All Forum Posts by: Paul Garcia

I apologize in advance if the answers to my questions are posted somewhere else.

I'm currently buying single family homes and renting them out. My plan has been to continue buying SFHs until I can generate enough excess cash flow to buy the asset types (large multifamily/commercial) I truly enjoy. In my continuing search for a commercial SFH portfolio loan, I ran across First Key Lending. They are the other big name in SFH rental financing along with B2R. They offer a product that I think may help me accelerate my plans, the Fix and Flip Loan Product. It's a purchase and renovation loan for 1-4 unit properties. The obligor is a LLC and there is no standard DTI or rental history guidelines. I would not flip the property, but add value and cash out/ReFi with a traditional lender. I'm a commercial real estate analyst for a bank and yet I could not wrap my head around the one real requirement they have: "Up to 85% LTC / 65% ARV." I understand what LTC is, but can't logically map out the ARV part. Here is the scenario I ran in my head:

-2 Flat

-$300,000 purchase price

-$50,000 in renovations

So my total costs are $350,000 and my loan amount would be $297,500 (85% LTC). To reach a 65% ARV, the as complete/stabilized value of the property would have to appraise out at $538,461. An increased value of $238,461 off of $50,000 in renovations! So based off my initial cash equity contribution of 15% or $52,500, a 354% return on cash (ignoring all else). With the way I'm looking at it this can't be possible for multiple reasons. Could someone please help me wrap my head around this?

You are both absolutely right. $22k is an inflated number. Most are two year leases and I did not consider renewals. With this renewed perspective and the strong relationship with our realtor, it's not worth it to go elsewhere. 

Thanks. 

I would suggest buying a 5+ unit property and financing with a commercial loan. In my short experience, trying to quickly build a portfolio with conventional loans can be difficult, even when you have cash. If you try hard enough you can find a lender who will work with you to get past debt-to-income issues and the number of properties financed. But reserve requirements add up quickly and can ultimately shrink the amount of cash you have to invest.

Hello,

I’m trying to take advantage of some economies of scale and was wondering if it’s possible to do so through reduced leasing commissions. My Mother owns 26 single family homes all within the same area. She manages the properties herself but has a realtor rent them. The realtor charges a $250 listing fee and a half months rent, a reduced fee according to the realtor. That’s roughly $22,000 a year in business! Would it be possible to go to another realtor and offer an “exclusive contract” to lease all the properties for say $500 a property? Could any realtors/brokers share their opinion?

Also, would it be possible to just hire someone who shows the property? I also own in the area but lease everything myself (not a realtor). I have no problem doing all the paperwork and communications, but showing takes time. Of course I can't post on the MLS. Your suggestions would be appreciated.

Thanks.

As others has mentioned, your situation is not adding up unless your salary income is relatively low compared to your property taxes, insurance, etc. But let's just assume the LO is right and your DTI is right. I had the same exact issues: 23, no personal debt, live at home, salary job. I financed three properties and now no big bank will give me any more money because I have only owned the properties for less than a year. I'm now in the process of closing on my fourth. It was so easy, I called a mortgage broker and they used their brains to calculate my true DTI without all the Fannie and Freddie rules. He found some small local bank for me. Good terms too: 30 year amort, 20% down, 4.75% rate. I did spend about a month personally calling on local banks and I found a handful that could help but they wanted 30% down and 20 year amort. I know the situation you're in and you really just have to hit the pavement and look.

Also, I’m not sure what your long term goal is but it looks like you have a great opportunity to leverage the two properties you own 100% for some cash. It could be easier to cash out refinance the two and buy one more with cash. A bank will be more likely to lend on a property that is already owned and making money.

Thanks!

Quick Question: I was gifted a rental property which had a tenant and lease inplace. The lease does not have my name on it anywhere, just the prior owner. I need to send my leases to the Bank. Do I need to update the lease somehow or can I just send the lease as is? I'm the sole owner and landlord of the property. I'm no lawyer, but I did not find anything in the lease about transfering ownerhsip.

I have seen those as well. I think they are too expensive, but everyone has to do their own analysis for their needs.

Let me correct myself, $.50 for electronic check/ach payments. Unless you pass the cost on to the tenant I don't see how it’s feasible to pay a 3% transaction fee for credit cards. $1,500 rent = $45!! I use intuit payment network. No monthly fee. You can post a link on your website, put the actual payment portal on your website (only allows fixed payment choices), or email them an "invoice."

Regarding the LLC advice. If your property has a residential mortgage (ie. you went to the bank branch to get it), you can't just transfer your property into the LLC. You will have to pay the loan in full once the bank finds out. Also, the saying that an LLC protects your personal assets is not entirely true. If you have a commercial loan, then most likely the owner of the property/borrower is an LLC. Given the current lending environment, the bank will most likely require a guarantee, which will be you. So yes, if someone slips and tries to sue you, the most you could lose is the property. If you don't pay your mortgage your responsible. Anyone know if I'm correct?

I've looked into the websites/software mentioned above and don’t like what they offer. I don’t believe there is much wiggle room with their services. Their software wants to manage every aspect of your properties. I only own four properties and manage another 23 units. I had someone build a website for me for $350. Granted he was my friend, I can’t imagine it would cost more than $750. I think tenants feel better going to your own website and you get to choose what you offer. Also, if you’re paying more than $.50 per transaction I really feel like you’re getting ripped off.