All Forum Posts by: Brian Cauldwell

Hi @Tamara Martin!

There is a lot of risk involved for the lender to do a second lien position, so typically they are higher in terms of interest rate and fees. This seems pretty typical to all of the 2nd lien positions I have seen. 

Hi @Yusuf Shaikh!

I do not have personal experience in Philadelphia but I do have some clients who invest in Philadelphia and the surrounding suburbs. 

You should be able to find a fix and flip loan with less than 20% down payment. 

Also, if the purchase price is scaring you can always start smaller. I have several clients in Chester, PA, and homes are definitely more affordable. 

Hi @Chance Covan!

You are definitely in the right forum. BRRRR would be my first suggestion to someone in your situation.

Besides finding the right property, I would see what options you have available. Talk to local banks to see what they could offer you if you were to buy an investment property. If tax returns and DTI is an issue look at private institutional lending.

For private institutional lending, first-time home buyer, the most aggressive I have seen lenders in this space is 90% of the purchase price + 100% of the rehab, not to exceed ~70% of the after-repair value. 

If you were to buy a $100,000 home you would need $10,000 + closing costs to close. Then make sure you have enough in reserves because it would be a reimbursement draw for rehab funds. Complete the work, get reimbursed for completing it. 

I would start small, be safe, look at your options for lending, and find people you trust to help you with everything that goes into a BRRRR. Realtor, contractor, etc.

HI @Cali Skier! 

A lot of my clients for investment properties have been looking for loans with shorter prepayment penalties so when interest rates fall, they can refinance with no penalty. 

Also, I have been seeing a lot of experienced investors still being very aggressive in this market. It is a buyer's market right now so you will be able to negotiate, and most people believe housing prices will rise as soon as interest rates come down. 

The 20% down method is still there, the interest rates are of course a lot different, but I don't think anyone is expecting 3.5% to come back anytime soon. If you are looking to buy rentals, if they cash flow today when rates do go lower, you will either have equity built into the property due to inflation or even better cash flow. 

Hi @Stephanie Cortez!

You will need to talk to the county to see if they can change the property type to a 3-unit. 

As far as the next steps for that property, it all depends on goals and what your next step is. If the property has to be a 2 unit, you will need to look at the numbers as a 2 unit. What does the cash flow look like, can you use the basement to supplement your rental income to one or both of the units (if a unit has access to it and it is finished, have them rent the whole space, more space usually equals more rent.), etc. This will help determine whether or not the property is a good rental property. 

As far as keeping it or selling it. If it is a 2 unit, would that affect the value, and how much money could you make if you sold it? Do you need to sell it to buy the next rental or BRRRR?

I would consider all of the above and go from there.

Hi @Michael Harwood!

I haven't gone through the process myself so I will leave that for someone else. 

However, my thoughts when buying a property from a bank are to make sure you can find a lender who can accomplish that. My first questions when I am talking to my clients about buying a property from a bank are "when does this need to close by?" And "will the bank allow someone to come into the property for an appraisal?" 

So if you are getting a loan to help acquire the property, make sure to find those out!

Hi @Jeff Stevenson!

Maybe slightly biased since I broker loans, but these are the key differences that I see. 

Direct lenders, less in fees in terms of origination. 

Brokers, more options. 

If you go direct, find out what they can and can't do. That will save you time in the long run and find deals that will fit their mold. If you find a property that doesn't fit their box, then you will need to find someone else who can give you the best terms. 

Each lender sets out to win certain deals. Ideally, it would be great if one lender did everything the best, but that is not how the lending world works. Some will give better terms and leverage depending on credit score, experience, types of rehab, location, etc. Or a mix of all of them.  

Or, pay more to work with a broker that you trust who is going to give you the best option for whatever project you put in front of them.

Hi @Arnuv H.!

I have multiple clients in Michigan and Ohio. I have seen most of them stick to 2-4 unit properties. 5+ units have a higher interest rate (higher than the current high-interest rates for residential properties), and being a "commercial property," the price has also inflated. This will make it even harder to reach the cash flow you are looking for. 

I have clients in Toledo and Cleveland buying 2-4 unit properties for a pretty good price bringing in anywhere from $500 to $1,200 a month for cash flow. I am not accounting for vacancies or maintenance, but each property they are bringing around $25,000-$40,000 per property to close. Then it is just a numbers game of acquiring how many properties you need to reach the cash flow number you are looking for. 

More properties, more problems, but if you have the funds to do it and cash flow is the only objective, this could be a good way to maximize your cash flow. 

If you are only interested in cash flow I would look at Toledo. If you want appreciation over time I would look at other markets in Ohio/Michigan. 

Hi @Abe Rouz!

I have a client that owns around 7-10 properties in the 43612 zip code. He does not invest in commercial properties currently. Typically all 2-4 unit residential. 

Coming from a DSCR/private institutional lending perspective, Toledo as a market is tough due to property values. Most lenders will want to see a higher as-is value/purchase price for the property. For 1-4 unit residential, pretty much every lender will need a minimum property value of $100,000 to even do a loan, which is tough in Toledo where you can find a rent-ready duplex for $90,000. I work with one lender that goes down to $75,000 as-is value, which we use a lot for his properties.

For commercial properties, the minimum property value goes up. I know of one lender who will do a minimum loan amount of $100,000, but the rest are going to want to see properties of at least $250,000+ as-is value for the property to do a loan.  

Hi @Anthony Rega!

Seasoning for DSCR loans is typically anywhere from 3-6 months. Leverage for the refinance will depend on cash flow, credit score, the as-is value of the property, and what they owe on the property.

As far as late payments and reserves, it is going to be important to find a lender that will be flexible/understanding of the situation. Most lenders only low 1 late mortgage payment in the last 12 months. There are some that allow for more. 

As far as reserves they will want to see anywhere from 3-6 months of reserves. 

Credit score, I have seen as low as 600 but ideally, your client will want a 680 or higher to get max leverage. The Max leverage on a cash out is 75% LTV, and the max leverage for a rate/term is 80%.