All Forum Posts by: Brad Gibson

My personal credit score is an 840.  Was run last month.

Just got a DSCR rate quote of 8.875% today as well. I don't think there is a pre-payment penalty. 20% down on a SFR. Rate sucks. Origination fees of $4101.

The deal is still a winner from a cash flow and cash on cash return, but damn.  Expensive loan.

Traditional financing isn’t available as I have ten loans with Fannie/Freddie. At this point, hard money or portfolio lenders are the best things available. Two local banks lend to me. One does a 15 year amortization. The other does a 20 year amortization. They don’t offer a 30 year product. There are some lenders from brokers, but the fees and rate are exorbitant. 

 Cash on Cash return if I flip it will be 143.5% before taxes and minus some minor holding costs. 

I've got what I think should be a buy, but it doesn't fit into my normal "buy box" and I'm looking for some advice on how to proceed with this one.

I have a single family property in the Midland/Odessa market.  It is a 3 BR 1 BA in a C neighborhood.  The estate is trying to get rid of this property.  It has been on the market for a while.  There are 9 heirs so it is like trying to herd cats for their agent.  It was on the market for $140,000.  Agent asked if I would buy it at $110,000.  After inspections, we went to $90,000 with $5,000 in closing costs paid by sellers.

My GC will fully renovate the home for $65,000 including moving utility room, putting in a hallway to reconfigure the bedrooms, adding a bathroom to bring it to a 3/2, and open up kitchen to make it an open concept kitchen/living area.

Local portfolio lender is offering to finance 80% of the total project cost of $155,000 at 7.625% fixed on a 15 year amortization. ARV value for the home will be conservatively 200 to 210 thousand. So for $31,000, I'll start with $76,000 plus in equity.

The concern is that the home will cash flow only $100 to $150 per month after expenses (mortgage, taxes, insurance, management, vacancy, repairs, capex). That puts the CoC return at a very anemic 3-5%.

Should I just ignore the fact the deal will barely cash flow and take the overall handsome return due to forced equity? For reference, I generally buy, rehab, rent, & hold very long term. Thus, the actual return to me is pretty anemic because all of the profit is in equity. I generally like to see 12-20% CoC return, but interest rates are making that tough to find now. In addition, the 15 year amortization means a depressed CoC return rate since more is being poured into equity each month.

Thanks in advance for the fresh eyes and perspective.

Hi Grant. Thanks for the response. I am not familiar with a DSCR loan.

Would I still need approximately 20% down? Are the rates similar to other jumbo loans?

Also, just to note, this would be a second house for personal use. We might consider a VRBO u til we move in full time, but it might just be a vacation home. 

I'm looking for ideas or recs for financing a second home.  My wife and I are looking to purchase a second home in the San Juan Islands area of Washington state.  We are not looking to re-locate, just buy a great second place to spend some of our time with an eye toward retirement in that area eventually.

Both wifey and I have good W-2 jobs.  We also have no personal debt.  Primary home is paid off.  Kids college is paid for.  Our cars are debt free (she drive a 8 year old car and I drive a 7 year old vehicle).  We are maxing out retirement savings through our workplaces.

We also have a 26 door real estate portfolio that is leveraged by about 1.8 million, but is worth conservatively about 3.15 million.  We have 8 notes that are backed by Fannie/Freddie & the rest are portfolio loans with local banks that finance our investment property purchases.

I'd like to get some guidance on the best way to get financing for the second property.  We have approximately $100,000 in personal checking accounts and about the same in the business accounts.  

What I don't have is a banker who can seem to get past the $1.8 million in debt to lend on a personal home. Never mind the debt is collateralized by a SFR & multi-family portfolio that is worth 1.3 million more than the debt obligation and every single door is cash flow positive. The local banks won't lend since it is outside their area. Rocket mortgage and Wells Fargo enthusiastically get all of the information and are excited until they get spooked by the debt on the rental portfolio.

I need a lender who can actually analyze the situation rather than simply run a debt to income ratio.  Any suggestions or recs in the Washington area or a national lender that has cerebral activity?  Oh, our credit is in the 800's.

Thanks in advance for your help.

I understand your frustration with overall government policies, but I also think this is a necessary half measure to assist landlords who are getting crushed by the double whammy of tenants unable to pay due to Covid downturn in the jobs market & a moratorium on evictions that won't allow us access to the court system to reclaim our own properties when there is a breach of contract. 

I'm stuck paying utilities, repairs, insurance, etc. which unable to collect rent or enforce the contract made with the tenant.  The feds either need to lift the moratorium on evictions or make the landlord whole in some way or another.