All Forum Posts by: Bonnie Low

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!

Use the BP calculators to run your numbers. Especially if you are new. They are the best source I've found to make sure you capture every line item and don't overlook anything. You're going to need to do your own homework on market rents, though, and the same for the ARV. Ideally, if you have a REaltor you know, you can ask them to give you a comp on the property you're looking at so you truly know what similar houses are selling at right now and can be valued at. You can use Zillow and other sources like Realtor.com but I don't find them to be accurate, and sometimes they are wildly inaccurate. So a Realtor is your best bet in my opinion. To determine rents in your market, call a property management company and ask them what a house like the one you're looking at could be expected to rent for. They should be able to give you a ballpark. Tell them you're considering buying it, but would need to know what it would rent for so you could calculate the cash flow potential. They should understand that and if they balk at giving you a number, call a different one.

I can't help but wonder if you've considered investing in Buffalo, NY even though you now live in Denver since you probably still have contacts in Buffalo and probably know the area quite well? I ask because I know Ashley - one of the hosts of the BP Rookie Podcast - invests there and is very successful. Also, the price points are much more newbie friendly than they would be in Denver. You could be a long distance investor, but in your case, investing in a market you know but no longer live in rather than in a market you don't know.

@Brandon Pelfrey - fun fact, my brother migrated from Seattle to Meridian because his company (Guckenheimer Foods) won the contract for food service at Scentsy, which is a huge employer in the Boise area, and they transferred him there to open the restaurants at Scentsy HQ. So yes, people are coming in to the area, which is inevitable with job growth. I would say overall that job growth is a great thing for any region and especially for us as investors.  

That sounds like a win, win, win. Congratulations!

@Jon Schwartz and @Brandon Pelfrey - northern Californian here. And yes, I would love to move out of California but am staying here for now because of family. My motivators for moving are that we have a lot of drug/transient/crime issues here, we seem to be a mecca for summer wildfires and even when the forests aren't burning it's too damn hot in the summers. A couple of thoughts: CA is huge and by population, I'm sure there are more Californians moving to other states than there are folks from any other states. However, there are also a very large number of Californians moving within California right now. The major population centers are crowded and very, very expensive so they're seeking less expensive markets and there are plenty of those in rural CA, like where I live. You can basically buy a nice 3 or 4 bedroom home with all the amenities here with the cash from the equity out of the home you've owned in the Bay Area for 5 years. And with COVID, which if nothing else has served as a proof of concept that most office jobs can be done remotely, even more people are motivated to get out of the crowded, expensive, traffic clogged cities. So it's driving up prices and reducing availability within CA as well. Secondly, I always find it surprising (and a bit disheartening) that people are so territorial about the state they live in. This is, after all, the United States of America and as an American, we each have the right and freedom to move about the cabin, so to speak. I have personally had people from Montana and Idaho say 'we don't want more Californians moving here.' (not bagging on either state, that's just where I've experienced it) Well, guess what, this land IS my land as well as your land so people can and will move. And, lastly, while we may want to find our gold mine market that no one else is investing in when we're buying, we sure don't mind when those out of area buyers discover our market and drive up home prices so our appreciation keeps rising. There is good and bad in all situations, but the movement about the country seems like it will only accelerate in the future as markets ebb and flow for one reason or another and we become a more mobile economy.