All Forum Posts by: Bonnie Low

HELOC or cash out refi on the one you you owe free and clear to fund your down payment and improvements on the new one.

Is it possible to build an ADU on your property? Maybe build a small 1/1 ADU for you and your wife to move into and rent out the main house. That way the renters are covering the mortgage and you and your wife are living on the cheap. That would force appreciation and most of Austin is appreciating anyway from what I can tell. Eventually when you move on you'll have 2 doors to rent out if you decide to keep it or an improved property to sell.

So you bought the property for $90k and you've been quoted another $162,500 to build the house and it comps at $250k? That doesn't give you a lot of options. How is appreciation in your area? Did you finance the $90k you've already spent and will you need to take out a loan to complete the project? Will rents cover the mortgage or at least a significant portion of the mortgage? You might not cash flow, but if appreciation is strong you may be able to recoup some of your cash in a few years.

Hey, Andrew - I don't know you but I'm a firm believer in giving people the benefit of the doubt and operating from a position of helpfulness when someone reaches out asking for help. That's great that you have an angel investor - many of us know people who have the access to that kind of capital whether it's a successful business person, a wealthy family member or a friend with resources so I've got no reason to doubt this opportunity exists, despite what other people here have suggested. Despite the naysayers, there's been some good advice on this thread. Specifically, start small. Just because you have access to $1M doesn't mean you need to figure out how to spend it all at once and, in fact, you shouldn't. Start small, get a few wins under your belt and then you'll be in a much better position to do bigger, riskier deals. Buy a SFR or a duplex or do a BRRRR to get your feet wet in the rehab space. Spend the time to develop a business plan for you and your investor before you do any bigger deals. That $1M will come in handy if the market crashes so you want to be prepared to take advantage of it. Getting a few wins under your belt will help you be better prepared to be successful. Best of luck to you!

You definitely want to talk to the local building department because they probably have set back rules that govern how close to the edge of the property your building (including the patio or balcony) can be. As close to the road as that is it would be visible so a building inspector (or busy body neighbor) could easily turn you in for violating building code and then you'd be forced to remove it at your cost. At the very least, it would come up if you ever go to sell it. 

Wildfires aside, one effect of climate change I think about is drought. Many people say scarcity of water will be the source of future wars and I can certainly understand why. I do think about that when looking at areas to invest in as we've seen some areas around us have wells go dry and this continues at an increasingly alarming rate as we draw down our aquifers and ground water through agriculture, industrial use and population growth in areas that have no natural sources of water. I have no desire to own homes that become unlivable because there isn't enough water so although high precipitation areas can have more maintenance on the physical structure of homes, I think it's a worthwhile tradeoff for readily available water. 

What is more important to you? The cash flow or having that money available to you again to purchase the next property? And have you found a source that will lend you 80% LTV? We're seeing cash out re-fi rates in the 70-75% range max.

You know, there's rarely a single answer, but that's a good thing because it means you have options! IF you can get a conventional loan that will cover the rehab - the 203k is the one I'm familiar with but there may be others - you will probably get the best interest rate of these options. But it may come with restrictions that make it less appealing to you. For example, you probably need to use a contractor approved by the lender, and you're subject to draws at intervals they approve. But that might be worth it to you for a better interest rate and your rehab funded. Private money (theoretically) is the most flexible because you and your private money lender come to whatever terms you both feel are agreeable. Hard money can be a great, but expensive alternative. Personally, we use hard money a lot and just factor the higher interest rate in when we run the numbers. If the deal still makes sense we do it. The other thing to note is that with a conventional loan it's going to take you longer to close. Private money and hard money can usually close as fast as the title company can run your title so it's much faster and sellers love that.

Depending on the bank you're using and the loan (Fannie Mae, Freddie Mac, etc) they do have pretty strict requirements about what property condition they'll loan on. I have definitely seen lenders refuse to lend on homes that don't have working HVAC units or other major appliances. They also will not lend on properties that don't have intact flooring. I'm not sure the logic behind the leak situation, but I'm sure it also goes back to their underwriting. And the probably want a licensed plumber to fix it to ensure it's done right. They want to make sure their investment (your property) is a safe deal for them so they don't fund problems. The less risk they take on, the lower interest rate they can offer you, which is why conventional mortgages and FHA loans tend to be very low interest rates. This is also why a lot of investors turn to hard money for short term loans on properties that other financial institutions won't lend on. And it's why hard money costs you more. More risk = higher interest rates. Traditional loans are great for their low interest, but are inherently risk averse. Hard money and private money often cost you more but are more flexible.

Make sure you're looking at the right loan product for your project. Most conventional mortgages won't cover rehab costs. There are exceptions, like the 203k loan, but I'm not sure it's applicable to a quadplex. A good lender will be able to answer that. I recommend @Jason Wray from the Federal Savings Bank - you'll find him here on BP. He knows investors and has a wide range of products available. 

It sounds as if you're asking if there will be a way to pull money out of the property once you purchase it in order to fund the rehab? Typically, you won't have any equity when you purchase it (or very little) and the equity is the thing you tap to pull money out after the rehab in the BRRRR method or even for a HELOC. I mean, if you have a lot of equity, it's probably because you put more down than you needed to, in which case you could have just used some of that $ for the rehab. So this is why I'm assuming you won't have enough equity in the property to use it for rehab costs. The time to get a hard money loan is before you start. I know you're new, so forgive me if you already know this, but you can use hard money to purchase the property. Some HML lenders will loan like a traditional lender where you have to put 25-30% down. Once you're established with them, they may even fund 100% of the purchase price so you can use your cash for rehab. And some may even loan you the rehab $ or a percentage of the total rehab costs. But you want to find that out before you get started. You apply the BRRRR method of refinancing after you've improved the property and it appraises for more than you bought it for (i.e., you now have equity.) I hope that makes sense. Good luck to you with your purchase and rehab!