All Forum Posts by: Josh Dillingham

if I had a property that wasn't cash flowing and I could sell it for a profit or break even I would do it. even if it will start cash flowing in 12 years, that's a long time to wait. I would sell, then use all the equity in the place to buy a cash flowing property with a 30 year fixed mortgage.

was the appraisal recent? does it appraise for more than you owe? you could put it on the market in the spring for what you owe and see if you can find a buyer willing to do the Reno for a discounted selling price. it sounds like even if you fix it up you'd be lucky to break even if it really needs $75k worth of work, and the comps are between $300k-$325k. if it sold for less then what you owe can you come up with the difference to pay off the mortgages? it would be better than a forclosure.

What do those closing costs include? Are there prepaid homeowners insurance or property tax included in that? $14,000 closing cost for a $100,000 loan would be crazy.

As far as refi vs. heloc you would need to know what the closing cost of the refi would be and the difference in monthly payment between the refi and help because of the different interest rates. With a heloc the interest rates will go up and down, they aren't fixed so that is an element of risk you are opening yourself up to. As @Corby goade said the benefit of heloc is that you don't pay any interest until you use the money. So if you think you will get a heloc for 90k, then use 25k to Reno the basement then it could take a year or more before you want to buy the property a heloc becomes more appealing because you aren't paying interest on the $65k of unused captial like you would if you did a cash out refi.

decide on your desired monthly cash flow, add up all expenses then offer the price that makes those numbers work.

you will be paying $550 per month in order to get $100,000. here is the question I would ask myself in making this decision: can I make that $100,000 earn more than $550 per month? if the answer is yes then you are making money on the deal. if the answer is no you are losing money on the deal. for me if I were doing it to buy a cash flowing property it would make sense. if I were just using the money to remodel my basement I wouldn't do it.

you would typically use private money or hard money loans as a short term option to acquire a property but because of the high interest rates associated with private/hard money you'll want to be able to refinance into a conventional or commercial loan. the good thing about going after larger multifamilies is that the banks will focus more on the financials of the property itself rather than on your personal financials. they'll want to know that the property can pay for the loan. I think a typical debt coverage ratio they want to see is 1.25 which means if you have a yearly net operating income of 1.25 million your yearly cost of debt on the property needs to be less than 1 million. if I were you I would start by contacting a commercial lender and asking them what their guidelines are and if the have any specific minimums for credit score or income when it comes to the individual buyer. depending on how your company is doing you maybe able to take out a line of credit secured by your business to put towards a down payment on a property.

it sounds like you are in a great position for the BRRRR strategy. Buy, Rehab, Rent, Refinance, Repeat. being in the construction business you'll be able to identify properties where you can force appreciation buy fixing them up, once you have completed the rehab and are renting the units you can do a cash-out refi for 75% of the appraised value of the new and improved property, which allows you to pull out your initial investment to use as a down payment for the next property. example: you purchase a 4 unit property for $100,000 with a 25% down payment. it requires $15,000 of repairs in materials, you can do the labor yourself. closing costs are $3,000. total cash needed up front: $43,000. after the renovation it appraises for $175,000. you do a cash out refi with 75% loan to value ratio for a loan amount of $131,250. closing costs for the new loan are $3,000 you pay off the old mortgage of $75,000 and you are left with $53,250 in your pocket to use on another deal, which is your initial up front investment of $43,000 plus an additional $10,250 that you get from the appreciation you forced with your renovation, so in total you ended up spending none of your own money, made $10k and now have a 4 unit property that probably cash flows around $1,000 a month. and you have $53,250 to do it all over again.

I haven't heard of a self-sufficiency test for an FHA loan. this is surprising to me as properties with 4 units or less are treated like single family homes by banks so the rents they will generate don't come into play as they would with a large multifamily. when I bought a 3 unit with an FHA loan they never mentioned a self sufficiency test, but they did verify my income and savings to ensure I personally could cover the mortgage.

say you use the 500k equity line as a 25% down payment on an apartment complex with a purchase price of $2 million dollars. then 1 year after you bought that apartment complex you have fixed up the building, raised the rents then it appraises for $3 million, it could be possible to do a cash out refinance for 75% of the new appraisal price, $2.25 million, then pay off the original mortgage of $1.5 million and have $750k left. so you could pull the equity back out that way. but that would require you purchasing a property that has a clear path to forced appreciation, which are the type of properties you probably want to be buying anyway.