All Forum Posts by: Christopher Erwin

@Joseph Druther. Good question. Overall, we're in the middle of team building for our investment operation, which includes finding good property mgrs, inspectors, contractors, agents, lenders, insurance brokers, etc. We usually find that a good agent and PM will have a lot of these contacts. Open to any other recommendations!

Thank you @Joseph Druther, will check them out.

My investor group is actively reviewing rental property investments in Moore County, NC. 

We are looking at both SFUs and small MFUs (quadplex and below). We are focusing on class B and C properties that can incorporate a BRRR strategy, or that only need slight cosmetic renovation.

We seek conventional and commercial lenders for both the initial purchase, as well as as the refi after the BRRR strategy is complete.

Any recommendations?

@Joseph Druther @Brandon Purdeu

Awesome, I plan to call in from Santa Monica! My brother who is local in Southern Pines may also join.

I am seeking the same info. I have been referred to Sean at Lanier and Devon at Garvin Property Management. Curious to other property managers operating in Savannah.

@Shaun Weekes @Chris Mason

Thanks for the thoughtful feedback and review of various options I should consider. This is why I love posting in BP.

Yes, I have been in close contact with my loan officers in Omaha, and was advised that 2 years of business tax returns is the high preference, though by January I'll be approaching 18 months and will be wrapping up my first full calendar year, which they said could get me over the hump with an underwriter. Of course, no guarantees per the loan officer, as 2 yrs is the standard.

Chris, that's a good note re the pre and post restructure, and how underwriters might consider a blend scenario. An important note to clarify for the article readers is that I materially changed my profession, so it was not a restructure of an existing business / income stream, but the development of an entirely new one. I left my media executive job in LA and co-founded a media advisory firm, and it's been a BIG awakening at the new financing challenges it's created, even with meaningful income for our first 18 months in operation. I write a newsletter for a lot of media execs in LA, and a lot of my readers had asked for guidance on how entrepreneurship might impact their RE investing ambitions. Of course, your restructure note is still highly relevant, so thank you for sharing.

Thanks for the bank statements tip too, I'll look into that. My recent financing "workaround" has been getting my twin brother, who has a very strong financial profile as an officer in the army, to be my co-guarantor on my mortgage. We'll receive a great interest rate that's better than hard money and the statement model you mention, though I'll get a family co-investor, which has its own advantages / disadvantages that I need to be wary of.

I love your last line about tax and mortgage advice...I will definitely quote that in my next newsletter to my investor peers!  

@Stephanie P. Thanks for the thread contribution. And you raise a good point. That last thing I'd want to do is have my newsletter readers (which includes my loan officers) or the BP community think I'm trying to do a "scheme" or not accurately represent my actual earning profile. My intended message was instead to provide documentation that lenders are familiar with...as @Brandon Turner often mentions, "presentation" is very important. So instead of taking snapshots of my bank statements or distributions on an irregular basis, I now show pay stubs every couple weeks. Easier to understand, familiar paperwork for an underwriter and a good "presentation"....same actual earning profile.

A critical element of RE investing is access to good financing; rapid lender approvals and good terms provide an investor significant advantage in winning deals and generating strong ROI.

For first-time investors or those with just a small portfolio, attractive mortgage financing is typically a result of a W2 job and good credit.

Well, I’m no longer a W2 employee. Instead, I own a new business and take periodic cash distributions. Having taken the entrepreneurial plunge just about a year ago, I can definitively say that being my own boss is one of my greatest professional achievements. But, said plunge has also brought new obstacles for my real estate investing, like losing my pre approval status for traditional mortgage financing. Traditional lenders are highly risk averse and follow a very specific underwriting protocol (see anecdote to this point at bottom of post), and my new employment status fundamentally changed my borrower profile.

Let’s break this down. Traditional mortgage lenders like:

• Steady, long term employment from a stable employer
• Regular pay check
• Low debt to income ratios
• Liquidity / cash cushion
• Track record of paying back loans (i.e. good credit history)

Hence my challenge as a new business owner applying for financing:

• My company had been incorporated for less than a year (far from “stable”)
• No regular salary (those familiar “pay stubs”)
• Lower earning profile while business ramps and we invest earnings into growth

Fortunately, I had done my financial homework.

I knew my access to mortgage financing would change when I started my new co, so I reached out to various lenders and my accountant last year for advice. I asked how I could best position myself for mortgage financing considering my new employment status. Here’s the advice I received:

“Develop a regular income record, and generate documentation that lenders are familiar with.”

So, put myself on traditional payroll, right?

Not if you're a member of an LLC (which I am). With traditional payroll, I'd unnecessarily incur payroll taxes as well as deductions like FICA (social security and medicare), federal and state income taxes. Yes, I in fact made this payroll mistake for a couple months.

Instead, as an LLC member, it's tax-advantaged to take "gross member distributions".

The workaround? I put myself on something that “looks” like payroll.

I now take gross member distributions on the same timetable we pay our full-time employee: twice per month. And, I do it using our payroll provider, Gusto. No taxes or deductions, just a direct pass-through.

• Regular pay check? Yes.
• Documentation that a lender understands (e.g. “pay stubs”). Yes.
• Tax-advantaged distribution for an LLC member? Yes.

I’ve now been on “payroll” for 2+ months, and just last week I reached back out to my lenders to begin mortgage pre-approval conversations. This is timely, because I have a goal of purchasing another multi-family investment property in Omaha before year end.

Based on my lender convos this week, I still have more work to do, but I’m on my way. I’ll report on their feedback and next steps in my next newsletter.

The big lesson here is that there are no insurmountable obstacles in RE investing. Stay informed and know your options. Like all things in life, many roads lead to point B. Find the best fit road for you, and make something awesome happen.

ANECDOTE: My accountant told me a story about one of his clients who owns an LLC and makes $5mm+ per year…and still couldn’t gain access to traditional mortgage financing. His client therefore had to acquire the property in cash, “season it”, and then obtain a mortgage. Crazy.

I have used Wistar / CPM for the past year, and this note is spot on. Re cons, the turnover for my unit was nearly 4 months, and my peer investor in Omaha experienced the same for his unit. There are ways to improve the process there. The turnover costs were also much higher than anticipated, and something I'm still working through with the team. Of course, the services portal provides great transparency and their team's service is very professional. They may be a better fit for investors with multiple units vs just a few...I'm still working through my decision here.

Would be great to get any updates on other recommended PMs. 

BTW, has anyone worked with Mike Salkin? Link below:

http://www.mikesalkin.com/property-management-in-o...

Great question Joe, and I raised with my mgmt. 

Tenant feedback is that my 3/1 is on the smaller side, and thus many viewers thought the unit was in great shape with the new paint and carpet, but the small size didn't align with what they were seeking. The $895 price attracted a lot of traffic since that's definitely in mid market range for a 3/1. 

The BIG learning for me is that an awkward layout or size that's different from the standard unit dimensions can be a turn off, even if the price is compelling....and that means it may take longer to place a tenant, a financial hit to the owner. 

QUICK UPDATE : it was just rented for $895 starting mid May. Definitely much later than I wanted, but I learned a lot in this process!

@Joseph Druther I will set those up now!