All Forum Posts by: Daniel Hsieh

Originally posted by @Kyle J.:

Hey Daniel, a couple thoughts that came to mind while reading your post.  

If you know that you would use the money from the HELOC to buy more properties, have you considered just doing a cash out refi instead? You'd get more money since those are usually done at the 70-75% LTV (on investment properties) that you had hoped for. Plus the rate would be fixed and at a lower rate.

You probably already know this but HELOCs have variable rates which are determined by adding a margin to whatever the Prime Rate currently is. So if the margin is 1.875 (which is what Wells Fargo was using last I checked), and the current Prime Rate is 3.25%, then your APR will be 5.125%. This is within the APR range you mentioned, but keep in mind that it could theoretically go much higher if the Prime Rate were to rise to previous levels.

The down side to a cash out refi would be that your closing costs would be higher.  So you'd just have to factor that in and see if it would work for your particular scenario.

Also, regarding them factoring in the anticipated mortgage on the new property, it's probably too late now since they've already processed your application and factored that in, but in the future if you put that the reason for the HELOC is to "have cash reserves" then you won't have this problem. (This suggestion came straight from Wells Fargo.)

Best of luck to you.

 Good call on the cash out refi. Guess the down side is that I will be paying the interest for the amount I cash out for 30 years instead of paying interest only when I use it. But considering what that additional cash out can generate in extra income, the cash out amount interest will be worth it. 

Originally posted by @Kyle J.:

Hey Daniel, a couple thoughts that came to mind while reading your post.  

If you know that you would use the money from the HELOC to buy more properties, have you considered just doing a cash out refi instead? You'd get more money since those are usually done at the 70-75% LTV (on investment properties) that you had hoped for. Plus the rate would be fixed and at a lower rate.

You probably already know this but HELOCs have variable rates which are determined by adding a margin to whatever the Prime Rate currently is. So if the margin is 1.875 (which is what Wells Fargo was using last I checked), and the current Prime Rate is 3.25%, then your APR will be 5.125%. This is within the APR range you mentioned, but keep in mind that it could theoretically go much higher if the Prime Rate were to rise to previous levels.

The down side to a cash out refi would be that your closing costs would be higher.  So you'd just have to factor that in and see if it would work for your particular scenario.

Also, regarding them factoring in the anticipated mortgage on the new property, it's probably too late now since they've already processed your application and factored that in, but in the future if you put that the reason for the HELOC is to "have cash reserves" then you won't have this problem. (This suggestion came straight from Wells Fargo.)

Best of luck to you.

Thanks Kyle. Yes it is too late. It is comical though. Had I told them I will use the loc to buy a giant trampoline to host a block party, it would have been approved. What the credit analyst would have missed is that if I buy a trampoline, it will double my primary property insurance, and if someone gets hurt, they can sue me and I will lose my house (giant medical bill) because it is under my name, not LLC. And buying a rental property got denied? Who came up with the current rules they use. Comical.

Originally posted by @Account Closed:

I got the same story from Wells.  This seems to be standard for them, but they are the only national chain that I think will even CONSIDER equity lines on rental properties.  

 True. I went to chase and they don't even offer it. I heard capital one offers it so I might give them a try. 

Originally posted by @Linda Weygant:

I am unsure why they would not include additional rental income if you've already got two years of rental history on your other two units.  (They are including that income at least, aren't they?)

Note - I am assuming you've got two years of rental income history on your tax returns since you indicate enough equity in the properties to want to leverage it back out.  If this is incorrect, I apologize.

I would do a full rent analysis that you can show a banker on the property you want to purchase and then take it to a local credit union along with your two year (plus) history of landlording and sit down with the loan officer rather than do everything online/over the phone.

I didn't realize that HELOCing an investment property was only 60% LTV. Is that standard, or specific to WF do you think? If so, perhaps a flat out refi to 70 or 75% on the rentals would be workable and then a HELOC on the primary.

 Funny thing. They don't even ask for return. It is only when i pass the initial evaluation then they will start asking for real document. I do have more than 2 years of rental income history but didn't even get that far for them to ask for it. I feel like it was determined by computer algorithms. Well. Their loss. I would have been a good customer and they would have gotten a pretty low risk outstanding loc. moving on. 

So I spent a big chuck of my time last week trying to get home equity line of credit on my 3 properties. Using the rules of thumb that primary is 80% and rental propertyies at 70-75%, I figure I could get over 100k line of credit. For those who are thinking about getting line of credit from conventional bank (like Wellsfargo), here are the things they told me.

Good things first

• They will bear the costs of closing. Meaning everything from application, appraisaland everything. Very nice.

• They can waive the maintenance fee which is usually 75/year. Very nice.

• The rates range from 4-6 percent (depending on the credit score). Amortize over 30 yrs and refi at 10 yrs. If you don’t refi, balloon at 10th yr.

Now the frustrating parts

• Primary at 80% of value minus balance. If your primary is valued at 400k and loan balance is 280k, you can apply for 400k*0.8-280k =40k line of credit. This is not that bad actually but the credit person on the phone told me that because I frankly told them I plan to use the line of credit to buy rental property. So when they process my application, they factor in mortgage that I will be responsible for from the new property. However, Wellsfargo credit analysis didn't factor in the extra revenue/income I could get from the new property. This omission of rental income blow through the require debt to income ratio and hence the primary HELOC was turned down.

• For the 2nd and 3rd property application, the 70-75% is actually 60%. So if my rental property is also worth 400k and loan balance is 280k, I can apply for 400k*0.6-280k= (-40k). That’s right, I can’t apply for anything because the equity/value of the home is not enough. Frustration.

• Say even if the calculation above shows that you have any amount left to apply for line of credit, it has to be above 20k for them to even consider your application. My guess is that since Wellfargo is paying for the closing costs and appraisal, they don’t want to deal with small line of credit.

So, I am back to square one and have to rely on personal saving, personal line of credit (also with Wellsfargo but that line is approved) and other creative financing approach to get more property. If anyone has good experience with other more investor-friendly banks who will at least add in additional rental income from the new property for any ratio calculation, I would love to give them a try. It is comical to me that Wellfargo is willing to give me a sizable personal line of credit backed by me and will not approve home equity line of credit backed also by me and physical house as collateral. Comical. Comical.

Starting out was always challenging. I remember the thought of having to cough up 20% down when I bought my first home. With military benefit and little or no money down already gives you a great start. With the finance lined up ( more or less), next is to look for a property that meets your investment criteria. A few things came to mind is screening tenant yourselves, advertise yourselves if you can (save commission), sign up maintenance contract if you don't want to be bothered with phone call from tenant. If you live within the complex and you are stay-home mom, you may want to consider getting your hand dirty and do some fix up yourselves. Getting to know your house make it easier for you to judge if someone is doing a good job when you no longer doing it yourselves. Best of luck.

@Kevin Wood:

 Kevin, why are you worried about lining up the money first. Is it because it starves the creativity? After sounding the market on my spare time, conventionally, lenders (2 local portfolio lenders) told me they are looking for 25% down on the deal. After that I immediately start gathering all my ammo to come up with that 25% down. I want to reserve my personal saving for raining day and decide to tap into line of credit (personal and home equity). Lucky, it seems like I may be able to tap into those for the 25%. Besides, if I can borrow everything (25% from line of credit and 75% from portfolio lender) for the MF, that is essentially "no money down" and my return in infinite. 

However, even though infinite return sounds good, it is not my end goal. Goal is to keep buying so hence my question then is how do I buy my 2nd MF when I dry up all the resources in the 1st one.  

My guess is that after my 1st, I can come up with the down payment for the 2nd by either personal saving or cashing out from the 1st during refi, provided I can improve the NOI. If I can't do neither of these, then my option is to find a partner who has the cash or private money who will lend me the 100% purchase price. Any suggestions?

Paul, thanks much. I happen to track my net worth on the daily basis and I think my credit is descent. With that, I plan to do this first MF deal on my own without business partner but definitely with a lot of advice from someone like you. Do you know, say 500-600k apartment, what kind of net worth they may be looking for at least in your local market.

Good call on the local chamber of commerce. I need to drop by and start making friends. Thanks much.

Thanks for pointing it out this wonderful resources. I will definitely look into it. Do you also have own apartment, Sandra? If so, how did you get your first deal?

Hey BP members, this is Daniel from Houston, Texas.

I have been in "ninja mode" in BP for some time now and I think the time is ripe that I get more involved in the forum to grow and learn from greater interactions with you all. 

Short intro.

1. Finance professional for the past 9 years.

2. 2 kids and lovely wife

3. Love cooking and photography. But you wouldn't care. I think. 

Now the real gist.  

4. Own 2 rental properties (SF). Both we bought, lived in, moved out and leased out.  

I have always thought about growing my real estate portfolio and have massive passive income (thanks to Grant Cardone 10x and thanks to Brandon for bringing him to the podcast). After listening to the audio book, I started to get more active and have talked to several banks to get the financing ready before looking at properties. I know... I should have also spent more time looking at properties first but my finance background urges me to get the money lined up before I actually need it. 

Combining personal line of credit and home equity line of credit, I believe I may have enough of a downpayment for a B-class 15-20 units MF. My question though is besides private money, seller financing and other creative financing strategies Brandon talks about in his book, what are other proven strategies to keep buying more properties. One strategy came to my mind is capturing some equity when buying this 1st apartment and improve the NOI so when I can get the needed capital (buying 2nd apartment) out when I refi the first. Or perhaps I can talk to other lender (like B2R) who more focus on the bankability of the apartment instead of focusing much on my personal DTI as most traditional banks do. I know creative financing strategy exists to really serve my growth desire, but I am very interested to know how other people grow their portfolio using more "traditional" financing. Any inputs will help and be much appreciated.

Finally, it is nice to meet you all and will be great to meet up with other like-minded investors in Houston.