All Forum Posts by: Britt Clark

Shawn - I'm currently doing a lot of legwork on financing options. My findings have been that the 4-10 limit is if you use government backed loans such as FHA. People like these conventional loans because they have lower rates than commercial loans. They do have drawbacks as far as issues of difficulties in putting the properties in LLCs if that's your goal. But, that's a whole other topic.

But, you can find banks that are portfolio lenders. This means they keep their own loans. Most of the big banks originate government backed loans and then sell them. They have to conform to government criteria such as the 10 property limit you mentioned.

Portfolio lenders have more flexibility since the banks retain these loans in house. Try a small hometown bank. I’m talking to a few and they say it’s not a problem to own more than 10 properties. 

Did the extra points you didn’t anticipate lower your overall rate a few basis points? If so, you’ll save that $800 many times over in lower interest paid over term of loan. Or was it just an origination fee that didn’t impact the rate? 

The item that sticks out to me is the low population (based on what you posted) in the immediate and surrounding areas. That would concern me. What kind of industries are in the area? Do people depend on one or two major employers? You mentioned farmers and office workers.

I’m trying to stick to areas with at least 100,000 people within an hour driving radius with multiple companies across a variety of industries to mitigate unemployment risk in an economic downturn.

If the economy tanks, can you cut the rents in half if you have to in order to keep tenants and still make the mortgage payment? 

I’m just playing devil’s advocate to give you some cons to consider. Good luck.

I’ve read much of the back and forth on this thread and have my own opinions on this. Some of you won’t like it. But, I’m older and speak my mind. ;)

I spent 23 years in corporate America and hired many people. I now actually teach college accounting classes part time. So, I do have a great deal of real-world experience hiring young people and teaching them.

I won’t over generalize and say all 20 somethings fit this description. But, many are looking for instant gratification. This is the Information Age. You can download things immediately. You get stuff from Amazon in two days and even that is too long to wait. Everything has to be fast. Young people get bored faster. And bail on stuff.

I’ve definitely observed this over the last few years. My advice is to slow down and really evaluate the situation. I tell my own teenage kids to quit complaining and running away from every problem. Stand up and finish something. However, I am with this guy on the evils of student loan debt. Kids get into it and have no idea what they are in for.... and it is NOT dischargeable in bankruptcy. Go to technical school for a year and learn a trade cheaper. That’s an option too.

I have found that people use different methods to calculate the cash-on-cash return in these forums. Some just look at the mortgage payment as the only cash outflow in their calculation and ignore other expenses. I think this is a bad idea. I just throw that out there for people to think about when reading the forums.

I’m having a hard time finding anything in my area that beats a 6% cash-on-cash return. I’m modeling using a 40% expense assumption and using a commercial mortgage rate on a 30 year loan monthly payment. I have great credit and cash. Maybe I am just too conservative in my modeling and suck at finding good deals.

So, people with double-digit cash-on-cash returns must be master deal makers buying well below market values to get these $300 -$500 cash flows. I’m not that skilled yet in finding off market deals. Hope I can catch up to you big return people. It’s a bit depressing for me as I think of myself as a savvy finance and business person.

I’m disappointed nobody has feedback. Does anyone have experience with a non-recourse loan with Lima One or another lender? I realize this is higher cost financing and might not be popular for that reason. But, I’m curious how others feel in paying more for a loan you don’t have to personally guarantee. Thanks

I've been in discussion with several lenders recently as I build my multi-year business plan. Lima One offers a program that has non-recourse loans that can be used within an LLC. Of course, there is a cost to this and the rates are currently between 6.75% - 8.25% for a 30 year fixed.

Now, before you blast me with that’s a crazy interest rate range, please consider the following:

1. rates are probably going to be higher in the next few years. 

2. Locking in a 30 year amortization, commercial non-recourse loan now at 6.75% (assuming you have 740 credit score) might be a smart business strategy for the risk averse. 

3. non-recourse loans mean no personal guarantee by borrower. Very difficult to find this type of loan on RE 

The big thing for me is you don’t have to personally guarantee the loan. If you use a lot of leverage to build a portfolio the non-recourse loan seems something to consider as a risk mitigation strategy even at the higher rates.

Thoughts?

Tom G. - Thank you. This is very helpful getting feedback from a title insurance expert.  I’m probably going to have to pass on the deal. 

@Lynette E.

My understanding is the easement runs straight through the middle of the house. Thus, my concern. It’s not parallel or adjacent to the house. The house is literally sitting on top and in the middle of the easement according to the sellers. The house being moved in the past presents an unusual circumstance as well. Thanks for the advice. I’m going to do more fact finding in the property and city records.