All Forum Posts by: Chris Parker

A recent snafu with my credit sunk it to the point where I'm below the 700 necessary for conforming cash out refinance, but above the 680 for a conforming "limited cash out refinance".

I have several free-and-clear homes I would like to cash-out refinance. I also have a roughly equal amount of cash sitting around. 

Can I create an entity, give the cash to it, have it give me personally a non-conforming "cash out" mortgage on the property I want to refinance, then get a limited cash out conforming mortgage which pays off the entity, but gives no extra cash to me directly?

Given this thread, it would seem that the answer is actually yes, but I would like to confirm.

@Mary M. Much thanks. Don't worry, my ******** detector works well enough. :) 

@Michael K Gallagher Thanks! I might have to check out that book. I know that I'm definitely still "liking the idea" but I just wanted some confirmation before I really started going after it instead of trying one of the other countless strategies. The "do the small simple thing which you know works, over and over" approach seemed to follow the KISS principle, and the numbers sure seemed good, so I started to question why I needed anything else. 

Oh, and don't worry, I am not lacking for metrics :) 

@Darius Ogloza Shockingly these are in decent enough neighborhoods. They're humble, working class, blue collar neighborhoods, but they're not actually that bad. Walking around at night alone isn't an issue. I'm going to leave the truly bad areas to other people, but I definitely understand your skepticism as I shared it.

I know the winters are unexpectedly destructive but you're right that I don't know how to gauge how big of a deal that is. 

When you say "paper" cashflow, you mean the expected amount I projected? What do you suggest for determining long term expenses in this type of strategy?

Thank you everyone. I know it was kind of a silly post I just wanted a sanity check. I felt like things were turning out far too well for being so easy. Going from 0 to 7 units in a year was easy, and I just wanted to make sure that I wasn't missing some "oh everyone knows you don't buy properties like that" gotcha before I got aggressive with scaling. Seems like I'm not crazy, but I will definitely heed the advice. 

@Lee Ripma Oh wow, I was *just* watching your BP podcast episode. Good stuff! I forwarded it to a lady scientist friend of mine who is thinking about getting into REI. We've got some mutual friends with construction background and your strategy in LA was very intriguing; I made a note to dig around your website later.

I do intend to expand my reserves, and I think the leverage can actually help there. 

@Daniel McNulty Yes, I intend to buy myself out of a job. My expenses aren't that crazy, but I figure since I find REI fun I might as well aim high.

I know I'm still very green, so pardon the question, but how much of an exaggeration is "100 SFH is a full time job even with a trusted team"? I'm sure that it'll be very hectic during the acquisition phase (which is fine), but surely once things are stabilized the implied 35 minutes a month per property of my time is a bit high? 

At what point do you need to bring in someone to manage the managers for you? 

How much of a time difference on my side is there at an equivalent scale, but mostly in the multifamily space?

@Jon Kelly Glad to meet someone with similar numbers! 

I'd really like to know what you budget for expenses. My mentor there reports ~35% expenses, but he doesn't really track capex budgets or have insurance, etc, so I've just been using 50% as an estimate for the long term. My intuition is that these cheap houses should have a higher budget for expenses... but my mentor doesn't report that, so it's the variable I've been most worried about, especially in light of his totally unreasonable level of frugality.

That 30-40 unit breakpoint you mentioned is interesting, because that's ~10x my current scale, and I currently spend ~0 hours a month worrying about units after a tenant is in place... and 10 times 0 is 0. I fully believe what you're saying, but I'd like to know how that time breaks down because it's not obvious to me from where I am.

I live in SF Bay Area, CA, and have a fancy tech job that I enjoy (at least I did before COVID). Have about $8k a month to invest in real estate after maxing retirement accounts thanks to high income and modest lifestyle as a single guy. 

Started in real estate by buying a newish construction SFH in Bay Area last year for ~$625k at 5% down. Now have an amazing tenant in place (section 8) at $3,300/mo. About $50k of appreciation in 18 months, but rent only covers HOA, PMI, interest, taxes, and insurance - principal I pay out of pocket, and self manage. I bought this property as a hedge against the local market because I intend to stay in the Bay Area long term. Bought a duplex out of state for my mother - she covers the mortgage and all expenses while AirBnBing out the other side - I only bought it to subsidize her; pretend it doesn't exist. Have a bit over $100k in cash/index funds, and want to keep about that much as reserves since I'm prone to long hospitalizations due to chronic illness.

Over the least year I have 4 other out of state single family homes, in a small (but not tiny) midwest city which I deem to have a long term stable market (national average population growth, diverse stable economy, largest city for some distance, has both hospital and university, low crime). Total combined purchase price is $120k with $25k rehab resulting in about $80k of forced appreciation. Gross rent is $3,150/mo (average: $30k purchase, $6k rehab, $50k ARV, $785 rent). I own them all free and clear. (Double checked title and with tax assessor.) That's a 2.25% average gross monthly rental yield. If I scaled up my acquisitions to a bit over 1/month I would expect that ratio to drop closer to 1.8% (guesstimating), but I've also broken 3%. Everyone has paid on time in full this year so far. 

I found a mentor in the market who is done scaling his own portfolio (he refuses to take on debt, just rode the 2011+ wave, and his cashflow pays for his crazy frugal lifestyle more than 10 times over). He opened his team to me. So, I have an investor friendly real estate agent. And I have a property manager / rehabber who leads a crew that works for (what I consider to be) peanuts. They appear to do good work (and are itching for more work this year). I've met those 3 core players all in person and they all seem like genuine people I can trust who know what they're doing. I'm perceptive enough to be sure of my assessment of them.

By my nature I'm (reasonably?) cautious, but ambitious and extremely-numbers-oriented. (I could have been a quant.) Every signal I'm getting is telling me to go to a portfolio lender and scale in this market until I can't anymore. I've been avoiding further debt so far because of how highly leveraged I am on the Bay Area property. I also didn't want to give up the superior financing rate/terms with conforming loans, but I now realize that missing out on even one deal over their restrictions cancels out the benefits they offer. (Talk about shifting to an "abundance mindset"!!) 

Why should I not just go full tilt and double and triple down on this market? I watched a BP podcast of a guy who scaled to 100 properties in 2 years, and I think I could do that in 2-4 years, so 100 single family homes has become my next goal. I understand that there is significant logistical and maintenance overhead with 100 SFH, but I also don't hear about people acquiring multifamily at >2% monthly rental yields. How bad would the problems with 100 single family homes really be? I feel like those problems are firmly "good problems to have". Should I be balancing learning how to do something else while exploiting this opportunity? My disposition is agreeable enough, but I am not a marketing or sales guy.

My goals are to reach $5k+/mo passive income ASAP, then safely maximize IRR until I decide to quit my day job, which will realistically be several years (or tomorrow if I win the lottery). I've identified a couple other markets that look similar to the one I'm active in, and could expand into if I built a team there. This makes me nervous, since I'm not sure I could actually replicate the shockingly-easy success I've had in this market. I feel like there are big parts of the learning process I've just lucked into skipping. Am I just suffering from imposter syndrome?

At some point you just have to trust your gut. Assuming you trust nothing they give you at best you can prove they're employed and that's it.

@Christopher Winkler Please read the linked thread, it is most definitely a no-cash-out refi. 

Thank you both!

@Andrew Postell Your post is very interesting. I'm going to dive into the comments this evening, but my first reaction is that I want to see confirmation that refinancing an existing loan (to yourself, no less) bypasses the seasoning restriction. 

Am I correct that it only works because it isn't a "cash out" refinance at all, but instead a "limited/no cash out" refinance, which has no seasoning period, and merely happens to pay off the note to your shell company? Does this have to be an LLC, or can it be any entity?

If so I am honestly impressed with how much something like that violates the spirit of the rules without(?) violating the letter.

I bought a single family house in Missouri for $30k cash. A month and $10k later it is worth ~$85k and rented out for $800/mo. I would like to tap that equity ASAP, then refinance into 30 year conventional after the 6 month seasoning period. 

Fannie rules for the delayed financing exception limit me to the initial $30k out during the initial 6 months. This is a small enough loan that I doubt I can find conventional financing, even though it'd be <50% LTV and cashflowing.

I have several deals on my plate with similar numbers, and expect to find myself in a similar situation repeatedly. What sort of product / lender should I look for here? 

(My credit is 760. I have a low DTI and high AGI.)

@Sean Rooks

You likely are not taking on any "due on sale" risk. I am not exactly sure on the specifics, but I do know the rules rules have been recently clarified. 

Transferring to an LLC you 100% own is kosher and can not trigger "due on sale" clause.