All Forum Posts by: Pete M.

There's no significant difference in the time-value of money in this situation, though.  You put money into the policy, and it's generally available very quickly to borrow back out.  It's not like you pay into it for X number of years, and then it becomes available; you have access to the ACV the whole time while it's growing.  Even if the returns were only 2.83% (which is low), that wouldn't be instead of gains you can get through real estate investing.  You can do both!  That's why I say it's like making $1 do the job of $2. 

 Whether the surrender rates are high or not is irrelevant.  All that says is that the policyholders stopped paying and terminated their policies.  It's not like the underlying policy crashed or went bankrupt--the risk is in the policyholder not following through, not the policy itself.  The advantage is that for the same dollar, I can get both whole life insurance and use those same dollars for real estate investing.  It's not either/or.

If you're already buying in the market and can find a duplex for the right price, there's no reason to not move on it.  Just expect less inventory vs SFRs.

Bingo, you nailed it on the head.  If you're trying to compare the return on the WL policy vs other strategies, then yes, it will look terrible.  But that's not the point.  It's a long-term strategy to basically make $1 do the job of $2--you get life insurance (not tied to your employment) AND you can still use those same dollars towards RE investing.  The problem is you do have to fund it heavily to get it there, so it can be a struggle for those without a lot of capital available.

Check out "Heads I Win, Tails You Lose" by Patrick Donohue, or the infinite banking series by R Nelson Nash.

We use a LOC collaterized against the actual cash value of the policies for my wife and myself. Since a WL policy is generally very safe, the LOC LTV will be high. We use a separate LOC since the interest rate is lower than if we borrowed directly out of the policy.

Keep in mind you can only put in so much each year, based on your income and other variables, so can take time to build up. You can have multiple policies on the same person. I even have a $250k policy on my 2yr old son! There are costs to set it up and less of the initial money goes to the ACV, but still worth it.

WL policies mean I can have death benefit coverage while still using most of that money for other things, like RE investing, and it's not tied to my W2 job.

@John LaBanca  Great info, appreciated.  Totally agree on the financing, though we're talking to portfolio lenders with local banks vs traditional conventional loans.  Either way, the rates are less than half of what hard money is at right now, and the loan period is longer.  And yes, definitely making sure there's no prepayment penalty.  Good idea on the supplemental loan option.  I've been upfront with the lenders on our plan to reposition and refi, so they can help position the right loan option.

Also appreciate the correction on the quick rule-of-thumb valuation.  Besides checking with local agents, do you have a trusted source for cap rates?

@Dallon Schultz  Appreciate the input.  I have brought in a partner, both for splitting equity and responsibilities, but also found some local lenders that will fund the rehab in addition to the purchase.

Re: the valuation, sounds like what I'm hearing as well.  Income determines value, but they can sanity check that with comps if available.  We're paying a commercial appraiser to do a quick estimation, nothing formal, to get an idea of what we think it'll be worth at the end of the day.

Timely topic, as I was considering new markets for STRs.  Used to live in MO, too.

Are you all working with a local agent to find the properties, or are you typically picking them up on market?  What kind of seasonality do you see there?  What's a realistic expectation on returns?

Re-re-zombifying this thread since things are changing quickly!  Who's using who for commercial loans, and what terms are you seeing?  Found an 8-unit that may be a good fit, so now on the hunt for financing.  

DM me your contacts, too!

All,

Looking at my first foray into commercial multifamily (previously done SFR & small multi BRRRRs). We've looking to essentially do the same (BRRRR), just on a bigger scale. How are you structuring your financing to do initial purchase plus rehab? I have hard money lenders who will loan for purchase + rehab, but rates are high enough that they'd basically be a non-starter for a 12-18 mo repositioning. Cheaper rates can be had through conventional loans, but those won't fund rehab, and many lenders won't do second position loans. Should I just look for a local lender who will do purchase + rehab in one, or what am I missing?

On valuation, how would you assume valuation is done for an 8-unit that's comprised of two duplexes and a quad on a single parcel? Strictly based on income-approach (NOI divided by cap, minus major deferred items), or are comps also looked at?

What's your rule of thumb methodology for a quick valuation?  I've heard take annualized rent, subtract 50% for expenses and vacancy, and then divide by going cap rate.  Obviously this would be a quick-and-dirty estimation, not to be confused with gathering the T-12s to establish a true as-is.

Thanks.