All Forum Posts by: Clayton Silva

Ever wonder how these large national builders are able to offer "low builder rate of xxx"?  These builders are purchasing forward commitments from banks.  It is effectively a prepaid rate buydown, but it has a lot of unique benefits that are rarely considered:

Pros:

1) The builder avoids the standard seller concession limits. Because the commitment is a prepaid expense before going into contract, the cost of it does not count toward the seller's concessions which allows them to buy the rate down more than what would otherwise be allowed by VA/FHA/Fannie/Freddie etc.

2) The builder can use it for marketing and by offering lower rates, they are able to attract a larger buyer pool and offload inventory faster which is the name of the game to recycle capital into the next project.

3) They are customizable, you can see the costs and determine if you want to buy the rates down 1% or 2% (or more) or if you want to add 2/1 or 3/2/1 buydowns as well to further incentivize purchase activity.

 4) The builder and the lender can build a more streamlined process since they are effectively partners and the builder does not have to worry about different approvals from different lenders and whether or not the transactions are going to go through.

Cons:

1) Forward commitments are costly.  However, when compared to what the builder would have to sell a home for to be able to offer the same monthly payment to the consumer, the sale price would be even lower than the list price - forward commitment cost.  Example: Average sale price is 500k and the current market rates for a conventional loan are 7%.  A builder could offer 5% rates instead of 7% and it would cost the builder $45,000 (expensive, I know).  But the consumer sees that with 5% down, their principal and interest payment is only $2,550 instead of $3,160.  For the builder to sell the home WITH the market rate of 7% AND offer the same payment, the builder would have to reduce the purchase price from 500k all the way down to 380k.  So the buyer is getting a 500k property for the same payment as a 380k property, and the builder is only paying $45,000 instead of selling for $120k less.   These are hypothetical numbers but just to paint a picture.

2) Forward commitments are short duration.  Typically they are purchased in 30, 60 or 90 day increments.  What happens when 90 days goes by and no buyers?  The builder is out that $45,000 cost and has to renew again.  --> We do this differently to reduce a lot of the holding risk because we want to help small to mid-sized builders have the same advantage that large builders have without this risk.

The forward commitment, just like anything in the lending space, can be a very powerful tool to skyrocket your business or it can be a massive detriment if not applied wisely and correctly.  

I have found a lot of mid-sized developers lately that have never even heard of this option so thought I would share for anyone else in that boat.

If you, as a builder/developer, are having no issues moving inventory quickly then this product is likely not for you, but if your homes are sitting 60-90 days and you would like to speed up your sales, this can be a powerful marketing tool to get the homes sold.  

Let me know if I missed anything or if anyone has experience using them and what their experience was!  

Hey there, we have a meetup in Stockton this Saturday actually, a lot of bay area investors drive out to Stockton for these since you can still get cashflow on multifamily properties here.  Hit me up if you'd like to learn more!

Good problem to have! You'll have to pivot to NonQM (non qualified mortgages) such as DSCR loans or bank statement loans. Good news is that they are easier loans with less paperwork and underwriting. Also good news is that the rates right now are typically comparable to even conventional investments (sometimes about .25-.5% higher rate but we have seen them dead even as well).

Pros to DSCR:

1) No tax returns...this means, if you are self employed or have a lot of rentals, you can maximize the tax advantages and claim expenses without having to worry about showing income to qualify for more homes.

2) comparable rates to conventional lending and still 30 year fixed terms!

3) Can close in an LLC or in your personal name.

Cons to DSCR:

1) The biggest con is the prepayment penalty. DSCR loans come with a prepayment penalty in most states but you can often pick the penalty and the duration (example: a 2 year pre payment penalty vs a 5 year). This means that if you refinance or sell the property inside of the selected pre payment penalty, you will incur a fee which can impact flexibility if the rates shift or you have the need/desire to sell).

Hope this helps!

They cannot make up their minds on this stuff haha I saw this

I used to have to track mileage for the military stipends and I used MileIQ.  It's been a while since I used it but I think it can automatically detect driving and all I did was go back at the end of the week and sort each drive into work vs leisure.

If the person is already negotiating and finding deals there are two options in my opinion:

1) Hire a good real estate attorney and have them on retainer...pay a flat fee for looking over the contracts and doing title work

2) Work directly with a title company and offer to pay them a higher fee to handle transaction coordination.  

I think option A is going to yield better results but I would imagine both of these are doable

Raleigh is a fantastic market, and NC more broadly.  I personally invest in NC and it is very landlord friendly and business friendly.  I would be happy to connect despite being an out of state investor like you haha

I would use a service like TurboTenant to draft up a state specific lease.  They cost like $50 to have them draft one.  Or pay a real estate attorney a fee to help you draft one, a few dollars up front will help save thousands down the road should anything bad happen regarding the lease.

This is a good place to start.

1) Education: be the most knowledgeable agent in your area and start to host meet ups or something that can establish credibility.  

2) I would find a low transaction/fee-based brokerage like EXP or a brokerage that does not charge a heavy annual fee.  Look for one with established market presence and good reviews...company/brokerage reviews will impact yours.

3) Find a mentor who is where you want to be in 5 years and do whatever you can to be near them or learn from them.

Education will pay higher dividends than investing.  When I say education, I mean real education (not formal or higher education) but more like hands on business experience, sales, marketing, or agriculture as you mentioned.  The faster you can pay the infamous "dumb tax" the faster you can create wealth.  I have been investing for years; stocks, options, bitcoin, real estate, and private lending and now I am getting out of all of it because my job is proving to have an infinitely higher return on time and it no longer makes financial sense to dump money into rentals.  Try to find people who are where you want to be and then just copy them, what do/did they do to get there and do the same thing.  Hope this helps and best of luck!  P.S. if you do plan on getting into farming, I would learn everything you can about futures/commodities trading.  The most successful farmers know how to hedge for bad years and those can be powerful tools to protect against downside risk if you know what you are doing.