All Forum Posts by: Erik Dofelmier

Quote from @Sasha Mohammed:

Lima is not a bad option but there are better options out there for F&F. I would recommend you reach out to an experienced broker, specifically an investor-focused one, who has these relationships and can guide you toward the lender best suited for your needs. 

Which is a better strategy? Really, you just have to do the legwork to compare to determine which is going to be a better deal - your self-funded HELOC, or using Lima's capital (or another similar lender specializing in F&F).

Personally, I would be hesitant to utilize HELOCs just due to their adjustable nature. You're introducing more variability into an already variable market/ project type. That's not necessarily my preference for risk tolerance, but to each their own. 

Thanks.  The HELOC has the ability to be locked in at a fixed rate, so I was planning on that.  

Quote from @Jonathan Taylor Smith:

I have used Lima One, and would/will do so again in the future. However, if using them is right for your situation depends on what the money cost will be with your stated PLAN-A. Also, what would be the potential opportunity gain if your conventional loan and HELOC remain available for another property by going with Lima One here? Also consider the likely difference in closing costs.

Thank you, good to know. As of now I feel that the conv loan process may be too far along to stop. I guess on the flip side of the coin I could use L1C as another avenue to pursue for another property post closing. 

We are under contract on a duplex that we are going to rehab. My current plan of attack is to use a conventional mortgage I'm already approved for on the initial loan, and then use part of my HELOC to pay for the rehab. I've still been shopping around to find other potential sources of lending, and my local bank mentioned I should check out Lima 1 Capital. Has anyone had any recent experience with this company? Is this something you'd recommend for a first-time investor for a rehab loan? They said I would use their "Fix N Flip" loan (13 months, interest only, funded 100% of the construction costs on a reimbursement model), immediately followed by their long-term rent loan (30 year fixed or 10/1ARM, Cashout Refi up to 75%). My plan is to basically BRRRR the duplex. Therefore, my current plan is to finance the rehab with the HELOC, then immediately refinance to pay back HELOC funds. That said, would there be any significant advantages going with the L1C loans versus using HELOC funds if I aim to refi immediately? Thoughts, advice, opinions? Thanks!

Quote from @Christopher Reeder:

Kerry makes a good point that financing a multi-dwelling, single parcel property can be challenging.  I ran into this same issue with a property I bought that had 4 dwelling units on the parcel.  First, check the zoning for the parcel.  Is it conforming, meaning the multi-dwelling units are allowed.  This can be done by checking with your local government's planning dept. (city, town or county).  If it is an allowable use, you will need to hunt for a local bank that is willing to lend on the property.  This is the tough part but not insurmountable.  I went through 5 or 6 banks before finding one that was willing to do a portfolio loan on my parcel.

One other item to consider is the value of the property. You mention a cap rate, but with the parcel having 2 units, the appraised value will be determined based on the sales price of similar properties in your area, not the net operating income (NOI) the property can generate. The bank will be looking at the NOI for purposes of debt coverage, but the appraiser will not take this into account since the property is <5 units.

Kerry's counter for better owner financing is the best way to go.  I'd do further due diligence because when the balloon term arrives, if the owner is not willing to continue, you will need a backup lending solution.  Another way to counter the owner is to ask how much he/she wants to make each month on the payment.  You can back into this figure with terms which could avoid getting hung up on single components of the lending calculation (rate, DP, amortization, etc.).

Thank you. Prior to the deal falling thru I had spoke to the city. It’s zoned commercial now but it would revert to residential. 

Now for those of you that have dealt with structural issues, at what price point or issues found would you walk away?  The inspection report noted some bowing in the foundation. We were going to get a structural engineer to assess and put in approx 15K structural repair contingency. Thoughts?  Thx

Thank you. I started working with the city on a variance prior to the deal falling thru the first time. But it sounded like it wasn’t going to be an issue. But after looking at the inspection report again it does have some structural issues that could be too costly to fix. I’ll reevaluate in Aug if it’s still available. 

Hey y’all. We are scheduled to close on our first duplex in about a month and it’ll be a complete rehab using my heloc funds (tried to get a rehab loan but no joy since I’m not yet with a local bank. Yes, I’m working on it. Valuable Lesson learned 😁). 

But prior to this duplex, we were looking at another deal on a MFH that fell thru. Long story short it came back up on the market, and the seller is willing to come back to the table. As of now he’s offering seller financing with 40K down. 8% amortized over 20 with a 91k balloon payment after 5 years. Here’s the catch. The homes currently can’t get financed because they’re separate structures on one plat map. However I do have a plan in place to get it to be able to be financed. There are current tenants that pay approx $1700 total (paying below market rate), so by my calcs it’s cash flowing approx $245 with an 8.5 cap rate. Should this be something we look at taking on since it’s financed differently?  Will I be leveraging myself more than I should (I’d be using more of my heloc $ for the DP)?  Or should I wait and reattack it post duplex closing if it’s available?  Advice greatly appreciated.  Thanks. 

We are getting ready to close on our first MFH at the end of the month. It has current tenants in there and they’re paying below market rates. That said the unit does need work. 
My plan is to utilize my HELOC for the down payment as well as for most of the rehab. This allows us to save our savings for an emergency or unexpected life expenses .

I do understand that using the HELOC will affect my cash flow numbers since I’ll be paying for two loans, but I plan on using it temporarily (less than a year) before trying to refi. What am I missing?  Is it a good strategy?  Is there anything else I need to evaluate?  Thanks. 

One thing I forgot to include which may change some things, is I plan on using 20K of my HELOC for the initial down payment. Thus eventually making this a BRRRR. But I'm wondering if I should move into rehabbing it quickly so I can pay off the heloc.

Well she’s my sister. 😂. But I can already tell it could be a pain and may affect our relationship, so moving forward my wife and I will probably go at future rentals solo.
The plan was for us to split the DP 50/50 as well as any costs associated with the rental. But once we start actively managing it and driving to the unit that’s where the grey area begins. Hard to put a number on that. 

My sister, wife and I have created a Delaware LLC. The plan is for my sister (who is a environmental lawyer) to generate and read thru all of the legal docs as necessary, while my wife and I run the numbers on potential properties and perform the PM function of our rentals. That said, the work my wife and I are putting forth seems to be far greater, and probably will be once she and I start actively managing our properties. What do you recommend as far as structuring the duties/payments once cash starts flowing? 50/50 doesn't quite seem reasonable. Thoughts? We have a month before we close and we haven't finalized the LLC plans yet. Thanks.