All Forum Posts by: Andy D.

In your search for deals did you happen to do a search on BP too? ;-)

Because

a) to my knowledge you cannot get a non-commercial (more precisely: Fannie/Freddy) mortgage for an 8-plex and

b) F/F will not finance in an LLC.

You will need to find a lender who does not (need to) adhere to F/F rules (assuming this is what you mean by "conventional") and they will then, typically, require you to have the property/title in an LLC.

Your second question: a commercial lender will look at DSCR and typically wants to see at least 1.2%. I have not heard that they care about the cap rate but @Chris Mason would know the answer to that for sure.

Apologies if I misunderstood what your are trying to ask.

Which, really, actually is a tragedy. Because 1+1 still is typically 2: Why would anyone want to buy (all cash) via an LLC and then take title in their personal name later?! At least to me this makes no sense. You might as well then buy the damn place in your name right from the start (as it's all cash and no commercial lender involved who typically require an LLC). Therefore the baseline assumption of a lender for such a situation should be: "Borrower wants to refinance in LLC, has title in LLC and wants to keep title in LLC. Better tell him that this scenario does not work for FaM/FrM."

But no, they just happily work away, hitting the wall at full speed, wasting anybodies time in the process...

Then again, the baseline here is - once more - proper communciation. And that indeed typically goes two-ways.

This topic has come up so many times that I would really advise you do a search on BP, please. You will find tons of info and opinions. In a nutshell:

Re 1): from an asset protection point of view it really makes no sense to have that split. But from a practical point of view many might actually end up with this (pretty much useless AFAIAC) result because of the due on sale clause and insurance issues.

Re 2): Not sure what you are asking here. Is it along the line of "are there businesses out there which have a credit line with a bank"? That would then be a rather rhetorical question. ;-)

In case someone wondered what the heck @Chris Mason is saying in the above post,you may want to check out this link on investopedia.

With respect to the second question in Chris' above sentence: I'm wondering if this would only be relevant when looking at a commercial loan? At least with my non-commercial mortgages the lender never cared much about the rent amounts (of the place to be financed) but very much cared about my "W-2" income and, to a lesser degree, about the rental income on the existing places. For a commercial that would/should be different, though.

Since the topic pretty much came up here I'm asking @Chris M: Would you "skip" focusing on rental income of a property-to-be-financed if other sources of (sufficient) income (e.g. employment, or dividends) were available? Of course one wants to have the proper figures for a good investment property, but lets just leave that part aside for a moment.

@Chris Mason Excellent point/input. I do want to add, though, that these inherent additional (opportunity) cost could still make sense to incur/accept. Because: a good investment property bought this way is still better than no investment property at all or one that is cheaper (and therefore affordable with e.g. 20% down) and a bad investment.

It really always depends on the individual situation. But that does not change the facts which you laid out nicely.

 Hhm...

How about searching for that a bit? ;-)

http://portal.hud.gov/hudportal/documents/huddoc?i...

I have no specific experience with FHA loans but generally speaking: the lower your down payment the higher your mortgage (amount) and therefore your monthly mortgage payment. This means less net cash flow. The latter might be an issue. Or it might not.

What the electrician writes is typical. It's like a mechanic saying you need a new engine while, really, a mere oil change would fix it. Something like that...

If I understand it correctly there is 1 person in your bottom unit. Assuming you have a good standing with that person you may want to ask him/her to unplug everything that is on this particular circuit breaker and see if it still trips. He could temporarily run an extension cord from the other room to still have electricity for his devices.

If the breaker doesn't trip then  it's a load issue. Assuming the wiring and the code supports it get a stronger circuit breaker. Simple fix. It the damn thing still trips without any load then it's most likely either the circuit breaker itself, especially when it's an older one (easy fix, replace it; that's where I would start in any case) or a short somewhere, including a grounding issue. If you replaced the breaker and the problem persists then you have a much more serious issue as a short could lead to a fire (now who's the one with the scare tactic here now! LOL). That's the point where you then do want to involve an electrician. I would not rely on someone "who knows their way around electricity and wiring" while not being an electrician as this is a rental. You do not want to risk anything happening and later run into an issue with your insurance company because the issue was not properly handled by people licensed to do that kind of work.

But start out easy, don't tear down the house and build a new one to fix a potentially simple electricity issue... 

Good luck.

@Bill Gulley I agree with what you describe. I just don't agree with your prediction of 7-8% end of 2017. ;-) But that is really somewhat beside the point as your main point remains. And ultimately it makes no difference - in that respect - if it's 3% or 7%. It will change the current (investment) environment (in every aspect, not only RE) significantly. And I consider that a good thing.

*makeremindertocheckforfedinterestrateindecembertwothousandseventeenandthenwritetobillitoldyouso* *g*

That is a good bottom line of looking at the future, yes. If interest rates are basically at 0 then there is only one way in the long run: up. And they will go up, no doubt. Whether it's a (small) hike in December or only in January, we'll see.

Then again, a .25% rate hike will not have much of an impact. Do the math: let's say you, as a consumer (not investor), finance your primary residence of 200k with 5% down, i.e. you need 180k from the bank. Further assume that currently you will get that amount for 3.5% interest rate (per annum). That's an annual interest payment in the amount of 6'300. Per month that's 525.

Now calculate the same with 3.75% because that's how much the bank increased the rate due to a .25% rate hike by the Fed (this is very simplistic and will not translate 1:1): total annual interest is now 7'200, that's 600/m. That's an additional $75 per month on a 200k property. IF this breaks the bank for you on that property then you shouldn't have bought it and financed it the way you did. At least in my opinion.

Now look at a typical investor, because there will be a difference. Why? You will never get by with only 5% down. More realistically it's 15-20%. Why is that relevant? Because you will need a smaller loan on that 200k property. You can run the math yourself. Bottom line: the difference is negligible in this context. And since these things are relative, it also hardly makes any difference when the figures get bigger. Because then you would have, overall, typically more money somewhere and wouldn't be bothered if the difference was tenfold. Again, simplifying things.

Long story short: such a small rate increase will not make a noticeable difference. But the .25% will only be the beginning. It will continue (in that regard I'm with Bill) and at some point we'll have - overall - some .75% or even 1% in the next couple months. And that's when things will definitely start to have an impact. The impact will be as Bill has described above.

Oh, and that's perfect for me as an investor as this only means more inventory for me to chose from as fewer people will be able to get financing, therefore less people will buy houses (= more for me) and might even have to sell (=even more for me to chose from) (leaving aside a delayed decrease in new construction). And how can I afford to still buy with increased interest rates? Because I don't leverage up to my eyeball and my ("cash-flow") figures work out.

I would even go as far as saying (again, somewhat simple): a serious real estate investor doesn't care much about interest rates. But that might be a somewhat bold statement. ;-)