All Forum Posts by: Andrew W.

Thanks - they tried to match, but no bank can match a credit union - everything else being equal.   I had some of my own funds so avoided some of the prepayment penalty, but bit the bullet on the rest.   Overall happy with the result - dropped over a full 1% on the rate and pulled some cash out ... but I had explored the prepayment issue as who likes to leave money on the table.

I did sign one Matthew and I'll explore that point with counsel - the language there says that the g/tee is of "all or part of the note".

I am still having a problem with this limiting me borrowing in a personal capacity and contributing the funds as capital.   I could obviously sell my house - send in the money and pay down the loans, remortgage the business collateral and then send myself back the funds.

I have 8 separate 5 yr fixed rate mortgages (and P.notes) that the same bank (in Wisconsin) has made to two of my LLC's and secured each loan on a separate property. I personally g/tee these loans.

Rates have moved down significantly and I recently had all properties appraised showing significant increases in value.  I am looking at a major cash out refi at lower rates with another local institution.

On each of my notes it says - PREPAYMENT PENALTY - Upon prepayment of this note Lender is entitled to the following prepayment penalty: 2% prepayment penalty if refinanced at another financial institution.   Except for the forgoing Borrower may pay all or a portion of the amount earlier than it is due.

I have cash (due to sale of a property one of the LLC's owned free and clear) that is sufficient to pay down 3 of these mortgages. I also have a large HELOC line available on my personal residence.

Despite their language (above) the bank involved is (at least in my preliminary discussions) pitching a fit and indicating that if I use the HELOC to bring additional funds to the transaction or do 3 mortgages (pay down with my cash and then refi to get funds to do the next 3 and then the final 2) that it deems either strategy as equivalent to directly (and in the first instance) refinancing with another financial institution and will not release my collateral unless I pay their penalty.

I am prepared to call this a mistake on their part and am seeking legal advice, but I am interested if anyone else has been through a similar episode.

I don't get how they think I should be stopped from mortgaging my personal residence and then bring those funds as equity into the LLC's (the actual borrowers) to pay them (the bank) off. At this point they are accusing me of being in breach of the "good faith" intention of the above clause on prepayment.

Anyone?

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Is this process landlord friendly or a hamster-wheel?   How often is this necessary and how difficult are these to maintain?   Anecdotes and/or horror stories appreciated!

I built a portfolio of 27 units in WI over the past 4 years.   Well actually I just sold one of my small MF's (a 5 unit) so the portfolio is now 22 plus cash.  

I absolutely would NOT choose the the small MF route and particularly if you are out of state.   Do it and my bet is that it will be your last RE investment.

Why do I say this?

Well I have direct experience in both areas - of the 22 doors I hold all are duplexes except 2 triplexes and 1 fourplex.   Without question all the duplexes are easier to manage and as a group easier collectively than the time drain and issues I have faced on the larger properties.

I will go as far as stating that the duplex space is ideal for the beginner investor (think smaller bites, diversification).   This is because you do get an economy over a SF (same roof, same systems, one insurance policy, tax bill is spread) but by and large the tenants will treat this place as their own.   I seriously think that this effect is limited to SF and duplexes beyond that you will face what is called the "tragedy of the commons".   Now that is a fancy political/economic term for the fact that tenants in small MF's tend to have less invested in the place as their home and tend to be more casual in their interactions with their fellow tenants and your property.  They feel more anonymous and have deniability.   Well you can police the stuff that will happen, put up cameras, drive there more, become brilliant at property management, but you will see them litter the place more, leave busted up cars there more, stuff on the curb (fines), make more noise, be more destructive.   Buy you small MF and mark these words.

BTW with your numbers you are unlikely to buy a decent MF in a decent sized (population wise) area in WI ... although maybe I'll sell you mine ... ;)

Mostly the small MF's are a no man's land in my view - picked over by anyone who has transitioned from small landlord to larger player.   Also known on the inside by all the commercial brokers who are just waiting to unload marginal properties on new guys and of no interest to major players.

Also you will get killed if you try to do any of this remote.

In my case I am delighted with my duplex portfolio and and now gearing up my "handy" lawn guy to be legs on the ground as I think of my next move - which will be to blow past the small marginals MF's into something boutique, but bigger ... very hard to do.

Good luck.

@Joseph Medina thanks much for the additional comment.   I made it down to Houston on my first research visit this weekend and while I think it will take a lot of research I was pretty impressed with the action I saw in many of the areas close to the city (lots of building, lots of rehab crews at work).    In particular the Near Northside looks promising.    I absolutely agree that noone is going to give you profits in this market and I am probably a bit spoiled by my experiences in WI.    But I do see plenty of scope for intelligent remodeling, where you’d get some cash flow, but I do also see why now there are those who continue to be strong believers in solid appreciation here.   I get it that banking on “appreciation” is more like “speculation”, but Houston does seem like it wants to continue to move ahead.  I am not sure on the next move yet, but do know now that there are options. 

Thanks to all.

Just to add to clarify my read of your comments - I am all about tenant's quiet enjoyment, just wanted to make sure that code enforcement/issues are not extreme and that handy Landlords are able to do as much of the work as they are capable.  

@Ethan G. - my wife is mandating a gradual move to a warmer and more vibrant place ... not a knock on WI.

@Nikunj Merchant - on prospective MF properties there that are held for appreciation - how do the banks underwrite and how do you carry the mortgages (if cash flow is tighter)?   An example would help if you are willing to provide.   Thanks also for flagging the foundation due diligence theme ... have some experience with that here, if you can picture 100 year old basements.   Normally the fix is to address the way the land around the house drains - although I did have one basement here braced.

Hi guys - I own mostly one up one down duplexes (plus a couple of triplexes & a quad) in and around Appleton, WI.   These are older (normally 100 years old) in urban  core areas.   I rehab them within reason, although I do like those where the main need is mostly cosmetic.  My cash on cash returns are north of 15% and I use one bank here which will lend me 80% on most anything I spot based on a phone call and a few calculations.

I have few questions and would be grateful for some ideas/guidance:

Are there decent cash on cash return markets in Houston?   

Is the landlord basically free to rehab and work on the plumbing and electric etc? 

How aggressive are lenders there (with experienced landlords/operators)?

"It all sounds so perfect: you can buy a house for cheap, have someone else fix it up for you and then rent it out for great cash flow. You run the numbers (on a BP calculator, they are really good BTW), you read the forums on BP and after moneth of research you are convinced this will work!You can make it work! .... etc. etc..."

A genius post from Marcus - and I know that that it comes from a lot of experience.