All Forum Posts by: Brian Cauldwell

Hi @Anthony Torri! I have not run into this situation before but let me check with some of my lenders to see if this is a possibility! I will update you ASAP

 The typical prepayment penalty is 5% in year 1, 4% in year 2, 3% in year 3, 2% in year 4, 1% in year 5. So if you were to sell or refinance within that 5 year period there would be a fine associated with that and it is based on what year you are on the loan. 

If your loan was $100,000...

Year 1 your penalty would be $5,000, year 2 would be $4,000, year 3 would be $3,000, year 4 would be $2,000 and year 5 would be $1,000. No prepayment penalty after the 5th year

Some lenders base the fee on the initial loan amount, and some base it on the balance, however since interest is front-loaded that won't make a huge difference. 

A lot of my clients are looking and getting shorter prepayment penalty options, such as 3% in year 1, 2% in year 2, and 1% in year 3. There are options for even shorter. 

@Matthew Masoud wanted to give you a quick update. There are a few options in the private institutional lending space that I found that could accommodate a MTR. Some of those options depend on the length of the lease agreements for the MTR components. 

However, some can do it based on the market rent for the property as well. 

Hi @Andre Whitmire! I would suggest finding out your lending options and what kind of strategy you want to forward with. A lot my new investors go with the BRRRR- buy, rehab, rent, refi, repeat because that will stretch your initial upfront cost as far as possible.

Once you know those and find properties that fit into your plan and then find lending options before making an offer so you know that it will be a good investment for you moving forward. 

Hi @Emily Threw! Learn what to expect in terms of lending. That will help a ton with figuring out what properties and strategies you can best utilize for your success. There are a couple of routes you can take in terms of lending but most fall under conventional loans and private institutional lending, which are the loans I specialize in. 

You can find the perfect property, but if the lending doesn't work then you are back to square one. 

A lot of my clients like to find a strategy and then "sample homes" or houses that fit their mold and see what lending options they have available to them, so they know what to expect when they do find the right property. I do not know a ton of how the conventional side works so I would suggest reaching out to a local bank to see what they offer you. 

Hi @Justin Carter! I have several clients investing in each of those areas you are looking in. If you are mostly interested in cash flow Ohio is a great market. I have seen a lot of 2-4 unit properties for reasonable prices, that generate great cash flow. I would pick a market you are most comfortable in and move forward from there. 

A couple of thoughts.

In terms of cash flow, Toledo is insane. The issue with this area is that these properties will do very little for appreciation. However, even in this interest rate environment some of these properties still have a positive cash flow of $1,000+ a month. 

Cleveland will have less cash flow, but a higher chance that the properties will increase in value over time. 

Detroit is very hit-or-miss. If you do not know this area I would suggest a different place. Also, a lot of lenders don't lend in Detroit, so be cautious of that. 

St Louis is a great market for fix and flips. For rentals and looking for cash flow I would suggest a different area.  

A place that isn't super common or known that I have a few clients that have found success is the suburbs of Philadelphia which is a lot closer to you as well. May be worth looking into. Chester, Wilmington, etc. Lower value homes, good cash flow. 

Hi @Rajesh Rajendran! I am not from Cleveland but have several clients that buy in this area. I have seen them stick to 2-4 unit rentals. A couple of those zip codes are 44103, 44110, and 44105. 

All of them have been great rentals in terms of cash flow/DSCR. Cleveland is an interesting area and the zip code and property type will play into what you are looking for.

Are your primarily focused on SFH?

Hi @Rebecca Orlich, a lot of my clients prefer using our programs with no appraisal or desktop appraisals. They are usually more affordable than a full appraisal. 

Desktop appraisal can be anywhere from $0 to around $500. Full appraisals are currently $700-$1000 depending on the market.

Usually, the benefit of the desktop appraisal is speed. However, some lenders have a desktop appraisal and are slower than lenders who do a full appraisal. So it really depends on what you are after. 

When choosing a lender/loan program, I would consider the entire package instead of what the appraisal costs. Leverage, how fast they can close, interest rate, origination, processing fees, etc. Those are going to matter more in the long run than the difference in what the appraisal will cost!  

Hi @Brian Willie! I am not sure about the market rents for this area, but looking at the city from a lending perspective it may be hard to secure financing for this property now or in the future. 

You will see when you do the appraisal for the property, the property will come back as rural, suburban, or urban. If the appraisal comes back urban or suburban pretty much every lender can lend on that property. If the appraisal comes back rural, then there are going to be very few options for financing. 

Hi @Matthew Masoud, I think you touched on the biggest issue with mid-term rentals.

"I'm also having trouble refinancing these properties because banks hate seeing anything but LTR. So even though I bought a distressed multifamily and stabilized it, I'm unable to access the cash."

In my mind, this is the biggest reason why mid-term rentals are a headache. Most lenders are going to want there to be a 12-month lease for any property type. 

For 1-4 unit rentals, they would look at market rents. 

However, I have not run across a multifamily mid-term rental. Very interesting. I will shoot off a couple of emails to some of my lenders and see what they say about that and refinancing a property of that type.