All Forum Posts by: Doug Smith

That low loan amount is what is skewing your origination fee. That's really not bad...we wouldn't even do that low of a loan amount. 

We do it, but the LTV is limited to around 70%. Options for non-recourse paper on a smaller deals (non-CMBS deals) are pretty limited.

I think the big question is what is the realtor doing for you. For instance, my wife has a formal degree in architectural interior design and she works with investors to basically manage the project. She passes her trade discounts on to the investor and works with the GC and Architect on plans, finishes, project management, etc. She brings a ton of value and gets paid when the property sells. Conversely, we seen agents that slap the property on the MLS and...well...that's pretty much it. A good agent that understands investing, if they are doing their job, is worth their weight in gold. That being said, they are few and far between. Most are full of crap and don't do close to the amount of business nor have the experience they claim. For instance, she just finished working with an investor to complete a really well-designed new build. When it was listed, tons of showings popped up where the were "previewing" it for a client. The agents then proceeded to film walk throughs to post about how they are "experts" in investor/new construction. I personally know of two HGTV shows that are completely fake. What was on TV was not at all what they did. In many cases, they were touring their "luxury listings" in my town when, in fact, they were listed by other people. Don't be afraid to pay a good agent that brings value. Conversely, make sure the agent you bring on board really and truly has the background they claim.

As a lender that has also personally invested in many properties, I think both sides can get too greedy. You can also add realtors and wholesalers into that statement. I think we as lenders need to remember that we have a vested interest in making sure an investor is successful. If the investor is successful, they'll come back again and again. In many instances, parties to a transaction try to hit a home run in one deal instead of remembering that they'll do better in the long run by taking care of the other people in the transaction. That doesn't mean that we'll sacrifice to the point where we lose money, but we always remember that the deal has to work for everyone. That's how long-term relationships are made. That's my tip for this thread. 

I think most of us do, but the problem that I've discovered with 15% down programs over the past couple of years is the balance between the cost of the home and the rent it can garner. With the DSCR formula being Rent/(PITI+HOA), we're seeing that most savvy investors are putting own much more...in many cases 30% to 35%...to get the DSCR above 1.0%. Your question of "does the product exist" is a yes, but the better question might be "will the property cash flow at a 1.0X or better at 15% might be the more appropriate question.

Great question and I was a bank executive for a bajillion years before my current role. Banking has changed. 30 years ago, you could walk into my bank, chat for a while, shake hands, and leave with advice or a loan check. Now, bank branches are staffed with lower-level trained monkeys that can't answer basic questions. Heck, my company added Equity Lines when I walked into three bank branches for an Equity Line for a pool and I couldn't find someone that knew how to take the application. I ended up having to do it myself...but I'm going off on a tangent. Bankers are also brainwashed to hate real estate investors. I was back in the day until I actually became one myself. Trust me, your branch bankers will be ill-equipped to answer your questions. We don't do LLCs for each property. To me it's like swatting a fly with a sledgehammer...and I was originally an accountant and then a banker for 30 years. We have one operating account and one escrow account. That's it. Of course, that's a personal decision. I wish you well in your endeavors. 

We're always looking for great private lenders to run some of our investor clients through. I'll PM you. 

Debt to Income Ratio will be used for more conventional types of financing (Fannie/Freddie). I own a mortgage company, so I have my loan officers use this Fannie Mae income calculation tool for all business for self borrowers: https://singlefamily.fanniemae.com/applications-technology/income-calculator . This is the actual calculator that traditional underwriters will use. Now, if you're buying in the name of the LLC and you're doing a DSCR deal, that will be irrelevant. Back to the DTI, if you want a quick down and dirty way to do it, start with the bottom line 24 on the 2024 return, then add back in Depreciation (line 18), and possibly interest expense (lines 12 and 13) IF it's also counted against your debt in the liabilities section of the application. The link I put in above, however, is how underwriters are going to do it. I hope that helps you.

The deals not going to get better because of the questions you ask, but we look for three main things from an investor: 1) Liquitity/Financial Assets, 2) A good credit score, and 3, and this is a big one, Experience. You'll want to take a spreadsheet and create a list of all properties you've purchased...particularly in the last 36 months and include the address, lender, purchase date, either rent you receive or disposition date, how much you sold it for, how much you rehabbed it, etc. You'll want to gather the last 2 or three months of COMPLETE bank and brokerage statements...even if you think we don't need to see it...give them to us. The more financial assets the better. Getting a lower rate will also depend on the amount you're putting down. Usually, we're looking at credit scores, Loan to Value Ratio,  & experience level, for the rates and terms. There's more to it than that, but have that ready when you speak to lenders. 

Most of the savvy investors we're working with, even through we'll lend more that this, are coming in at 30% to 35% down. When you look at cash flow modeling, borrowing much more than that causes it to be tough to get a positive cash flow. We won't lend without some skin in the game. Over three decades, I've not seen a ton of situations where no money down/100% leverage has worked well.