All Forum Posts by: Greg Dorn

@Malachi Hoots so with multifamily the sold comps do not come up as often and are less likely to be used compared to SFHs. You are better off getting the value based on the current rents and determining your ARV based on the future rents using the Gross Rent Multiplier. GRM is more commonly used for 1 to 4 unit residential properties compared to CAP rates which are for Commercial properties. I would try searching for anything that gives what the GRM is in your market online. IF you cannot find that then you can search for the rents for SFH in your area divided by the estimated current value of the property. Once you have a GRM you can take the current rents x GRM = current value and you can estimate the ARV (= GRM x future rent potential) to see if the deal is worth doing.

The last refinance I did on my owner occupied duplex involved an appraisal and the value was determined on the GRM not the comps which gave us a few thousand extra in the value.

Good Luck!

Hey @Luke DeLaVergne, there are some issues that you are going to run into as far as getting an amazing rate that you see advertisements for. 

1. A rental property takes a bigger hit on pricing compared to a owner occupied or second home

2. Conventional loans (Fannie Mae, Freddie Mac) put the brakes on doing a lot of loans for rental properties. This was from the last director of HUD (I believe) who has since left but no telling when the current director will roll this back.

3. Conventional loans have issues with smaller loan balances. The costs of doing the loans have to pass a percentage based test in order to qualify to be a conventional loan. For a rough number this is 3 and 5 percent. Since loan costs are fixed (say at 3k) it is more difficult to get a small loan to qualify. 

With such a head wind coming from getting a commercial loan you may want to look at non-qualified mortgage products like debt-service-coverage-ratio loans or possibly a HELOC. These are private loans so the rates are usually a little more but it is such a small loan balance that it is going to be difficult to find someone that wants to do something for you with a really low interest rate.

Good luck!

Hey @Steve Tse, So you really want to make sure you look at the term (on a loan this is the time periods) in the HELOC. Most HELOCs are 10/20 loans so there is a 10 year draw period where it is interest only followed by a 20 year period of principal and interest. Your math looks fine for the interest only so if you maxed it out day 1 then 750 should be the monthly payment. There are some great mortgage calculators out there that are free. With the one I use this is what came back for the first 3 payments to just show you a sample of the amortization on a 10/20 loan:

If you were wanting to max out the loan on day 1 and then pay it off in the first 10 years then your first 3 payments would look something like:

Hope that helps

Couple of things I would add as well on rates. You do get a hit on pricing when doing a loan on a condo compared to a single family home. You will also take a hit for it being a cash out loan compared to the purchase and a refinance loan where you are lowering the interest rate and limited to 1% cash out. That all being said if you do not pay points (buy the rate down) you are probably going to have a higher rate compared to the original loan unless you drastically lowered the loan to value (unlikely if you are looking to take equity out). 

Other options you may consider would be a 2nd loan or HELCO (they have higher rates in the 5s and 6s) or if you did the loan as an FHA you could refinance as a conventional loan and if you have over 20% equity you can eliminate your mortgage insurance and lower the monthly payment.

Best of luck to you!

I am blushing a little now that Mr @Scott Trench is looking at my little deal. I am happy with it so far. Just working on getting in a position to do another house hack deal. Market is kinda crazy right now so we will see what we can do here in AZ

Thanks Guys! Fun thing with my wife being the realtor and concessions we got we actually still got paid to close on the house plus a refund of our earnest money (and the escrow account was fully funded). I also became a loan officer after we closed so we have pulled some equity and done an interest rate reduction loan so it is on a 2.25% 30 year fixed mortgage. 

Investment Info:

Small multi-family (2-4 units) buy & hold investment in Tempe.

Purchase price: $251,000
Cash invested: $20,000

Our little house hack. We bought a duplex and took about 8 months to do a live in renovation on one side. It is now up on Airbnb as the 'Diamond In The Rough Duplex'. Plans are now to refinance out and start saving for the next deal.

What made you interested in investing in this type of deal?

Easiest way to start out with investing. Has been great for our small family starting out on this journey

How did you find this deal and how did you negotiate it?

NMLS. My wife got her realtors license and we offered at the asking price with some negotiations for repairs as a credit (we wanted to do the work to make sure it was done correctly).

How did you finance this deal?

My wonderful wife was a Veteran so we did a VA loan.

How did you add value to the deal?

Property was in extreme need of a face lift. We have redone one side so far and are living in the un-renovated unit.

What was the outcome?

The airbnb we run out of the other half covers the whole mortgage, utilities, and property expenses most months which means we basically live for free right now most months. For tax purposes it makes about 5k in profit per year.

Lessons learned? Challenges?

I dont like having a mortgage I pay for myself so love house hacking. Learned that I will probably need someone else to do the work so it gets done in a timely manner. Always scope the plumbing as there are some bigger issues we still have not addressed.

I second that. The move has to make sense. On the income side of the equation you have to be able to qualify for all the loans using income from W2, 1099 and your rental income. With this a key will be to not take on a lot of personal debt and to keep payments as low as possible for all other debts. Most rental properties are not cash flow positive on paper/tax returns when you count the mortgage interest, maintenance, and other deductions your allowed. You can add some back in like depreciation and one time expenses (with proof) but again the key is to not get over leveraged. 

LLC is a liability tool same as a personal liability policy or PLP. If you own one 4 plex the benefits of an LLC may be limited. As I understand it the LLC helps to isolate 1 rental from another so that a lawsuit from one property cannot get to the equity in another property. I would agree with Stephanie that getting a PLP is a good tool to help transfer the risk to another party. Also if you have a loan on the property or not much equity, the risk is also low as a lawyer is not going to want to take the case without a net tangible benefit to investing their time.
If you are a high income individual then the LLC might have a higher benefit to isolate the property liability from you personally and your income. The insurance industry has a good take on LLCs because they treat them almost the same as trusts as long as the owners of the LLC are members of the same family. It is a way to mitigate risk and also can be a way to transfer ownership to kids over time. As far as closing in an LLC most lenders don't allow it, Fannie Mae and Freddie Mac included but if you transfer it after closing (and some title companies will record the deed after they record the note) then you are usually fine. IF you are the owner of the LLC it does not trigger the due on sale clause (Per conversations I have had with my CPA) and if the lender asks you can always move it back or provide proof that you own the LLC. Always best to talk to an attorney/CPA to confirm that your situation works the same way. 

Smallest loan you will usually see is a HELOC and even then you are limited to a minimum loan size of $50k. But like Matt said it is hard to get someone to do the loan as there is not much income in it for the broker. Most of the time the max compensation is 2% so when I do that small of a HELCO it is usually for a repeat client