niche program. Furthermore, STRs are higher risk due to the lack of stability that is provided with a 12-month lease and legal questions in certain areas.

There are not a ton of lenders that offer the STR DSCR so it does not surprise me that you have not heard of it.

Hi @Nicholas Devlin, it sounds like you want the properties to be valued based on cap rate rather than comps, correct?

If so, that could be tough because the value of any property is what someone is willing to pay for it. In commercial real estate, the purpose of the property is to generate income so those properties are valued based on such.

However, with SFHs, the main purpose is for people to live in. Since most people that purchase homes are purchasing them for personal use, not as an investment property, SFHs are valued based on what homebuyers will pay for it.

Therefore, a lender will have a hard time taking that approach when valuing the properties. With fears of a slight property value pullback looming and the lending landscape tightening, it is especially difficult. In 2020 or 2021 there might have been a lender out there.

With that being said, maybe if you use a portfolio or blanket loan, they will value it closer to a commercial portfolio of SFHs.

Hope this helps! Let me know if I can be of any assistance.

@Andre Houston, since you are looking to BRRRR, you will likely be utilizing hard money upfront which your current savings should be enough for the down payment, depending on the purchase price. Then, when you refinance, you should be able to get some of your 60-70k back, depending on the ARV and equity.

Hard money generally does not require income verification so you are really looking for the right program for the refinance. The good news is there are still plenty of options!

1. DSCR. This uses the income generated by the property rather than your personal income. This is only on investment properties, however. Lower that hard or private money generally but slightly higher than conventional.

2. Conventional with a cosigner. I saw you and @Max Ferguson mentioned this to keep the down payment cheaper but LTV restrictions are generally the same on DSCR. The main advantage here is that the rate will be slightly better.

3. No DTI loan. This is only for a primary residence or second home. This loan requires a good FICO, solid down payment, and a property in good condition. However, it is a great tool for people in similar situations to you. Rates are similar to DSCR loans.

Hope this helps! Let me know if I can be of any assistance.

Hi @Josh Matteson, there are a couple of risks to watch out for.

1. Rates rising. The rates rising will cause your HELOC payments to increase since HELOCs are ARMs. Additionally, the refinance rate will be higher than the rate to purchase upfront. You could continue holding the HELOC and paying the IO payment until rates drop again but if you want to free up your HELOC to purchase other properties or use it for other purposes, you cannot.

2. Property value deflation. If the property value decreases from the time you purchase to the time you were planning to refinance, you may not get enough equity from the refinance to pay off the HELOC.

3. No principal buydown. Most HELOCs are interest-only so there will be no principal buydown from the time you purchase to the time you refi.

4. Higher monthly payments. Since you are borrowing cash to purchase a home, you will need to pay a certain amount per month for the IO payments on top of hard money, renovations, utilities, etc.

With that being utilizing HELOCs will allow you to grow your rental portfolio much quicker so it can be a great strategy as long as you account for the above risks.

Hope this helps! Let me know if I can be of any assistance.

 @Michael Baum, I believe you meant to tag me so I will answer.

In that scenario, the underwriter would not take the STR into account since you are applying for a DSCR LTR loan.

Most DSCR loan programs are based on LTR numbers so the UWs for these programs do not know how to underwrite STRs. As long as you adhere to the loan terms (i.e. do not use it for a primary residence) and pay the loan on time, the lender will not care if you use it for an STR rather than an LTR.

However, if the LTR numbers do not have a good DSCR ratio, you may need to go with the DSCR STR program where the UW takes the STR numbers into account. Generally, the DSCR LTR program has better terms because it is lower risk and more widespread.

There are obviously nuances so make sure the loan officer you are using truly understands your intentions and goals with each property to advise you on building wealth through property financing.

Hope this helps!