All Forum Posts by: Brian Cauldwell

Hi @Jim P.!

Another thing to think about for an 8-unit apartment building is cash flow. If your goal is to sell, you will have more borrowers be approved if the property is showing great cash flow. So, vacancies, and rents below market rent can affect the loan for potential buyers. 

In the DSCR space, most lenders look at current rents and the trailing 12 months to determine cash flow, so if there are vacancies that could hurt the cash flow, which would lower the loan amount, and less people can buy the property. Especially if the goal is to sell it for as much as possible.

Hi @Lilah Myers!

A lot of my clients are looking for different thigs when it comes to what kind of hard money/fix and flip loan. 

A couple of things to consider when looking for loan options. Leverage, interest rate, interest type, fees, what kind of appraisal, and speed. When you do talk to someone, make sure you are asking those. 

Hi @Trent Davis!

I would consider the following. 

Market rent of the area, and what you could rent the property out for once you have rehabbed the property. Along with that, what will be the monthly expenses if you decided to keep it as a rental. Mortgage, tax, insurance, HOA, etc.

If the cash flow looks nice, then consider what your next step is and what you will need to get there. If you sell the property, you will have more money in your pocket, thus funding your next project. If you do a cash out refinance, does that give you enough money to fund the next project as well. 

If you already have the money for your next project, what is more important to you. Keeping as much cash on hand for a safety net, or having the funds available to do multiple projects, or start working on your rental portfolio. 

If you plan on doing more of these with your partners, I would plan on getting that structure set up before your next project. Percentage based and not dollar amount. As that may not have been discussed before the project started, it is going to be tricker now that a real dollar amount is set. 

I do not know you or your partners, so how you should split the money is entirely up to you and them. Just make sure next time that is discussed prior to the next project. I would also talk to them about what would happen if a project ended up losing you money, or if one of you wanted to hold the property as a rental. 

Hi @Chase Freund!

I have a couple of clients in the KC market that do the BRRRR strategy. Advantages are the least amount of money down, and quickest way to get your money back. Improve the property and then refinance to get the equity.

Disadvantages mostly come from a lack of experience or unexpected issues. With any rehab property, how much cost it is going to take to get the property into shape and increase the value of the property is the biggest factor. If they need to put $50,000 into the property and the property only gains $50,000 in value, they are not going to be able to pull any money out, thus the BRRRR strategy is not going to be as quick as it would be if you were able to pull money out once you are done. You still have a freshly rehabbed property that is cash flowing, but may need to wait to gain the liquidity back to start the next project. 

Where BRRRR really goes wrong is when you buy a property in the wrong market, the after-repair value is tight based on your cost, and then something pops up throughout the rehab project and you need to put "x" amount more into completing the project. Or you are just inexperienced and fixing the house just cost more money than you were expecting. 

 Yes! Most loans that my clients ask me for are 30-year fixed loans. 

As far as what the leverage I would do, depends on the property. The house that you are currently building, is that going to be a rental as well? If the answer is yes, do you have an idea of what you could expect in rent? Interest rates are high right now, so you will want to make sure that each property is still performing. The money you can pull out from this property will definitely give you a runway, but it would be nice if each property was making you a profit. Then worry about maximizing leverage when interest rates eventually come back down. 

Some DSCR lenders will do a loan for a property that is losing cash, but they are going to hammer you on the already high-interest rates.

Hi @Bryan Nwokem!

The hardest part is going to be finding a 30-year fixed mortgage at 6.75%. 

Hi @Beth Crosby!

It seems to me that if you need to keep leveraging your properties to continue financing the next rental property/project, you will most likely need to find financing through private institutional lenders/DSCR lenders. They are not concerned about DTI.

As far as the next steps, it depends on what you are looking to accomplish! Leveraging your properties and doing a cash-out refinance will give you the funds to do more. So if you are looking to build as large of a portfolio as possible, leveraging/getting loans on your properties is going to be the best way. 

PPP or Prepayment penalty is a fee for selling or refinancing the property during that time frame. Standard is a 5 year prepay, and it gets better every year. 5% fee in the first year, 4% in the second year, 3% in the third year, 2% in the fourth year, and 1% in the 5th year. 

The fee/percentage is based on the loan amount. $100,000 loan, sell or refinance in the first year your fee is $5,000. 

It is important to note that this is typically only for long-term loans and there are ways around it. Most lenders have a shorter prepay option, or no prepay. Usually, an added fee or higher interest rate to get that option. A lot of my clients will take the higher rate for more flexibility. 

As far as advantages for an SFH, you only have to deal with one tenant and there are more exit strategies. Typically 2-4 unit properties are primarily bought by investors, so if you need to sell the property you are missing half the market.

Hi @Marisa Voelkel!

Good luck on your next project. I saw your other post about the property you just sold. Congrats and keep kicking butt!