All Forum Posts by: Doug Smith

I'm a lender and I have three different deals going on right now like that. In all three instances, the contractor underbid the jobs to get the business. One realized he couldn't do the job and walked off. We funded the first draw of another and now he's telling our borrower that he doesn't have the money to order materials. We vet the contractors that our borrowers use before we lend to a certain extent, but this happens more than you know. Make sure the contractor is paying the subs. Even if you think you've paid for something that the contractor did, they might have used that money "to pay Paul" and not the subs. The subs then have every right to slap a mechanic's lien on the property. Have your business/construction attorney look over your contract with the GC. I would start there instead of going directly to a complaint. A well-timed letter on a law firm's letterhead might shake the bushes a bit. I hope that helps just a bit.

One thing to be mindful of is the cash flow of the property as you get into higher LTVs. The other thing to think about is the length of time you've owned the property. Most DSCR programs will want you to have owned the property for more than 6 months to allow you to use appraised value instead of cost. There are lenders that will do 0% origination, but fees and rates are like two levers that usually have an inverse relationship. Often times if you lower the rate, the fees go up and vice versa. Make sure the lender you choose has a strong background in this type of lending...check them out on Linked In to see their experience level. Often times someone passes their NMLS test, hangs their license, does a few Fannie/Freddie deals, then tries to get into investor lending. It is a bit of a different animal. I wish you well in your real estate endeavors.

In Tampa here as well.That is a question for your asset protection attorney, but most of our borrowers/clients in FL have LLCs. You can set it up yourself at www.sunbiz.org , which is the website for the State of FL Division of Corporations. Under "Start a Business", choose "Limited Liability Company" and follow the directions. Lenders will want to see the filed Articles of Organization, an Operating Agreement that you can get from your attorney or, if you're brave and it's just you on the LLC, some people use Legal Zoom or Law Depot. Many if not most lenders will also want a Certificate of Standing that you get when you file your LLC on sunbiz. After that is done, head over to IRS.gov and apply for your EIN (Tax ID). You'll want to print and save the SS-4 Letter that you'll have the chance to download at the end of that process. Once again, consult your legal advisor on this stuff, but that's what most of our more savvy clients do. Good luck.

There will be people that do them on here. We do them, but for HELOCs we only do them in FL...other loans we go National with...but not HELOCs. There are, I'm sure, people on here that do them in MD. 

We're based in Tampa and, in addition to personally investing, I own a mortgage company that provides financing for tons of investors. Whatcha got?

Kiavi (formerly Lending Home) was one of the first lenders for Fix-n-Flip,but they are very automated. Many others are more "manual". I wouldn't think that a lack of a Lexus Nexus profile would disqualify you. I'm happy to discuss it further with you (I have appointments this morning, but will be back after lunch) and there are a ton of options now. I answered a question yesterday by saying "DSCR loans are like belly buttons...everybody's got one." You just have to make sure you're using someone that actually knows what they are doing and not someone that throws it to a lender that specializes in Conventional Loans. If that's your only issue, then you should be OK.

That is very standard. Our Florida mortgage practice was basically shut-down for 4 weeks due to Hurricanes Helene and Milton. It really sucked, but we had to have "reinspections" done on most of our deals in progress due to those storms. I feel ya, but it's a normal and customary practice. 

Technically, Sub-To is legal, but the way some "gurus" teach it, I have problems with it. The Due On Sale clause was added I think in the 1980s because of "sub-to" deals. Sub-to has been around for a very long time. In many cases, it weakens the lender's position as they did not underwrite the buyer and an owner-occupant tends to pay better than non-owner-occupants. Some gurus tell practicioners of sub-to to hide transaction from the lender by saying the lender doesn't care as long as the payments are being made. That's simply not true. For instance, I served as an expert witness in a case where a property was transferred to a new owner sub-to. The new owner did not make the mortgage payments and the seller had no idea until they were served foreclosure paperwork. The seller had a military contractor job with security clearance. The trashing of his credit threatened his job. Most seller's in a sub-to don't understand the risk they are taking and most lenders have concerns over the overall portfolio quality ratings which has an impact on their cost of funds. Sub to us a bigger deal than most people realize. It's not illegal provided you're dislosing it to all parties and not trying to actively hid it. Now, getting around the Due on Sale might be as easy as doing a Contract for Deed or a Purchase Option instead of Sub-to. In those instances, the title doesn't change hands, thus, the Due on Sale isn't triggered. I hope that helps. Good luck in your investment journey. 

Commercial Revenue Generating properties like office buildings, apartment buildings, retail centers, etc (banks call it "CRE" lending) are typically evaluated from their net operating income, not gross. You get a Capitalization Rate (CAP Rate), which equals your annualized return by dividing the Net Operating Income (you had gross in your narrative) by the purchase price. I realize I don't have the actual NOI, but that price sounds super high for the gross income you're stating in your narrative. I was chatting with some of my lending buddies at big banks and they are all backing away from the CRE space including office because operating costs are increasing more quickly than rents. In my home market of Florida, our insurance rates have made it much harder to have positive cash flow on a CRE deal. Be careful the seller isn't unloading a problem on your. There is a saying "if you've been sitting at the poker table for more than 15 minutes and you don't know who the patsy is...then you're the patsy". That being said, I don't have the information I would need to say for certain, but that sounds as if that's a high price for the asset you're considering to buy. I wish you well in your project.

DSCR loans programs are like belly buttons...every lender seems to have them. I think the key is to find the ones that actually have a strong investor/commercial background. There are tons of us that have DSCR programs on here. I would chat with those that you feel you can build a relationship with. You want a lender that will help you grow. Chat with two or three to see who you feel the best about. There are tons of us out there.