All Forum Posts by: Clayton Silva

Quote from @Brian J Allen:

@Clayton Silva and @Henry Lazerow @Johnny McKeon

Thank you for chiming in here. I also took advantage of a 3.5% FHA loan in 1999 when I was recently divorced and could only afford the 3 family that I bought. But sadly times are different. I do about 40 multifamily transactions a year and speak to most of the agents in my area(Worcester,MA) who do multifamily as well. What we are seeing is high rents making multifamily homeowners out of people who have no business owning a home. Due to the bias against low down payment loans from sellers and sellers agents these buyers end up getting the worst of the houses. 75% of the multifamily market in Worcester was built between 1890 and 1920 and have major issues. The 5% down loan allows them to go the conventional route and most are skipping home inspections and have agents who are unfamiliar with the issues they can run into with Knob and Tube wiring, lead paint and older windows/roofs. The banks are originating these loans and selling them off and not explaining to people they are buying a ticking time bomb. At least with FHA the appraiser has a little control over the house. I look forward to future comments.

I don't actually disagree with this and will say that may be market specific for you.  We do 5% down transactions across the country and believe me when I say, I have seen some terrible realtors and some really good ones.  A bad realtor that is waiving inspections on a property like that is largely to blame for NAR lawsuits and other pending litigation.  We track our post-closing default rates and in past 4 years we had like 1 file and I think they ended up catching up on payments.  I would never ever advise a client to waive inspections on their first time purchase.  Again, worth mentioning, is that conventional guidelines are actually more strict than FHA guidelines when it comes to DTI calculations and qualification.

Quote from @Tom Gimer:

Quote from @Clayton Silva:

Quote from @Account Closed:

Quote from @Clayton Silva:

Quote from @Rick Albert:

Rent backs are super common. There is specific California Association of Realtors forms for those staying 29 days. That is key and would recommend going that route.

 This guy gets it!

heh heh heh Haven't been around long huh? When a "hold over" turns into a squatter, hilarity ensues. ;-)

 I would recommend reading each of the comments in entirety.  Both specified 29 days or less to prevent right of tenancy. I mentioned having an airtight agreement drafted up by an attorney.  

I read the California template... it's got no teeth whatsoever. So to assume a document is going to prevent a distressed seller from staying in a property when they have nowhere else to go is naive. And that's the exact scenario here.

If you search BP you will find many examples supporting the position that an investor should never allow a party facing foreclosure, default, distress to remain in a property after settlement. Over the years I've witnessed parties make many unforced errors in this context. 

I just need a few extra days to get my stuff out. lol

 I don't disagree, but just as you mentioned anecdotal cases on BP and elsewhere, I have seen it work well for multiple clients anecdotally as well.  It is definitely a buyer beware scenario, and understanding the state's landlord/tenant laws is a must when making any of these decisions.

Quote from @Account Closed:

Quote from @Clayton Silva:

Quote from @Rick Albert:

Rent backs are super common. There is specific California Association of Realtors forms for those staying 29 days. That is key and would recommend going that route.

 This guy gets it!

heh heh heh Haven't been around long huh? When a "hold over" turns into a squatter, hilarity ensues. ;-)

 I would recommend reading each of the comments in entirety.  Both specified 29 days or less to prevent right of tenancy. I mentioned having an airtight agreement drafted up by an attorney.  

Quote from @Rick Albert:

Rent backs are super common. There is specific California Association of Realtors forms for those staying 29 days. That is key and would recommend going that route.

 This guy gets it!

Quote from @Erik Estrada:

Yea I get this question every day. I have seen some DSCR lenders offer non-recourse options but its not what most people expect it to be. You are better of going with the full recourse option.

Also you can do a non-recourse loan in multifamily CRE 5+units however the lowest loan size I have closed with this is $500k on a very low LTV loan (like less than 20% LTV) . Most banks/CUs won't go lower than that.

 Correct and if they do even offer non recourse it's super low leverage 

Quote from @Gregory Schwartz:

This is a crucial detail to know when you're investing as an active or passive partner. Are you personally guaranteeing the loan?

Great points @Clayton Silva

 For sure, and it's not as scary as people think, like 99% of all residential real estate is done with personal guarantees.

Quote from @Patrick Roberts:

I get this question a ton, also. I'm not sure why there's such a big misunderstanding around these. Very, very few residential RE loans allow nonrecourse.

 Yes, I think, like a lot of topics that get passed around real estate circles (like 0 down physician loans...which I have never ever seen one actually close haha) there are these mythical products that people don't realize may only exist at one small bank in one small corner of the country and not actually be available to most.

"Is this loan non-recourse". That question is often better answered by asking what you mean by that. Common misconception is that DSCR loans are non-recourse because they can close in an LLC. However, even DSCR loans require personal guarantees and MAY or MAY NOT report to credit. Reporting to credit is not recourse or non-recourse. Side note on why some DSCR loans report to credit: loans get packaged up and sold to large servicing companies after closing. As anyone who has held a mortgage for more than 10 years knows, they will likely get transferred a few times. Each servicer treats the loan a little differently, and some may ultimately report the loan on your credit. You may be able to call the servicer and provide the original loan docs to show that it was not supposed to report to your credit. HOWEVER, on that note, just because it does not report on your credit DOES NOT mean it is non-recourse and therefore it DOES count towards your DTI calculation in most cases going forward.

Off my side tangent, a true non-recourse loan is any loan that does not have any kind of personal guarantee. These loans are often found primarily in larger commercial real estate and is a very specific loan product. For people wanting true non-recourse (usually to buy real estate in self-directed IRAs), you have to go to very specific specialty lenders. Expect to put 30-40% down on the property and then consult a self-directed IRA specialist to make sure you understand all the nuances of how to manage the property and pay for repairs. True non-recourse is EXTREMELY rare in residential real estate, so I hope this clears up some confusion and helps someone!

I don't think opening a bank account will be an issue, you can likely open a trust banking account depending on the trust structure (revocable vs. irrevocable). I don't know that for sure and would call Schwab or a bank that has trust accounts and a banker will be able to assist with that. However, you are going to have a hard time getting financing with that structure. Very few banks will lend directly to trusts. Even if you go DSCR where they lend to the LLC, they are going to ask for articles of incorporation, EIN assignment letter, operating agreement, and sometimes a certificate of status as well. Once they see the trust, it is likely going to be a deal killer for most DSCR and conventional lenders. None of this is legal advice on how to structure your LLC, but just pointing out future hurdles you may have.

Nice to meet you Renee,

This question is very difficult to answer without understanding end goals.  What is your investing goal?  Is it to build up assets, is it to make additional income, is it to reduce your monthly housing spend and save more money, is it tax breaks/benefits?  Without understanding what you want to accomplish, it can be difficult to determine the best course of action.  For most people, owning their own home and house hacking is typically the best way to get started building some equity, enjoying tax benefits, understanding real estate, and reducing their monthly housing expenses, but it really does vary by person and what they are trying to do.