All Forum Posts by: David Lowe

@Justin Smith We have called several commercial bankers and portfolio lenders, but this deal doesn't look like its going to work out for us.  We picked up one property in August so we can't count the income from that but the expenses still count against us.  This is killing our debt-to-income ratio right now for commercial lenders.  The portfolio lenders will let us count that income even though it isn't on our W-2.  We spoke with a lot of people so my numbers may be off, but I believe we were finding commercial lenders offering 4-4.5% with 20% down for a 20-year loan that can be called in 5 years, 5% with 25% down for a 30-year loan, and portfolio lenders with 5-6% with 25-30% down for 30-year loans.  We had been running numbers with 4.5% with 20% down for a 30-year mortgage, and none of those numbers worked for this deal.  I have been learning a lot about condos and commercial financing throughout this process and made some connections to hold onto for future investments.

Our strategy right now is to find a SFR in the range of $140-160k to go ahead and max out my traditional mortgages, and then look at properties that will require more complicated financing.

Thanks for your advice!

@Justin Smith That sounds like what my lender was describing.  We have spoken with two other lenders at this point and they are saying the same thing.  I am now looking into commercial loans to see if the condo would still cash flow, and I'm planning to see if the owner would consider seller financing.  It never hurts to ask :)

I like the idea of partnering with a family member to carry the mortgage. While this deal should have a decent cash flow, it isn't the home run I would want if I'm involving family. I have been putting the bug in some family members' ears and telling them success stories, but this particular deal isn't the one to bring them in on. Do you have any advice on how to structure a deal like that? If we formed an LLC or partnership, wouldn't that push us into a commercial loan, which I can get on my own without a family member?

Thanks for the help!

I have been doing the single-family thing for a while and am looking to branch out. I found a condo near the beach outside Charleston that I am interested. Ran the numbers, checked comps, talked to the condo's HOA committee, went through the property my realtor and it appears to be a decent investment. I called my lender to get a pre-qualification letter (I have worked with him for years) and he said that there is some restriction on condos that is preventing me from getting a traditional mortgage. I haven't invested in condos before and didn't really understand the problem, but he said it was a Fannie Mae, Freddie Mac rule. It was something about it not technically being a "second home" because I live less than 50 miles from the property and because the renters would be short term vacation renters with leases less than 1 year. I have started talking with commercial lenders to compare terms and rates and see if the property still cash flows. Can anyone shed some light on what requirements/restrictions may be placed on financing a condo as an investment property (I don't intend to use it for personal use...unless, of course, that helps me close the deal :-) ). Do you have any suggestions of other creative financing I should consider?

@Jake Knight I had not head the 30 day thing, but that is what I have been finding on AirBnB. I’m going to keep my eye on a few specific rentals to see how they perform in the coming months to get an idea of demand in different areas. It seems stressful to not have an idea of your expected income more than a month in advance, but I guess that will help me shift my mindset from employee to entrepreneur (I have a few other coals in the fire as well) J

@James Carlson Thanks for the great advice and for the heads up about the ongoing litigation. I will certainly look into zoning while determining where to invest. For vacancy rate, I have been assuming the properties are rented an average of 14 days per month to run numbers. I will refine that number as I continue to research and I anticipate that the summer months in Charleston will see higher percentages than that. I had planned on hiring a property manager, but several people on this post have suggested managing it myself. I like @Robert Whitelaw ‘s suggestion to “Manage it yourself – sort of” That sounds like a good business model, and I’m sure I can find an hour each week to manage it. I do love real estate after all!

@Andrew McConnell Thanks for sending along the website. While the graphics and pop-ups were distracting, there is a lot of excellent information compiled in one place. I recommend other folks check it out as well.

@Robert Whitelaw You make a lot of good points for managing it myself. I take very good care of my properties and I expect a property manager to do the same. I have a manager that I trust for my SFR in Charleston. I plan to talk numbers with her to see if she does vacation rentals. If she doesn't or if she is asking too much, I think I will try following the model you outlined.

Thank you all for the great advice! You have helped me come up with about 10 different areas I am actively researching and I am still weighing SFR vs condo vs townhome for the first vacation rental. I can get a better location with a condo, but have more exit options with SFR.

Thanks for all of the great suggestions!  I am blown away by how helpful everyone has been.  I spent some time yesterday looking at AirBnB postings to get an idea of how much people are asking/getting per night in different areas and to see the vacancy rates.  It looks like AirBnB doesn't book too far in advance in Charleston.  Many of the units were booked for at least half of December, but not much in January at all.  Is that pretty typical, or is January a pretty slow month?  That seems like a stressful way to do business if you don't know what income to expect more than a month in advance, but I did come across some postings where the owners ought to have a pretty significant cash flow.  Thanks for the tips.  I feel like I just picked up another tool to analyze properties as well as another potential exit strategy if I have a hard time finding good long-term tenants in the future.  Time to stat calling insurance and property management folks to learn about that side of vacation rentals.

I have owned student rentals, game-day rentals, condos and single family houses, but have never looked at vacation rentals. I am in Charleston, SC and it seems like a good area for vacation rentals. Does anyone have advice on how to analyze a property to use as a vacation rental? What vacancy factor do you use? Do I include a cleaning fee with the rental agreement? What rate do property managers typically charge? Is there any special insurance I need? Do you allow pets in your vacation rentals? Condo vs SFR for a vacation rental? Any advice is much appreciated!

@Aj Rankin 

It sounds like you are off to a great start.  I moved to the Charleston Area in July and am loving it.  This seems to be a good area for new and seasoned investors.  My wife and I are getting close to debt-to-income ratio limit as well.  We have just started talking to commercial lenders to find out about terms and to start building relationships for the future.  Hope that helps, and welcome to BP!

I think it depends on your goals.  Do you want to manage your own properties or do you plan to work with a property manager as you build your portfolio?  I would vote for #4 as well if you plan to manage them yourself.  Do you plan to fix the properties yourself or hire someone to do the work?  If you are worried about learning how to estimate the cost of work, get a few quotes (3-5 if you are able) and you should have a good idea how much something should cost in your market.  If you are more interested in learning the skills yourself, volunteering with Habitat for Humanity is a great way to learn skills under the direction of experienced contractors while giving back to the community (and it would be free education for you).  I would recommend working with a real estate agent and/or a wholesaler to find your properties, so no need to work under them unless you aspire to become a wholesaler or real estate agent yourself.  Don't try to be a jack-of-all-trades.  Figure out what area you want to specialize in (wholesaling, renovating, managing) and become an expert in that field, then hire experts for the other areas.  Just my opinion, but I hope this helps and happy investing!

I just came across Charleston REIA (http://www.charlestonreia.com/) while looking for the "mastermind" group. Is this a repeat of any of the ones you mentioned @Russ Scheider?  Does anyone know the difference between these groups?

@David Thompson My main goal is cash flow (to eventually replace my income from my job). My goal is to replace my income within 5-10 years and I feel like I'm off to a pretty good start with the four SFRs I already have. I do agree that the SFR route has been slow and requires quite a bit of savings, but I feel like multifamily requires MORE savings. The numbers I have been seeing are SFR are just under the 1% "rule" (I know there is more to analyze, this is just for discussion purposes) for properties between $100k and $200k. There are a few four-plexes available in my area for ~$400k that rent for between $750-850 per unit. The cash-on-cash return appears to be better for the SFRs in this case, but I always hear people talking about great cash flow from MF. What am I missing something?

@Troy Gandee I'm not opposed to bringing money to the table (although it is nice to refi and get my money back out when I'm done).  The last time I was looking against properties and ran against a minimum load requirement, the minimum was $40k, but that was in Georgia.  Is the 75k thing a South Carolina (or Charleston) thing, or have regulations really tightened up that much in the last two years?  Thanks for the advice.