All Forum Posts by: Chris Youssi

@Casey Barickman Why r u going commercial? Fannie : Freddie can get u fixed rate - terms for the life of the loan . Down payment issue perhaps ? I would discuss with local lender who specializes with investors . Congrats on your first purchase !

Chris Mason " .... In spite of that, it's also standard operating procedure for many builders".

I resent the generalization of your above quote and find it incredibly offensive and arrogant with no proof other than stereotyping "many builders". Not only is it absurd it is no worse than the original post suggesting that standard operating procedure is builders selling homes for $275,000 when in reality they are only worth $150,000- you need to walk your comment back . I have building / developing since 2000 and know of no one in our market that has this as their standard operating procedure. Not everyone is in the California market on here and not suspect to some of the descriptions in your post.Why would Bigger Pockets have you as a moderator is beyond me. An expert you are not sir not by any means or you would have chosen your words with more wisdom. Shame on you!

Enough to make me question why am I even on here if these types of irresponsible posts are allowed from a "moderator".  

I will be there @Account Closed

There's a good thread on here within the last few days about building multi family / cash flow pros-cons etc... Some good information worth investigating. Here's the title in the forums.

Multi-family build to rent advice

Best wishes

I have looked into this extensively and 1 point that has not been discussed is the personal guarantee that is typically given on commercial loans. If that is indeed the case and you give a personal guarantee, than the secondary market treats that the same as if they are still under Fannie/Freddie guidelines. In other words they will count against your 10 property limit. The "wiping the slate clean" will not apply. Lenders who have posted here care to comment.

See below

Limits on the Number of Financed Properties

If the mortgage loan being delivered to Fannie Mae is secured by the borrower’s principal residence, there are no limitations on the number of other properties that the borrower will have financed. If the mortgage is secured by a second home or an investment property, the multiple financed properties policy applies. The maximum number of financed properties that are permitted is based on the underwriting method, as described later in this topic.

The financed property limit

applies to the number of one- to four-unit residential properties where the borrower is personally obligated on the mortgage(s), even if the monthly housing expense is excluded from the borrower's DTI in accordance with B3-6-05, Monthly Debt Obligations (01/30/2018);

applies to the total number of properties financed, not to the number of mortgages on the property or the number of mortgages sold to Fannie Mae;

includes the borrower’s principal residence if it is financed; and

is cumulative for all borrowers (though jointly financed properties are only counted once).

The following property types are not subject to these limitations, even if the borrower is personally obligated on a mortgage on the property:

commercial real estate,

multifamily property consisting of more than four units,

ownership in a timeshare,

ownership of a vacant lot (residential or commercial), or

ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home).

Examples — Counting Financed Properties

The borrower is personally obligated on mortgages securing two investment properties and the co-borrower is personally obligated on mortgages securing three other investment properties, and they are jointly obligated on their principal residence mortgage. The borrower is refinancing the mortgage on one of the two investment properties. Thus, the borrowers have six financed properties.

The borrower and co-borrower are purchasing an investment property and they are already jointly obligated on the mortgages securing five other investment properties. In addition, they each own their own principal residence and are personally obligated on the mortgages. The new property being purchased is considered the borrowers' eighth financed property.

The borrower is purchasing a second home and is personally obligated on his or her principal residence mortgage. Additionally, the borrower owns four two-unit investment properties that are financed in the name of a limited liability company (LLC) of which he or she has a 50% ownership. Because the borrower is not personally obligated on the mortgages securing the investment properties, they would not be included in the property count and the result is only two financed properties.

The borrower is purchasing and financing two investment properties simultaneously. The borrower does not have a mortgage lien against his or her principal residence but does have a financed second home and is personally obligated on the mortgage, two existing financed investment properties and is personally obligated on both mortgages, and a financed building lot. In this instance, the borrower will have five financed properties because the financed building lot does not need to be included in the property count.

Originally posted by @Lane Kawaoka:

2-4 units have bad exit strategies so consider that although the pro formas look better than sfh

I disagree - all ours are setup as townhomes or condominiums from the outset. A no brainer on exit strategy as it is in place from day one. Townhomes are 100% approved for FHA/VA financing from the outset - condos are a little trickier. Dues are not paid until units are actually sold out of the complex . Only then are the units added into the HOA - best of both worlds in my experience.

Nick I agree Cap Rates are used on here incorrectly IMHO. Talk to a CCIM and they will agree that Walgreens/Target etc... have Cap Rates that investors use to evaluate properties. I have never heard of it being used for SFR and any housing before unless it relates to selling and determining values. A properties should still fetch high 6's to mid 7's in most markets.

Hope this helps

Jeff good post. I'll do my best to share with you as a fellow GC/Developer. Huge fan of building new - renters love the shiny pennies and as your aware you build instant equity. We have a totalof 65 rentals about 50% mix of SFR and attached housing .At one time in 2013 we had over 100 and ended up selling 39 units to 1 investor . SFR B/C props and attached A. The attached we built 10-12 years ago and they are solid EZ to rent and sell / still very new in comparison. Our vacancy rate overall is under 1% YTD for all 65 props. Now to some of your ?'s

1.) 1% rule very realistic in new builds 2% I can't imagine how thats even a mention with new construction to be honest very very unrealistic.

2.) The $95 / SF I assume is your cost which IMHO is very realistic we are paying $75 for our current project - which is a duplex project and will be paying $95 on one we will be starting within 45-60 days.

3.)  Based upon the fact they are new - maintenance is a non issue for the first several years which is very very attractive to my objectives. The other bonus here is by the time you are required to do maintenance rents have increased enf so cash flow stays current. 

4.) Cash flow - lot of numbers - formulas opinions on here regarding ROI/IRR/ My favorite Cap rates. Heres mine : On a unit that rents for $1395 I will being home $300-350 depending on if I go with a 20-25 year ( 2 families ) amortized loan. On a unit that rents for an average of $1600 ( 4 families ) I will bring in on average $500 /month cash flow. This will be based upon a 20 year amortized loan.

5.) Equity - As I'm sure your aware based upon the fact you are a GC you will have instant equity and in fact both deals above I will be putting no additional money into the deals because I purchased the land from a bank for the duplex's and the 4 families another builder is purchasing all the SFR lots allowing me to pay down my debt.

Summary - as a fellow homebuilder a huge fan of building new . Interesting story that just happened  / a "friend" today in another State asked me if I would "share " my 4 family prints with him . I'm like Share no it took me 18 years to figure out a successful formula - I can finance and you can build if you want and we split it 50/50. Crickets. Point is this -it works and it can be very very profitable.

Best wishes Jeff 

Originally posted by @Andrew B.:

@Chris Youssi

i would never agree with this for two reasons.

1. there is no reason to offer them a 3 year lease at $150 below market.

2. Absolutely a terrible idea to lock in a tenant on a 3 year lease when you have no idea if they are good or bad.

Neither would I - was a typo should have said 2 year . Running your own background check will solve your 2nd thought

 THX for the catch

I would give them 2 options:

1.) Let them know rent will go up by $400 /M at the end of their lease without question

2.) Sign a 3 year extension right now for $250 / M increase

Let them decide

Negotiate with the seller accordingly. Not your issue they are barely covering their mortgage payoff. Remember you make money on the buy!

Best wishes