All Forum Posts by: Chad Olsen

@Chad Tate I would highly recommend that you listen to "someone who's been there and done that." DR may be go for getting out of bad debt, but even he isn't the only person out there who can teach that. If you want to learn about REI or any other kind of investing, find someone who has boomed, busted and then built it back up. DR busted in REI, but did he get back into it? Or did he go off and do something else? Not the right person to learn from. Choose your teachers wisely, and don't just take whatever some guru says as gospel. You still have to be smarter than the person you are listening to and form your own opinions about what will and won't work in your personal situation.

All that being said, how many rich, ultra rich people have you heard of that have paid cash for everything? Not one. No companies, people or governments every get rich/wealthy by paying all cash. Every last one of them does so by utilizing well structured debt. Emphasis WELL STRUCTURED DEBT. Debt is no more dangerous than a hammer or saw or gun. It is only dangerous in the hands of someone who does not know how to use it, which DR may have been when he was doing REI, but I don't know. Why would Apple sit on $2B in cash and go out and get debt on the books? Because well structured debt is where you make your money.

Think about it. If you had $1M in cash what would you do with it? Spend it on doo-dads? Buy investment property? Sit on it? The best answer is sit on it and find equity partners out there to work with that will supply you with down payments and reserve money for your deals and you go out and get the loans. Why? Think about it from the bank's perspective. Would you want to lend someone $4M to buy properties if they had $0 in the bank or $1M in the bank? You can get 5, 10 or more times your liquid cash in loans and be much better off. Having a big reserve is the golden ticket to great loan terms and more deals. Would you want to work with an investor who was bringing a big deal to you whose personal finances were in shambles or if they were sitting on a good war chest?

Getting out of bad debt is usually the first thing that anyone needs to do in order to start making headwinds. But then you have to change who you are listening to when you grow past that advice. DR and SO are so big because there are sooo many people in America and the world that can't stick to the advice and don't do the work. So they keep falling back into the same situation and not going anywhere. If you are disciplined enough to get and stay out of bad debt then you have graduated from DR and should look for new mentors to follow. Say "so long and thanks for the fish!"

Good luck!

@Drew Cameron Why would you want to pay off your mortgage faster? Unless you have really poor terms it's one of your safest hedges against inflation you can get. Use your HELOC like others suggest as a sweep account. I've been doing this for 2.5 years now and have dramatically turned my financial landscape around.

Principal - buy things on your credit card like normal, get your points/rewards. Use your HELOC to pay off that CC balance every month on the due date. Then every dollar you receive as income goes onto your HELOC to minimize the daily interest cost. All major companies and wealthy families do this.

And don't use your HELOC as a down payment on another property. You're just asking for trouble by doing that.

Good luck!

@Cosmo Iannopollo The first thing I would suggest is getting rid of the PMI. You can do that by having the bank re-appraise your property. I did this with my first property, while living it, when the market jumped 4 months after I closed on the loan. Got rid of that PMI and have been happy since. Didn't have to refi to get that done.

If you do want to refi, make sure that you are getting rid of the PMI. Outside of interest that is your biggest cost on a mortgage. If you do refi, make sure that you are getting the best loan constant, not interest rate, on the new loan. If/when you move out of one side of the duplex, you will thank yourself then. You make your spread based on CAP rate - Loan Constant = Spread. If that is positive, you will make money. If it's negative you will be coming out of pocket every month.

Pulling cash out is really a personal preference at this point. I would ask what your reserve amount is for the property. If you have a good reserve built up then leaving it in the property will do better long term as you may eventually be able to get a HELOC on it. But if you think your bank won't offer that to you, then pull the cash out and sit on it. Cash in the bank as reserves, looks really good on paper to banks when you go to get more financing for your next deal. AMHIK.

Good luck!

@Pete Fiannaca I'm actually working on building this up for myself right now. I've gotten a good portion of what you are talking about into my sheets, but not the forecasting and mortgage stuff yet. I do have plans for including things like that as well as actual income and expenses so as to calculate the volatility of a given property and portfolio. I would recommend that you also look to incorporate reserves, break even ratio and debt coverage ratio at a minium into your analysis. These are my key metrics for purchasing rental properties.

Feel free to reach out.

Asset protection, such as you are describing, is something best left to the professionals. I too thought about and actually did the LLC formation on my own for my first company. But since then we have an asset protection attorney that we use for all these things. It's not as cheap as doing it yourself for sure. But if you ever were to get sued, I'm significantly more confidant that my assets and personal assets will be protected.

My 2 cents.

@Salvatore Lentini I agree with you about that. WF can be very challenging to work with. But in reality, all of the big banks are like that. I've not actually tried to go through the process with them on a commercial loan yet, but will let you know when I try and what the result is.

@Marsha C. I'd be interested to know what lenders are out there doing limited PG/UW for the investor and looking more at the asset. I would like to understand their terms and how effective their financing could be to help acquire more assets.

My wife is closing on a1031 exchange. Little different since we are buying turnkey rentals. But if you're numbers ask tie or and you have good projections and are able to put 25%or more down, shouldn't have a problem getting a mortgage. You don't have to have a local bank either. You may find that YOUR local bank has good terms because they know you. But having the DP and a good reserve is what is going to get you a mortgage. The bank wants to see that if something goes wrong that they will still get paid.

You want to have a plan and if possible the cash to make a reserve for the deal. If you go to the bank and have all your numbers like stated above AND a predetermined amount and a plan to make sure the deal has a reserve, the bank is going to feel much better about getting paid. So if your total expenses is $1,500/mo then you want to have a min of 6 months reserves or about $10,000. It just sits in a dedicated account for that deal and you don't touch it unless there is a need for that deal.

The thing that is going to get you more loans than any other criteria that a bank has is your liquid cash on hand. You need to have cash sitting there.

Good luck! Let us know how it goes.

Congrats of your first deal! Keep doing it and learning from your mistakes and get better and better!

So I just at Wells Fargo and ran into the commercial loan guy and chatted for a bit. He said that as long as the debt coverage ratio is at least 1.25 on the property the majority of the underwriting criteria goes to low priority. Now I don't really believe him, because nothing is that simple with a bank. BUT, if I have all my ducks in a row AND the DCR is higher than the minimum, it should be a no brainier.

I can't stress enough, however, the importance of having a large reserve just sitting in the bank. When you have five or six figures sitting there they know that you have the liquidity to cover something if it should happen.

If the bank is asking for net worth and other personal criteria for a commercial loan you need to consider two things. 1. Something is up with the bank or the deal. Figure out which one is causing problems and fix it. Either find a new bank or a new deal. Don't force it. 2. Take a strong look at your financials and see if you are a good credit risk. Be brutally honest with yourself. Would you lend money to yourself? This may be a bigger issue than the bank or the deal so make sure you have your house in order.

Good luck!