All Forum Posts by: Brady Potts

@Lauren Olson

Everybody has great points about this. Specifically @Kyle Mast's point about Oregon 1031's and tenant-landlord laws. 

I think one question still needs to be asked, is this your first property, rental or owner-occupied? If you currently don't own any real estate, you could house-hack your current market with MF if that fits into your lifestyle. It's a great way to gain experience with rentals, obtain some Schedule E income to show future lenders, and benefit from the loan pay-down & appreciation even if your cash flow is negligible.

If this is your first, you could also face financing challenges related to not having Schedule E income in your history. Also, traditional lenders are going to look at your experience overall, and if you don't own any properties currently, they could question your ability to manage rentals, specifically out of town. These things won't stop you from purchasing anything but should be considered and asked of your lender.

Has anybody had expereince in purchasing out of state properties as their first deal, and what challenges did you need to overcome?

@Gabriela Andrade Are you building the house yourself? 

@Ashley Renders 

I would offer a slightly different approach than @Jaysen Medhurst. Jasen, you make a fantastic point about not negotiating against yourself, and that any good agent would offer a counter opportunity. I would also be aware that not all agents are "good". 

I think the question to ask your agent is this, "what is the other agent saying, and what can we do to help the seller's with any questions or concerns they may have?" and also "what goals do the sellers have?". The sellers may be interested in the quickest close possible, the highest price, or maybe they want to carry the note? Perhaps your offer was "good" but didn't quite match their objective. This info is pretty important.

I've found that some agents can be complacent when working with investors as they may be used to working with normal homeowners. They may not ask the questions I mentioned before, or not even think to. But, as an investor, it matters to you.  That being said, 3 days to Jasen's point is a short window, as long as the market isn't hot. If houses are flying off the shelf, it may be worth reapproaching the offer from another angle. 

If you wouldn't mind sharing, what did your offer consists of? All cash, contingencies, financing, etc.? 

@Erik W.

Very good points. 

I would also recommend any investor, but particularly those with larger portfolios, to have written policies surrounding all aspects of their rental processes. However, you need to make sure they are actually followed and properly documented as Erik said. When, not if, you get a discriminatory complaint, you can turn to those policies to justify that no discrimination took place. I've seen local fair housing authorities send in "shoppers" that match the same criteria as denied applicants, excepting one or two changes, to see if any discrimination is taking place. If you don't have those written policies in place, make a one-time exception, and then fail to offer the same circumstances to another party, you're going to be hot water. Property investors should follow the same strict policies and procedures as a good property management company. 

I personally recommend having the following written policies at a minimum:

Application Criteria: required docs, income, credit, rental history, etc. 

Security Deposit: Documentation, invoicing, deductions, timelines, penalties, etc. 

Move-in/out: Process, timeline, documentation, etc.

Late Rent

Lease Violations

Pets

Make sure these policies follow your local law.

Does anybody have examples of these types of scenarios when a written policy, or lack thereof, affected the outcome of a situation?

@Jill F.

Do you see more issues with this type of scenario, tenants backing out, in the C-D properties, compared to that of the A-b range? Curious to hear from an investor that has units in those categories. 

I think most people are on the same page. You could communicate with them that they are repaonicle for the rent until its re-leased. Put it back on the market now and fill it asap. Then, deduct your ACTUAL damages from the money's collected and refund the rest. As long as you are made whole, there shouldn't be an issue on either side. 

Hey Jory,

I appreciate the level of consideration and thought you are putting into this. 

As to Ian's comment on a 4 -plex or row of townhomes, I assume he was referencing using your equity as a down payment to leverage those larger assets. 

Unless you plan in paying all cash for another SFH, which would basically create the same payment as taking out another mortgage to buy the property, you're looking at financing multiple properties. That being said, what is your current work and income situation? Are you financable through the eyes of a bank? I would recommend sitting down with 5 or so lenders and asking that very question, or how to get there. Once that financing opens up, you could take that 200k and put down payments in several properties giving you some cashflow from each, but benefiting from the loan pay down and appreciation of all.

Hey @Zachary Schnautz, 

My wife and I went through this same situation. Fortunately, I was able to use a VA loan. However, we seriously considered using an FHA Construction loan, which sounds like the best option for you.

Basically, any federal program loan for owner-occupied properties is going to have strict condition requirements, meaning no fixer-uppers. You may get away with a structurally sound building that's just ugly, but anything in need of moderate repairs usually wont pass the inspection requirements for those types of loans (VA, FHA, RD, etc.). However, there is an FHA Construction loan that is designed to fix up/build homes for owner-occupied properties, but the down payment is usually about 5%. That's not too far above the standard 3.5%, which would only take you a bit longer to save up.

You could also look at properties that are not in need of significant repairs but have the opportunity to add value later on. EX) Basement without proper egress windows, large family/dining rooms converted to bedrooms, too many bedrooms with no enough bathrooms, etc.)

Keep in mind that low down payment owner-occupied loan programs won't leave you a ton of room for cash flow on properties. They are not designed to be that way. What you can do though is get started. With some research and diligence, you could probably find a property that at least breaks even after you move out. You may need to purchase an MF building and still have to pay yourself rent while you live in it. But, after you move out and move in another tenant, they pay the rent and you are breaking even (using the proper calculations). This is a great way to get into the game. If the tenants can cover your costs, you can use the tax benefits to offset other income, and you get to enjoy the loan pay down and appreciation. Its not an immediate cash return, but you would be building wealth. 

Feel free to shoot me a message if you want to chat further. 

Hey @Chris Mandle. Congrats on the purchase. 

Quick Questions: 

1) Are the units of the same quality and condition as the +300 range? If so, I'm with @John Teachout, that's a lot to leave on the table and I would consider raising them to at, or just below, market rate - considering the following...

2) What are the vacancy rates in your area? If there are a lot of similar units vacant then that changes the scenario. However, if the vacancy rates are low, then you should consider raising the rents.

To your point about giving notice on rental rates: my personal expereince has been that tenants of C class units can be tougher to deal with. I've given 3 month advance notice and had tenatns vacate right away, regardless of a lease. However, I've also taken the same step-up approach as John with better results. 

In the end, if you are $300/unit under market rent, that's roughly $10,800/year you are giving up. I don't know your numbers or market, but I would be raising the rents and/or finding new tenants if it were in my area. 

Hi Amy,

Regarding the HELOC D/I ratio - after you renovate and put renters in there, your refinance should be looking to pay off most, if not all, of that HELOC which would not cause your D/I ratio to hinder you. The lender will know you are paying that loan off and it shouldn't count against your qualification for the refi. Also, depending on your investment history, the lender should be using a portion of that rent as income to further help your D/I. (Rent is $1000/mo, lender counts $600 towards your income).

As for HMLs, it probably depends on who is doing it whether its reported to the credit bureaus (personal aquantaince Vs. professional lender). But, the lender is going to ask where the purchase funds came from normally if it's a quick turn around. Also, any recorded trust indenture tied to the property is going to show on the title report, which the lender will see. So, in summation, yes, the lender will be using any loan payments toward your D/I. Last, the same situation would apply here as with the HELOC, if your refi is paying it off, it shouldn't matter.