All Forum Posts by: Austin Negron

BP Community - We will be hosting our 3rd investor's meetup on 3/9/21 at 6:00PM. The address is different from last time so take note of that. Instead of a farm, we will be meeting at Christian's most recent BRRRR acquisition. There will also be food of some sorts. We're looking forward to seeing you all soon. If you have any questions in the mean time you can contact me at 4846648852.

0 Votes

Happy Friday everyone. It's a beautiful day to discover the difference between get qualified and approved.

The first step to acquiring your first investment property is to understand how much you can afford for said property. At a surface level, there doesn't seem to be a huge difference between being pre-qualified and pre-approved for a loan, but there are definitely instances where one is better than the other.

The key difference is that getting pre-approved is a more formal and concrete way of understanding your ability to attain financing on a home.

For a pre-qualification, you will have a discussion with a lender explaining your credit, debt, income and assets. The lender then estimates how much you can potentially borrow.

Getting pre-qualified gives you a sense of your financial readiness & is a good first introduction to the various mortgage options. However, it is not a formal arrangement and often doesn't require you needing to show proof of your financial situation. It's a good way for first-time home buyers who are testing the waters and aren't quite ready to jump in.

For a pre-approval, you need to provide proof of your financial history and stability. The lender will verify your income, employment, assets and debts, and will check your credit report. You'll need to provide your W-2s, pay stubs, summary of assets & liabilities.

If the lender decides your financial standing satisfies the requirements, you'll get a pre-approval letter. This will state how much the lender is willing to offer, along with the terms & conditions. Especially in Boston, being able to show this to sellers and listing agents is key for a competitive offer.

It is not a guarantee that you will able to attain financing, but it shows you're a serious buyer, which is half the battle in a market like Boston.

The higher-level takeaway is that if you are looking to immediately acquire a property, you will want a pre-approval letter (these last for 90 days). If you are just looking to get the ball rolling and maybe not acquire a place for say, 6 months, then getting pre-qualified might be all you need at that point in time.

Hope this helps.

4 Votes

Boston, Massachusetts

Goodmorning BP.

I'd like to hear your general rule of thumb for estimating expenses on a MF properties after it's stabilized in the Boston area. Of course everyone has their own formula for what they're looking for but I've heard anywhere from 32-50%.

Example if monthly rent is $5000 monthly expenses are $1,600 (for 32%) - only taking PITI into account

It seems like seasoned investors have found a comfort zone assuming between 35-38% of NOI.

What do you think?

0 Votes

Boston, Massachusetts

Well said. I completely agree. I'll have to give podcast #121 a listen!

Originally posted by @Andrew Syrios:

Originally posted by @Austin Negron:

I agree, it is extremely beneficial if an agent has a general feel for how much things might cost in addition to having a strong relationship with some contractors that will treat their clients well. Of course that's not to say the client should blindly believe an agents estimates, it serves as a good place to start.

Originally posted by @Andrew Syrios:

Good list, although I would add some knowledge about rehab and construction as well

A strong relationship with contractors is definitely helpful for quotes and referrals is great, but I think it's even more helpful for evaluating properties and getting that ballpark rehab figure (to be verified by professionals of course) that is so helpful particularly to newer investors

0 Votes

Boston, Massachusetts

I agree that first time home buyers should not blindly trust an agent's calculations, however from my experience clients have very much appreciated agents that are willing to take the time with them to highlight how the numbers may play out - especially for those who are making their first investment.

For someone like you, it makes sense that you probably don't care if an agent sits down and run numbers with you or not - but I would also consider you to be a seasoned investor, who has done these calculations many, many times before.

I also believe that in one way or another, agents very much do have skin in the game after the transaction - their performance and willingness to help with most likely either lead to referrals or not - which quite directly effects their future financial interests.

With that I suppose I would add to the list to not work with agents who are looking to make a quick deal stemming from their own self-interest.

Originally posted by @Dan K.:

Agree with @Lien Vuong -- without local knowledge you could use an agent or broker from anywhere in the world.

As for Running the Number -- I would on rely on an agent or broker to run the numbers on comps, area rents, etc. Agents and brokers aren't in the insurance, mortgage, investment, management, legal, etc. markets. You need to do your own due diligence. An agent or broker has zero "skin in the game" after a transaction. It is within their financial interest to make a deal look lucrative.

It's important to keep in mind that agents and brokers make money based on transactions. A good agent is focused on relationships, but they make money on transactions.

None of my comments are meant to be anti real estate agent or broker. These professionals play a very important role in the investment process. However, they play a role and serve a function.

0 Votes

Boston, Massachusetts

Originally posted by @Andrew Syrios:

Good list, although I would add some knowledge about rehab and construction as well.

0 Votes

Boston, Massachusetts

sometimes learning what you don't want is more fruitful than what you do***

0 Votes

Boston, Massachusetts

That sounds about right. The reality is that most realtors are accustomed to selling homes to buyers who don't see it as an investment but a home to live in for 20-25 years (granted this is somewhat an investment in it of itself). But realtor's weren't originally meant to have a strong understanding of investing strategies, let alone the blatant misalignment of incentive - realtor's get paid a higher a commission when the purchase price is higher - when in reality a better system would be if realtor's were compensated more (at least on the buyer's side) if they were able to get the lowest price for their client.

But I don't see that happening anytime soon. I agree that sometimes learning what you don't want to more fruitful than what you do. Hope you are well - Austin

Originally posted by @Kevin Zolea:

@Austin Negron I definitely agree. I had to part ways with the first agent I used because he was extremely pushy and didn't value the numbers I was trying to achieve. In the end, it worked out great because it taught me what I didn't want in an agent!

1 Vote

Boston, Massachusetts

This is awesome information. I confused the significance or lack there of which unit was rented not effecting the SST but now see how that effects DTI and the related loan size. Thank you for your willingness to explain that. Now that I have a clearer understanding it makes sense that renting out the smaller unit would increase your loan size because you'd presumably be getting more income. I'd also imagine this takes place after the property is put under contract in terms of shopping around different loan sizes. Thank you for the insight. - Austin

Originally posted by @Bradley Padula:

Originally posted by @Austin Negron:

These are some really good points - I often harp on the important of keeping the SST in mind - especially because it seems to be an important concept that isn't mentioned enough.

In regard to reserves - this is also true - I've been told to generally use 70% of the 401K amount because of the taxes for dipping into those funds.

Can you expand on the idea you brought up about qualifying for a largest loan by occupying the 'least expensive' unit - from my understanding - it doesn't matter which units are being occupied by whom. But I could be incorrect. Please let me know what you've learned from your experience.

It does matter, you should talk to a lender to understand the loan a bit better. And Sure, I can tell you from personal experience. If you are going to buy a duplex, and say one unit is a 3 bed 1 bath, and one unit is a 1 bed 1 bath. Which one do you think will rent for more? Let’s assume the 3 bed 1 bath will rent for more

If you tell the lender you plan to occupy the 1 bed 1 bath, a portion of the projected rent from the non owner occupied unit ( the 3 bed 1 bath) gets included in your income when they run your DTI

If you say you're going to occupy the 3 bed 1 bath, then the non owner occupied unit (the 1 bed 1 bath in this case) get included in your income when they run your DTI

More $ will be factored in if you occupy the smaller unit than the larger unit

The fha self sufficiency test is where for 3 to 4 units the rents for All units minus a vacancy provision is calculated to make sure the the property could carry itself. But that’s separate from the lender calculating how large of a loan they’ll give you based on dti

If you reply to this, please tag me so I get a notification. The reason I saw your reply from 6 days ago was someone upvoted my post last night and I clicked the notification this morning, lol

0 Votes

Boston, Massachusetts

This is true man. It's tricky. Even in this deal, the numbers looked really good, but that came at the expense of some drawbacks - the house was extremely small, felt crammed, and certainly didn't seem like the most ideal housing experience. On top of that, there were already leases in place which would delay the ability to owner occupy which would restrict the ability to leverage the FHA, unless one wanted to close in late June (which in this case, the individual did not want that). Oh, another drawback is that is was a single family home but it was connected physically to other single family homes, where the ideal situation is most likely one stand alone property. Suburban markets can work well but the further away from Boston might affect its long term appreciation and the increase in rents you can charge over the year which would affect your cash flow. With that being said, there is a different approach that is best for everyone dependent upon their wholistic life situation. Some people may fair well with multi-family in Brookline while other people may benefit from a single-family in Worcester.

Originally posted by @Blue Rybo-LoPresti:

@Austin Negron

Great article Austin! I'm in Cambridge, and looking to purchase my first property. Ideally a small multi family house hack with a FHA loan. However, Cambridge/Boston is expensive, and a tough market to find cash flowing properties for a first time investor. Therefore, I am considering other markets in a one hour radius from the city. I've been seeing some interesting deals in Fitchburg. Any thoughts on sububuran markets where small multi families cash flow well?

0 Votes

Boston, Massachusetts

All Forum Posts by: Austin Negron

Austin Negron has started 28 posts and replied 51 times.

Post: Boston Investor's Meetup

Post: Pre Qualified vs. Pre Approved

Post: What % of NOI do you use for estimating expenses?

Post: 3 Tips for Choosing a Realtor for Your House Hack

Post: 3 Tips for Choosing a Realtor for Your House Hack

Post: 3 Tips for Choosing a Realtor for Your House Hack

Post: 3 Tips for Choosing a Realtor for Your House Hack

Post: 3 Tips for Choosing a Realtor for Your House Hack

Post: Using a Gift to Pull Off Househack

Post: Example of Househack #'s I Almost Put An Offer On