All Forum Posts by: Dustin DuFault

No rule of thumb here - but I'll give you my experience both as a broke newbie kid and what I'm doing now :)

When I started out in rentals - I had little cash on hand. My emergency plan was 3 fold...

1. Appeal to older / established family. I did actually use that too! My father in law (who does real estate as well) provided a short term loan when I needed a re-roof. That was super helpful.

2. 401k Loan - This can be a source for a substantial short term loan if required. Of course you are taking your money out of the market and the loan will convert to a taxable and potentially penalized distribution if you leave employment for some reason. So it has it's perils to say the least.

3.. Credit Cards - I've never been particularly spendy. The few times I've relied on plastic for financing where to get thru a real estate crunch. I always made sure to focus on paying them down over a short period.

Now that I've been at this a while, this is what I do, generally...

1. Usually I keep about $20k ready to go. This covers my 5 rental properties, my own personal emergency fund, and a decent size binder in case a deal presents itself (or some other investment). That's probably considered a small amount for the risk of my properties and income as I have a regular job as well. Therefore I also...

2. Invest additional capital in the stock market. I call this 'easy access' money. It's not cash per se... but if you keep too much in cash that's really a wasted opportunity IMO. So I invest the additional - I use a margin account for this purpose. I never borrow for the actual investments, but if I were to need short term access to some of that money, I can temporarily borrow against the account, without realizing any capital gains. This also speeds up the period of time until you can get your money. A stock sale takes 3 days to settle - not a long time, but on a cash foreclosure purchase you don't have 3 days to pay so that won't work!

I guess I can't say I gave you a methodology to tackle this question. Hopefully that gives you some good ideas about the mechanics of handling this predicament though!!!

Team BP,

Just had this come up with one of my tenants. In retrospect I should have foreseen this coming... but missed it. I acquired a property last year via foreclosure. It required some renovations due to deferred maintenance / vacancy, but is now up and running as a rental property. For reference this is the property I am working on financing following the foreclosure acquisition, if you've seen any of my recent posts.

At any rate the property has a fireplace and the tenant contacted me to find out if she would be able to use it. I appreciated how conscientious a tenant she was for inquiring first!! Then I let her know this would take some research on my part.

Anyone have any ideas on how to get the fireplace inspected? Is it common practice to allow fires in rental properties?? This seems dangerous to me at best... but in this particular case I didn't address it in the lease... so I'd feel bad about not allowing it after the fact.

For reference the fireplace is listed on the property appraisers site as a 'pre-fab' model. It looks like a regular fireplace to me, but I'm imagining some flimsy sheet-metal style chimney or something :-/

Thoughts?

-Dustin

I think you're saying assume no appreciate on the property nor an allowance for an increase in rents, correct?

If that's the case the cash flow is everything.

In the real world though you can get equity, increasing rents, and cash flow on day 1. I tend to analyze my properties in terms of total return - the equity I believe I'm buying on day 1, plus a healthy amount of cash flow on rents.

I just recently finished moving all of my checking / savings accounts over to my discount brokerage company. I split mine up between my personally segregated checking account, another personal checking account for properties titles in my name, and an LLC account.

The brokerage company offers a 'cash management account' (basically a free checking account). While I'm new at that type of account with them, it offers some great features...

-Free Checks, both for accounts in my name as well as my LLC!

-Free wire transfers

-Remote check deposit (personal only, LLC checks I can remote deposit to my credit union and then EFT over)

-Automatically Reimbursed ATM charges

-Free Bill Pay

-Ease of making other investments. I can move into a stock / mutual fund investment for a season while researching deals. I have the accounts setup as margin accounts as well. Not because I want to borrow against the accounts, but because that arrangement allows me to sell something and wire that money same day with no delays for settlement. So I can both invest but pull the trigger fast on a real estate deal.

-A 'performance tracking' tool. Although this tool is clearly primarily designed to track stock performance in your account, in order to do so it also closely tracks your cash flow into and out of the account. So without effort I can quickly gauge cash flow on each account to help me identify trends, etc.

Personally I was happy to give the heave-ho to my particular credit union. I had quite a bit of money there for a long time and they were always hassling me for fees, but waiving those fees for penniless oldsters over 50. The were worthless for lending as well - insisting I was 'thin file' in my credit report.... which makes me wonder just who they were lending too?!

Team BP,

I'm working on getting a foreclosure I purchased almost a year ago financed (hopefully!).

I've received lots of great leads already on BP, but I'm getting a little bit lost between what I'm being told with mortgage brokers vs. my own interpretation of the underwriting requirements I've located for Fannie Mae. If you don't mind take a look at this (page 188)...

https://www.fanniemae.com/content/guide/sel040913.pdf#page=188

So: When I purchased the foreclosure for cash a year ago I was told by my longstanding mortgage broker that I must wait a year to be able to do a cash out refi at full appraisal value. It's been rented and cash flowing quite nicely in the interim so that's been fine. Now I've been working the financing angle for the past month or so in prep for the 1 year anniversary at the end of November. My usual guy @PrimeLending and another from Sebonic are under the impression they can loan at 75% LTV based on appraisal after the 1 year anniversary, conventional cash out refi. I have a guy from QuickenLoans who is pressing to get my $500 application fee (!) and claims he's confident they can do the mortgage now, prior to the 1 year date. Obviously I'm going to do some due diligence before handing over $500 to a salesperson in an application fee (not that inclined to do it, anyway). At any rate, however, based on my interpretation of the Fannie Mae Underwriting Requirement above, it looks like since this would be my 5th mortgage for an investment property, and I'm not refinancing an existing mortgage, that I'll be locked out. It also looks like I could have done a delayed financing option within 6 months of the purchase... but now I'm locked out.... do I have that right?

I like the property and I'm a little disheartened that on the face of it I may need to end up flipping it in order to access loans 5-10 since I have the majority of my capital tied up in it currently. I've never sold a piece of real estate and never really intended too - to be honest I wouldn't have the foggiest idea where to start in that endeavor - I've always done my own research and kept realtors at arms length lest they cloud my judgement! :-/ (no offense intended, of course, but I like to think independently on deals)

Okie-dokie - weigh in. Am I in the midst of learning a lesson here?

Thanks for a great site!

I've gleaned a lot of knowledge from the expertise on BP. It's a world class site with world class folks, too!!!

@David Beard

Just wanted to close the loop on this - I contacted my agent at PrimeLending, Eric Corbett. He confirmed they are now able to do loans 5-10. He made it sound like the cashout would not be an issue as well.

Thanks again for the leads David!

@Bill Gulley

So... What do you fly? :)

I've been so busy trying to grow this business I really don't have much time for it, lately! Looking forward to growth and future possibilities though. I pick up a checkout here and there just for fun.

Hi David - I'd be getting another couple of quotes minimum to make sure you are getting a market price. $10k is a lot of money and sounds high to me. How big was the home?

Also with your existing lengths of pipe - you can get copper to PEX fittings called 'SharkBites' and do this on the very cheap. If you use these SharkBite fittings you can literally press the connections on with no soldering. PEX pipe itself is incredibly cheap. Probably cut that project down to $50 tops (the SharkBites are not cheap).

Pinhole leaks in copper are not well understood. I've heard theories about minerals in the water, and poorly done joints causing micro-currents which in turn cause excess erosion at those point of the pipe.

Given that it's happened multiple times I'd be nervous about leaving the rest in the house, personally In my mind I'd be making plans to do just as you suggested - replacing everything with PEX. It's relatively easy to route for replacement purposes and is a good DIY option if you're inclined.

You wouldn't want to spring a leak within a wall unnoticed!