All Forum Posts by: Ben Stoodley

Hey @Reeves Bennett - BRRRR is a great strategy, just to be crystal clear, it will take 2 different loans to complete. First - a 12 month hard money loan to acquire & rehab. Second - a DSCR 30 year fixed perm loan to refi the hard money loan and hold onto long term.

What others have replied to is completely accurate - it is hard to accomplish BRRRRs right now due to the DSCR refi constraints (interest rates, LTVs and seasoning periods), however, not impossible. There are just numerous variables and calculations you must analyze to check. 

If done right, a well purchased flip will have multiple exits. DSCR loans are easier to qualify for when the asset values are a bit lower and rents a bit higher. Start with 1 flip, exit successfully, then slowly scale. I see so many investors go out of business due to growing to fast. Rates will take a while to come down, so don't try to time the market perfectly, just start slowly.

Hi @Freddy Hernandez and good decision to get going with the BRRRR strategy of real estate investing! Just a few notes on what hasn't been said already (Andrew left a great response).

The rental loan = the refinance loan = the "holding" loan. This CAN be done any way you want. We always recommend our clients try the Conventional Fannie/Freddie route first, as this will always be cheaper. However, conventional loans have the most amount of red tape, longest closings, etc, so you need to make sure its even possible to go this route first. Always have 1-3 reputable mortgage brokers for this stage. Conventional is a different ball game.

If conventional isn't an option anymore (it only makes sense the first 2-5 loans), then NON-QM will be your best bet. Non-QM stands for Non Qualifying Mortgage, meaning no Fannie/Freddie, but still tons of great loan options! The most common for investors is called the DSCR loan, as previous stated. DSCR loans are offered by non-qm lenders AND Hard Money Lenders. They are the same exact loan at the end of the day, regardless of which lender is offering it. DSCR loans are 30 year terms, typically Fixed Rate loans but do offer 5-10 year ARMs. The big thing with DSCR loans is that they need to qualify based on DSCR = Debt Service Coverage Ratio = Rent / PITIA = greater than 1.0. In other words, the property needs to cash flow itself, which is why personal financials are not a big requirement. If the DSCR qualifies, Credit is the next most important factor, typically you need 680 or higher, and the max LTV is 75% on a refi and 80% on a purchase. Some lenders can do 80% refinances IF it is only a rate/term refi.

One thing I always tell my clients is "most lenders are offering the same rates, same products, so pick a lender you can trust". Go with recommendations from other investors, here on BP, etc.

Good luck!!

Hey @Eric Don  - first, congrats on all the savings, impressive stuff, especially for your age! Being laid off sucks but take it as a sign, you're young, it provides the time to test multiple things before settling on the next chapter of your career. 

I always recommend teaming up with an experienced professional, ideally in your local area, but I'm sure remote would work fine as well. Experience is everything in real estate. One bad deal early on could end your career, where one bad deal down the road is simply a bad day. So I think the best investment you can make (besides Biggerpockets!) is teaming up with an experienced investor and learning the ropes from them while you invest along side their investment. Personally, I would be very weary of anyone that doesn't invest their own capital along side yours (no skin in the game), not saying this is a bad strategy but not the one I think one should start with.

Hi @Andrew Peterson and fellow San Diegan! RE Investing is a great side hustle while you are in the Corps - and thank you for your service. Buy and hold is a great strategy while most of your time is consumed with your full time job. As you gain experience and possibly have more time, then I would strongly suggest value-add projects, such as the BRRRR method. Fix n Flips or Fix n Holds (brrrrs) will allow your capital to go much further than just Buy n Hold.

I can't speak to the Cullman, AL market specifically, but I have done a few loans in AL and have seen numerous other strong deals. Having family as boots on the ground is a really good perk - especially when investing out of state. And you're in the right spot for networking, the BP community is great for this! 

As with all out of state property management, it's important to stay organized and know the laws. Landlord laws change all the time, so I would find a good attorney to touch base with 1-2 times per year as you scale. You can probably self manage until a certain size. If the finances allow, I would suggest going a bit larger, like at least a 4 unit, preferably 6-12 units. This will allow you to outsource the property management and create great cash flow, all with one address. 

Feel free to reach out with any questions or great spots to eat in SD!

Best of luck.

hey @Kizzy Williams nice choice in starting with wholesaling, great way to get your feet wet! I think Melanie just left a great post with lots of good tips. One tip I provide quite often is to try to "stand out", which is hard now a days. So as a wholesaler, besides offering good deals, what else can you offer your end buyers to make your deals stand out. We work with some wholesalers, for example, to provide pre-approved financing to offer with their deals. This isnt anything too new and amazing, just an example. Ultimately, your strength of deals is the most important. So I would recommend staying local in your searches, OR, keeping your markets niche. Don't offer deals in every market. Just offer solid deals in specific markets that you know well. Good luck!

Hi Cliff - I should've been more clear, servicing loans requires a license in CA when done for others. So you should be fine for this first personal loan (regardless of sdira or personal funds). 

What I mean by servicing = collecting monthly interest payments, providing necessary notices/disclosures to borrower before/during/annual, handling late payments, applying fees, and other items like adhering to state laws regarding commingling of funds and tax reporting. Again, this is not a necessary component for 1 loan at a time type of project. Servicing companies are relatively inexpensive and allow you to delegate a lot of admin & liability work. 

How you charge interest is completely up to you, within reason, as there are Usury laws in each state that will require you charge a maximum rate to the borrower, max default rates, etc. Charging deferred interest is certainly not the industry norm, in my experience. Most lenders will finance up to 85-90% of the purchase price + 100% of rehab at an annual interest rate of between 9-14% depending on LTV and experience, along with a couple origination points. Interest is charged only on the disbursed amount (rehab portion is held back and does not accrue interest until drawn upon by borrower). Interest payments are due monthly, paid in arrears charged on the amount of loan used during the past month, based on either 30/360, 30/365, or actual/365 interest accrual methods. There are certainly some lenders out there that offer differed interest, but I would say they represent less than 10% of the market (ballpark guess). Clarification, I am only referring to 1st position lenders, hence the 80-90% of purchase price LTVs, most gap lenders who help borrowers fund the down payment amounts due differ their interest. From the Lenders perspective, it's obviously less risky to collect interest monthly. But if you fully trust the borrower and more importantly the equity in the underlying asset, then differed interest payments would definitely help the borrower with cash flow.

Most states consider you as just a personal investor if doing less than 10 loans per year, but this is getting into the gray area of lending laws in each state. One loan is pretty straight forward, just make sure you have a good CPA, strongly consider reaching out to an attorney (Geraci is the biggest in the industry and they know their stuff, Dennis Doss is a smaller but equally knowledgable attorney), especially if you plan to do this a few more times in the future.

Hope this clears it up.

@Cliff T. great choice with the lending, and even better with the SDIRA! That is a very common way for our investors to structure their investments as well. I'm sure you are lending to trusted people/friends at the beginning, but make sure you consult an attorney with regards to the loan agreement, trust deed, note and other related docs. Every state requires different disclosures and statements, so it is important that you get those included in your loan doc package. Servicing your loan requires a license in CA, but if you're not licensed, there are many 3rd party servicers that do a great job. Let me know if you have any questions and best of luck on this new venture! 

@Peter Morgan there are so many options to invest $250k that can yield you higher returns and additionally are asset backed, securing that capital. As mentioned, the US GOV is very trustworthy as a borrower, but there is no actual security or control. The market is crazy right now, many investors will fail….AND many investors will win big. Commercial real estate, alternative classes, hard money funds, lending your money out personally, JV deals, angel invest in a business, syndications can all do very well at times of disruption - it all depends on the operators, they need to take advantage of these changes. Many of the greatest companies are started during recession times. TBonds are "safe" like a W2 job is "safe", that's purely opinion/perspective, it all depends on your needs and goals. Most importantly- congrats on a great career thus far and continue crushing!

@Josh H. great work on building up your business over the last few years! You are def in a good position. Rates are not very important, here's why.

1. 10-12% for hard money is NORMAL, back in 2012-2015 all of our loans were 12-14% rate with 3-4% origination, no one blinked an eye. 

2. Rates were TOO low last year when hard money was going out around 7-8%, that was the mistake of the wall street money coming into the industry and underpricing things due to their inexperience with hard money. Most of the private lenders that have been through numerous cycles never lowered their rates below 9% because they knew the rates would soon bounce back to 10% ish. 

3. MOST IMPORTANTLY, rates increasing on the national retail level is a sign of the overall economy (or consumers emotions to the inflation anyways). This should produce a buyers market eventually. As foreclosures tick up and prices level out, there will be better deals to be bought, deals with bigger margins on them, even at lower values to the end consumer.

4. You should start holding onto some of your flips, refinance them into perm loans, build up your portfolio, whether the downturn of the house values, offload some of them in a few years when values bounce back.

Good luck!!

Hi Alberto - investing in hard money is a very good passive strategy. I would strongly suggest only investing with a hard money lender that you know, trust and has a reputable career of quality loans. I would suggest reviewing their loan tape over the past 2-3 years and confirm how many of their loans went into default - and if so what the outcome of those defaulted loans were. There are numerous ways you can invest with hard money lenders, depending on that lender's structure, but these are the most common two ways:

1. Most lenders have a Fund in which you can invest your capital, which pools together numerous investors capital, then lends that capital out to borrowers based on the Fund's requirements (all set forth in the Operating Agreement, Subscription Agreement and Private Placement Memorandums). These Funds will typically return you 8-14%. 
2. Another way is to purchase individual notes from a hard money lender, which which case your investment would be secured to the underlying asset of the note you purchase, which many people feel more secure with, this strategy is good if you are more knowledgeable about real estate and want more control (vs the Fund investment where you just get payouts from the lender, but no control).  

Regardless, you will want to do a thorough analysis on the loans in which you are investing in, via a Fund or directly purchasing the note. The market is very volatile right now. Hard money was as low as 7% just a couple of months ago, now averages are around 11%. This is good for investors, as they make a higher ROI. The rising rates can cause some lenders potential harm if not managed correctly though, so this market fluctuation means it's even more important to underwrite the hard money lender that you invest with to make sure they aren't in a bad position.

Good luck!