All Forum Posts by: Geordy Rostad

Hi @Liz DeGel

Have you spoke to a bank on this? 

A 30 year fixed loan at 4% interest for non-owner occupied at 5% down is not possible as far as I know. Are you planning to move into it for the first year and do an FHA?

On the refi, you would not need PMI. At those numbers you'd have well over 20% equity so pulling that out helps your numbers a bit.

Is your area vacancy rate that high? My area is 5% but yours may be different.

Have you comped your rents out carefully? Rentometer, Craigslist, Hotpads, Zillow... 

@Kevin Dinh

Investor Carrots.  Haven't used it but I've heard good things.

Hi @Joe Mazur

Not all plans are going to work well for converting to a 3/2. Even if the square footage is there to do it.

This plan you are looking at for instance. It's pretty much functionally obsolete. Shoving the kitchen back in the corner like that creates that massive wasted hallway space in the middle. 

If I was going to fix this plan within the bounds of the existing walls, I would do this:

1) move the kitchen to where the front bedroom is.

2) Cut the back wing of the house into 3 bedrooms and 2 bathrooms and slot a stacker washer/dryer into one of the bathrooms. Pull the covered back porch into the bedroom square footage.

3) capture some or all of the covered front porch to include in the square footage if needed.

This is all way too expensive to pull off though. It's not worth bothering when you can just keep shopping a little harder and find something that has a useless family room off to the side where you can convert that to a bedroom. by adding a wall and a closet.

@Alvin Uy

I see some a couple of pitfalls:

1) Is this second unit an ADU or is it actually a duplex lot? In my area here, an accessory dwelling is restricted to about 800 square feet.

2) 8-10 weeks to build an entire second structure from the ground up? I hope your designs are already done and submitted for permits. Just the design, engineering, and permitting could take a lot of that time. That's a very aggressive schedule. I would have guessed more like 6-9 months on a project of this scope.

@Hamza Ali Amzil

One thing I forgot to mention was credit. If you haven't already started building up your credit, now is the time. You should get one credit card and use it for things like gas and groceries and then pay it off entirely every month. 

Don't ever charge more than 30% of the credit limit to the card. So if you get a $500 card, stop using it when the balance gets to $150. Then pay it off and repeat.

@Account Closed

There's a couple of advantages to hard money or cash on the initial buy:

1) Very quick to close. This allows you be much more competitive on your offers.

2) Allows you to buy a property that might have issues that prevent traditional financing.

@Hamza Ali Amzil

Start stockpiling cash if you haven't been. Save save save!

Next, keep getting educated on real estate and investing in general.

Read Financial Freedom by Grant Sabatier. It's full of excellent ideas of how to get ahead. It sounds like you might be in an excellent position to do this right now since you're young and your expenses are probably extremely low.

After you've saved a good pile of money, you should buy a 2u-4u and house hack it. I wish I had done this when I was 20. 

@Chad Dickenson

That's true for residential loans that are sold to Fannie Mae. After 10 properties, you'll be dealing with portfolio lenders so that rule won't apply. It's good to be aware of the rule but it's certainly not the end of the world by any stretch.

Portfolio lender terms might not be as favorable as a Fannie/Freddie loan but in some cases the terms might actually be better.

Alternatively, anytime you can get owner financing at favorable terms, that is another workaround.

@Mike Franco

Wait a minute... Your tenants did an asbestos test on your property?

An asbestos test is destructive. The inspector had to cut out and remove pieces of your property and mutilate pieces of your building materials to take them to a lab. Surely you have something in the lease about destruction of property.

The inspector never should have done that job without verifying that they owned the property and had the authority to order it.

Did they give you the report? Make sure that no holes were cut in the roof that will cause leaks.

Please keep up posted on how this turns out.

@John Pu

I'll try to answer some of your questions here.

1) Due diligence should involve verifying all the numbers as on any deal, structural inspections, environmental study, etc. You should also be looking at demographics, traffic patterns, and of course getting bids on the cost of rehab. Visit the city and ask about what sorts of uses the zoning allows and if there are any current known violations or "grandfathering". If you are using a broker, they should be able to help you through all of this.

2) NNN property typically is offered at a lesser cap rate because it's considered a more stable long term investment than a residential multi family. Leases are usually 5+ years and have built in rate hikes of 3-5%/year and expenses get passed direct to the tenants via NNN. There are pluses and minuses to having a big chain anchor.

3) This is not something I have experience with so I will leave it to an expert in that space.

4) There are some great advantages to owner financing IMO. First off, there are no loan points or closing costs associated with the loan. There's also no appraisal required. The owner might be more flexible on rates and terms than a typical commercial lender will be. The owner financed deal can also close far quicker than with bank financing. If the property needs work, this makes even more sense since the bank might take a look at the project and either decide they don't want to do the loan at all or they will only give you a 65% LTV because of the perceived risk. Use the owner as the bank, then get the property rehabbed and fully stabilized. Then refi back up to a 70-75% LTV based on the new value you have created.

Quick note about the drawbacks of a big name chain... They will typically come in and try to take control away from you. I don't mean they will come in and want to run your property for you. But they will come in and try to grind you on many, many aspects of your deal. They will dictate your tenant mix by putting language in your lease restricting other tenants you can rent to. They will want a better rate on their lease because they know that they add value to your property just by being there. Also, these sorts of tenants can take a LONG time to make decisions and sign leases.