All Forum Posts by: Arjay Vergara

My wife and I have our first rental property under our belt: a single family residence, purchased in end of 2016, fixed up, and started renting in May 2017.  We quickly learned that we want to scale and make the move to commercial/multifamily/apartment building investing.   I am new to commercial obviously but am diligently trying to get myself acquainted with all the strategies and terminology, so please forgive my lack of knowledge on some of these things.

I am trying to gain my practice and experience in analyzing deals.  In my situation, I have very little cash on hand to finance the deal, therefore I will try and analyze deals with financing via a hard money loan.  My real estate agent told me to assume 20% down and ~12% interest rate. My questions right now are primarily for me to determine how much cash I will need to make a deal happen.  

• what else should I be accounting for in order to determine how much cash I will need to close on a property?  Looking at hard money lenders' websites, I assume I should also account for origination points ( is percentage off of loan amount?) and in my case transfer taxes (PA properties and I live in NJ).  Are there typically any other costs associated with closing?  I am so used to typical conventional banks that I am wondering if things like escrows are needed for property taxes, insurance premiums and first 3 months, recording fees, etc.
• What are typical terms with hard money lenders? are loans based on LTV, LTC, etc? In other words, is that based on the purchase price, Project cost (purchase price + repairs), after repair value, etc. I assume this varies between lenders but figured I'd ask and see what is typical and/or get clarification on what this means.

I have my own spreadsheets set up but I definitely want to be conservative and make sure I really nail down my analysis so I don't underestimate any costs, so here I am asking my fellow peers what I may be missing.  Thanks in advance!

- Arjay

@Chris Bell - No this was a conventional loan with one of the big banks.  It is a 30 year fixed @ 4.875% and 20% downpayment.  I am going to look into doing a cashout refi when I hit the 1 year mark.

Not sure if this is the best way to respond but I definitely appreciate the kind words so I do want to respond..

@Yingchun Li - Thanks!

@Brian Kehoe - Thanks!

@Paul Bowers - Thank you and thanks for the word of caution.  Yes, I was not happy with the marketing but otherwise he is so far great.  He, along with his team, is very professional, attentive, and responsive.  I will see how things go from her on out.

@Dustin Dummer - great question and I forgot to mention. We went with a conventional mortgage loan and put down 20%. We went with a HELOC to finance the down payment and used some of our own money to pay for rehab costs. While my wife and I make good income we wanted to maintain our cash reserves. We use some of the cashflow from rental income along with our own income to pay back the HELOC.

@Angela Yan - Forgot to mention in my original post but I did respond to someone else's comment.  It came out to $14k. (some work was done by me and some was done by contractors)

@Amanda Fabian - Thanks!

@Sing Ho - Thanks! deals are hard to come by.  It didnt come quickly and we saw A LOT of properties.  We have a google drive full of spreadsheets for analyzing potential properties.

@Erik Sherburne - Thank you! we share the same inspiration!

@Tyler Sims - Thanks! 

@Account Closed - Thanks! and congrats to you as well!

@Joe White

@Joe White - Thank You!

@Justin Kill - Thank you! my wife is great with design. We watch a lot of HGTV together and take design quite seriously.  We try and keep up with current trends while maintaining a classic look that anyone/everyone can appreciate.  

@Marlon Long - thank you! I love hearing 1st deal stories myself.  I am hoping my story can help other people as well.  

@Laticia Braxton - Thank you! Both babies are great!

@Steven D. - Thank you! and first rent check went to property management.

@Michael Enriquez - Thank you! feel free to message me if you want his contact info.

@Michael James - Thank you! and I hope the momentum builds up as well! That is our goal!

@Robin Boyer - Yes, it was very hard to come by anything more than 1% in our area.  As I mentioned in the post, we put in an offer on another property in order to achieve 1% but it was considered a low ball offer.  I think this property has huge potential for appreciation as there is a lot of new construction in the area and home values have been increasing steadily.  Comps in our area at the time of closing were close to well above $160k.  Good luck on your search!

@Maurice Ilao -  Thank you! and glad to hear you too are getting started.  I cant speak too broadly across all of Philly as there are many different areas with different neighborhoods.  During my search, I was looking for a ~B class neighborhood with generally working/middle class, young professionals to families, and properties with generally good bones that just needs some TLC.   With this basis and finding the right deal, I was crunching numbers and getting $150-200 per month after all fixed and variable costs.  Feel free to message me if you have any specific questions about the area!

@Joseph Sangimino - Thanks! basement floors are just a new peel and stick tile over the existing.  The floors on the utilities side (where electrical panel, washer/dryer is) is unfinished concrete so we painted that and all the walls with an exterior type paint/primer.

@Rebecca K. - Thanks Rebecca! I thought about turnkey at first but I definitely learned a lot from Buying and renovating.  It definitely took time and effort but we are so glad we have a cash flowing property with property management in place. I am with you on the multifamily properties! I hope to learn more about it.

@Eric Moore - Thank you!

@Andres M. - Thanks! Yes, reading and practicing analyzing deals is great! just be persistent and remember to keep the end goal in sight so that eventually you will take action and close a deal!  Good Luck!

@Alexis Mobley - Thank you!

@Kyle Novak - Thanks! and good luck on your first deal!  

@Olu Ray - Thank you!

@Randy E. - Thank you Randy!

@Jake Thompson - Thanks Jacob!  It was definitely a great feeling after every milestone throughout the journey and then some anxiety in between.  There are definitely a lot of small milestones from start to finish (analyzing deals, visiting properties, making offers, closing, rehab, listing, property management, etc.).  However, every time we hit something new we did a lot of research and reading on Bigger Pockets and by doing so, we gained a lot of experience and knowledge.  Good luck with your management!

@Anton Taylor - Thanks Anton! My wife and I love design and would love to do more deals where we can definitely add value.

@Jon Ree - Sure! We searched around different pockets of Philly and ended up getting one near Manayunk/Roxborough, an area which we are familiar with and have visited personally.  The numbers:

• $139k Asking price
• $125k purchase price with $5k in seller concession
• $14k in Reno costs (would have been much less but due to our circumstances -- bun in the oven -- had to contract some work out)
• Rents for $1,400/mo

Thank you all for the support and kind words!  I may be getting ahead of myself, but I am starting to seriously consider going commercial/smaller apartment buildings (10+ units, and not necessarily in Philly).  This was a great first deal but I definitely see the appeal and benefits of multi-family / apartment buildings.  It is back to the books and the forums again and hopefully more networking with many more of you guys and gals.

 Thank you for the kind words Courtney!  Great to hear you have been successful as this is exactly what my wife and I are trying to accomplish as well.  

My wife and I just did our first deal in Philadelphia PA and got our first rent check on June 15, 2017! Ive been on the forums since ~December of 2015. Prior to that, I never thought of real estate as a viable way of investing mostly because I was uneducated on the topic and was only taught the typical, conventional methods (401k, bank savings, etc.).  When I stumbled upon a BP podcast and listened to the first few minutes, I was immediately hooked!  I approached my wife and she also was hesitant and skeptical but after listening to a few podcasts she was on board.  We did a lot of reading, listening to podcasts, and poking around the forums until we came up with our target strategy of Buying and Holding for passive income.  I built my own spreadsheets and methods for analyzing deals.  While we explored different markets (NJ, PA, Texas, North Carolina) we finally stuck with Philly, PA since we were familiar with the area and relatively close as we live in central NJ.  By April/May of 2016 we started looking for properties.  We put in an offer on one property in July and were super excited.  Unfortunately, it got rejected and so we were back to the drawing board analyzing and finding deals.  We finally found another potential property and put an offer in November and closed December 30th!!

My wife was also carrying our first child so our time to rehab the place was limited.  I would go on weekends sometimes by myself and sometimes with my father in law.  We hired a contractor to do more of the major work.  By February we were ready to list the property with our property manager.  We got tenants to sign a lease and they moved in starting in May.

It has been such an adventure and we learned so much through this whole process.  We are so thankful for everyone at Biggerpockets and are glad that a resource like this exists.  We look forward to doing more deals and networking with as many BP members as we can! =)  

Some Before/After Pics.  (Sorry not the best quality since I am grabbing from the property managers listing which is pretty low res.  we got close to the baby's due date so I wasnt able to go out there with my nice camera to snap good pics but hopefully this gives you an idea on the transformation)

@Daria B.

Thanks for the input. How are you able to refinance? Do you count on appreciation or are you renovating the property so that it can appraise higher when it comes time to refinance. And is your cash out refi enough to cover your HELOC?

Im curious to know how much I should apply for (the max I can get or just the amount I need)?  

So I am trying to be a bit more creative with financing my first investment property. My wife and I bought a home a year ago and after talking to a big bank financial officer about taking out a HELOC on our primary residence, he said they should be able to do 90% LTV on the home which would give us $56,000. This is assuming I am low risk. If I am higher risk, I'll assume they might only do 80% which would give us $21,000. We have some cash reserves but would like to keep that for emergencies, vacations, future renovations on our primary residence, and future kids. That is why we started looking into drawing into our home equity to get started and get the ball rolling on real estate investing.

In either case (whether we get 90% LTV or 80% LTV), we are planning on partnering 50/50 with my father in law on SFRs with a target price of $100k. That would be $25k for a 25% down payment. Split that 50/50 is $12.5k plus closing costs, taxes, any minor renos, etc. So assume I use up $20k on my end total (father in law puts in another $20k for his half) for all upfront costs.

Im still learning about HELOCs and how they work, but I am reading that it is similar to a credit card and will affect our credit score. Assuming the same general rules apply, would taking out $20k be harmful to me considering it is more than 30% in scenario 1 where heloc LTV is 90%? and even worse in scenario 2 where LTV is 80% and taking out $20k would be almost using up the entire line of credit?

How do most of you use this strategy (using HELOC on primary residence for down payment on investment property)? And how are you paying it off?

I assume you want to pay it off ASAP. If that is the case, I would probably just use my income from our jobs to pay off the heloc, which could still end up taking years to pay off. Since we are interested in buy and hold, the cash flow coming in from the rental could be used to help pay off the HELOC, not much but still something. I would care more about obtaining properties rather than actually achieving cashflow initially so long as eventually I have rental properties that cash flow once the initial HELOC used to obtain them is paid off.

Do you guys have any guidelines or tips when using HELOCs from your primary residence to cover the down payment on an investment property?

Thanks!

@Mehran K. I just got discovered my interest in REI a couple months ago and your most recent podcast is what really motivated me since I live in NJ. Hearing your success story is definitely very reassuring and inspiring. I hope to one day be there with you and share my story as well! Good Luck!