All Forum Posts by: Eric Baum

Hi All,

I just had an offer accepted on a SFH in Charlotte. What I liked about this property aside from the deal economics of the existing home, is there is a very large lot and there is enough room to build another home on the lot and it would fit very naturally with the other houses / neighborhoods. I am just slowly evaluating what and when I might want to take advantage of that since I essentially have a zero cost plot of land for it.

The neighborhood values are around $120,000 - $135,000 and my team believes that build costs to put a comparable home (3/2 1200-1400 square feet)  on lets say a .25 lot would be around $55 a foot.  For anyone with experience in Charlotte, does that seem reasonable?

Thanks,

Eric

@John Horner agreed. I have been doing several of my more recent deals financed directly to my LLC. My terms have been under 5% but unfortunately the bank I am working with only does 15 year ammotizations rather than 20, but there are plenty of banks and some I have worked in the past that will provide 20-25 year ammortizations. Typically, the interest rate is .25%-.50% higher, but then can sometimes be negotiable depending on your situation.

That said, for somone just starting out it probably makes sense to put the first few loans in their name (unless they are purchasing with a few other people) to get your choice of ammortization and the lowest rate, and quit claim it to an LLC if you decide you want an LLC as part of an asset protection strategy. However, when needed, financing to LLCs is definitely out there and viable.

Hi Jon,

I sent you a PM.

Cheers,

Eric

Agreed, I don't see much of a difference from a financing perspective. Although something I would clarify, but it is not as relevant to what you were asking, but some banks do make loans to LLCs now. The financing market has been swinging back now and a lot of the community / regional banks will in fact make loans to an LLC although they will want you to also sign personal liability backing it. However, the loan terms are more commercial terms so you will see shorter ammotizations and pay a premium on the interest rates. My advice, is in the beginning purchase in your personal name as you will get the best financing terms and once you get close to running out of slots, then buying in the name of an LLC can help continue your growth and by then you have a good track record as well.

Happy hunting,

Eric

Hi Matt,

Charlotte is one of the markets I do a lot of investing in.  What I can tell you is overall it is a solid market both by characteristics that are important to me in evaluating markets (strong economic growith / momentum for the city, diversity of business, high amount of renters, low property taxes compared to purchase price, solid neighborhoods with tenant quality etc) as well as it is a market that I believe over time the long term will have small but steady price appreciation.   That said, it has become an extremely competitive market.  I have seen a stark difference just in the last year or two - where many of the properties I am interested in can quickly turn into a bidding war and banks seeing a strong market are starting to price their forclosures / short sale requirements much closer to retail value.  many new investors are entering the market and good inventory is getting tight.  So bottom line, Charlotte is a market where 2% is not something I have seen as very likely unless you focus on increasingly lower income areas (which is risky to do in general and even more so when you are first starting out) or potentially going mult-family which different investors have different takes on (while I do have some multi-families in different markets I really prefer SFHs from safety, tenant quality, exit strategy, etc).  

That said, there are good equity and cash flow opportunities out there, you just have to look harder. You won't necessarily find them on the MLS. But since you live in Charlotte, just keep getting familiar with the areas you are comfortable investing in, start to atttend real estate meetings and network, and over time you will build networks and connections that will bring you opportunities before they get to the masses. Just be patient and put yourself out there.

Best of luck,

Eric

@Franklin Romine 

Thanks Frank.  Those are great terms.  And that is a smart startegy.  Maybe I'll go forward on some of the potfolio loans and then down the road do something similar.  I would love to eventually get the 25 year ammortization.

Thank you for all your insight.

@Franklin Romine 

Hi Frank,

That makes a lot of sense. My plan has been to continue to build portfolio cash flow and I was constantly using personal loan slots and then paying off a mortgage to free another slot, etc. This helped me to grow agressively but also to not over leverage as I would have a mix of financed and paid off properties which reduces COC a bit as a percent, but increases magnitude of cash flow at lower risk. That said, the portfolio loans seem a great way I can finance straight to my LLCs (instead of personal and then quitclaiming) and no longer worry about slots. And the ability to cash out refi with no seasoning would allow me to take advantage of the equity I create when I buy and rehab so I could have my projects at one. I think 15 Year ammortizations will set me up even better for the long term, but wil require me to leave more capiatl than initially planned in each property and to have much lowered cash flow in short term - which is all fine but probably means I need to scale a bit slower than I maybe anticpated.

On the cross collateral loans (the bank was mentioning that as well since i have free and clear properties) - what are the advantages there?  Were the ammortizations longer or the rates lower?

Much appreciated,

Eric

@Frank R. 

 Thanks for the response.  With the 15 year ammortization, I can still cash flow and part of that is due to interest rates being pretty reasonable, but I won't cash flow as much as I prefer and then it doesnt leave a lot of buffer for additional unbudgeted surprises.  The flip side like you said is that you are paying down principal faster which I am ok with.  Its the 1.4 coverage ratio that seems trickly when using 15 year amortization and 30% allowance.  I'll have to see how each deal ends up and then what loan to value gets me within range.

@John D.  

Hi John,

I do agree that overall I thought the terms were really great aside from the 1.4 (I had heard that it should be closer to 1.2 particularly with a shorter ammortization). I also agree that I probably would never want a 90% LTV anyway - I am conservative (have a mix of financed and free anc clear properties) and while I like leverage I don't like to be over levered. I think my target would be to have 70% LTV (if I am purchasing and rehabbing correctly, at 70% I should have minimal capital left in anyway). That said, I could see the 15 year and 1.5 in some cases pushing me to the 50-60% LTV range which was a bit lower than I would like. If the ratio was 1.2, it would be minimal issue. That said, many of my deals would hit the 70-75% range and this may be good ammunition to stick to them, and almost an multi-family would hit this. However, there are some high quality / owner occupied neighborhoods that I purchase that have been consistent great returns (due to lower maintenance and vacancy due to area) that might struggle a bit.

Here is the cut and paste of interest rates:

The rate structures include fixed rate and variable rate options. The 15 yr variable rate would be around Prime + 1% (4.25%). For the fixed rate options:

4 yr balloon/15 yr amortization would be around 5.51%

5 yr balloon/15 yr amortization would be around 5.81%

Thanks!

Eric

@Curt Davis Thanks for the response and hope you are doing well!

The nice part is they are waiving any origination points for me.  On the bank side there really aren't any fees pushed to me aside from appraisal and other items they require to be completed (part of the fee waives are part of the relationship status they have designated to me on the personal banking side as well).  

That said, does the bank you are working with have a 1.4 debt coverage requirement? And have you heard them applying a 30% deduction to the gross rent (for vacancy, maintenance, etc) seem in-line as well. My concern is that while they will do up to 90% LTV for me, in order to get to a 1.4, I would probably end up at a <70% LTV (of course deal specific). I am also talking to a bank in the northeast for my Philly,Chicago, and NY operations and they mentioned a debt coverage ratio, but I think it was 1.2 which seemed much more manageable.

Appreciate it!

Eric

Thank you for the response and good advice.

This bank covers the southeast for my investing in Charlotte, Memphis, and other markets.