All Forum Posts by: Igor Messano

@Stephanie P.,

Thank you, I will be checking with other lenders. I have not yet started to process, was just calling to get an idea of who we would be able to do it with so debt to income was not in question yet and it wont be a problem. We are also not doing it through an LLC. However, can you expand on what overlays are?

Regards,
Igor

Hi everyone,

Has anyone done any cash out refi's recently in PA or more specifically in Philadelphia? The few local lenders I've worked with in the past (not for refi's) are all requiring 12 month or rent seasoning with a 70% LTV. Has anyone been able to get it at 6 months of ownership?

I am looking to close on properties with either HM or personal credit lines and refi as soon as possible. My current deal might work with "delayed financing" under FNMA since there wont be much if any repairs required.

Any thoughts?

I 100% agree with Jake as he pretty much hit all of the top neighborhoods for rental returns. Picking between these neighborhoods is a personal decision and it really depends on your short term goals, experience, and access to capital. These are all within a spectrum of gentrification with fishtown being the furthest along, as seen by property prices, and Kensington and Port Richmond being on the other end of the spectrum. This not only dictates the amount of capital you need to invest, but also what type of tenants you will have to deal with and potential for property value increase.

Hi Dave, thank you for the reply. On the seller carrying a second would this mean that the seller would kick back a portion of the financed purchase after the sale? I've done something similar which from my understanding is frowned upon at a minimum where at closing the seller would hand me a money order for extra mount, usually equivalent to the down payment. This was a way to finance the down payment as well. However, I have only done this with a seller I was acquainted to so the title company had nothing to do with it. What a title company help in this type of situation?

Hi everyone,

Has anyone had experience with portfolio lenders and seller carry-backs where the seller finances the down payment? How common is it for portfolio lenders to allow this and do you have any tips on how to prepare for this type of lending? I am about to negotiate the purchase of a property where the seller owns free and clear and currently has the property rehabbed and just sitting without tenants. He is motivated to get some money in his pocket but I think he might be open to holding some of the debt.

If relevant, this will be in Philadelphia PA.

Thanks in advanced.

@Stephen Sawrie You are right that a 100% financed property with short terms skews numbers such as CoC, and Rick is right that CAP rate isn't the best on SFH or small MF. If your property is theoretically netting ZERO with financing, your "income" is the equity you build every year. Looking at an amortization table for your 7 year loan will tell you how much isn't going to interest every year which is what you are getting. Calculating the average real estate appreciation for your area, and any depreciation expenses on taxes will give you the other 2 forms of real estate income since cash flow is zero.

A note on cash flow is that to take advantage of the tax benefits of real estate you do want some "income" so you can net zero on your tax liability as well. In the beginning years your loan might not net you enough equity, I am not sure. So just make sure that your equity plus small cash flow is enough to cover your depreciation. Unless RE investing is your primary profession, you cannot use "losses" from your portfolio to offset your personal income. You would benefit a lot from sitting with a CPA to plan this correctly.

Originally posted by @Jessica Zolotorofe:

Depends on how you structure it. An LLC won't insulate you from everything, but your father in law can sign an indemnity agreement, for whatever that is worth. But why would you even be members if you have no liability and no income? Why wouldn't your father-in-law be the member? As far as taxation, if he is overseas and he is the one actually deriving income from the US and not paying taxes in connection with the foreign income, BIG problem. The penalties and fees will tank him fast if he is caught and they'll bring you and his sister down with him. Talk to an accountant and a lawyer asap. If that's not what's going on, then why are the properties in his sister's name to begin with? Depending on the reason and the end goal, I can probably give you some better direction.

You hit the nail on the head in terms of not paying income tax from the properties. Currently the property is under his sisters name for ease as she comes to the US several times per year and he does not. I don't think they have ever explorer the possibilities of the property being in his name through an LLC and simply having his sister or us with a power of attorney to solve any issues on his behalf.

@Deanna McCormick,

Thank you for the response. You are right that I think that we need to talk to an attorney to be certain. My main concerns are involving the taxes. Him being out of country, I don't think he is currently paying taxes on his rental income (should be) so if this is the expectation we might just need to find a way to create an LLC or trust and have him own it if possible.

Originally posted by @Whys C.:

@Jay Hinrichs and @Darren Budahn, as hard as it is to believe, I have no reason to lie or exaggerate, neither are in my nature nor character. My mentor came from the same C neighborhood he owns and manages his properties in. He was/is heavily invested socially, culturally, and economically in the area. Like I said his investment was in people, as much as in property. He has over 10 tenants who have lived in his properties for over 25 years. He has mastered the skill of screening tenants, he is great at reading and connecting with people. He is also very patient, kind, compassionate, and caring. He has also been very profitable. My mother used to rent from him, and we stayed in several of his properties while I was growing up.

While I understand the whole investment in people and being a stable of the community helps, I also don't buy this. The only way in 50 years with a lot of rentals you will have zero evictions, is If you don't evict someone who isn't paying and baby them through getting on their feet. This is commendable but for 99% of investors who are looking for as little hands on work as possible while maintaining quality, this is not doable.

Having said that, a good point that you make is that in C class rentals, building a relationship with your tenants will absolutely help you. If you have good rapport with your tenant base, they are less likely to want to screw you and will often keep an eye out for your property. They can be your best assets in a multi family. For a hands off investor you would need your PM to build this connection and that is not an easy ask.

I can see how some people can feel that way and it is not incorrect depending on what your goals are and how close you are to achieving them. For someone who wants to grow VERY organically and simply put their money in a property instead of some low yield bonds or savings account that might make sense. But having a lot of equity in your properties is the same as having your money sit in a low yield account but it is a much "safer" position than being over leveraged in all your properties.

When purchasing a property you look at your ROI and CoC returns to determine how well you are investing right? Well once you purchase that property what you spent on it is not as relevant anymore as you can't change it, thus a "sunk cost". So you start looking at ratios such Return on Equity (ROE) to see what kind of return you are getting on the money that is currently tied up in that property. If you have $100,000 tied in a free and clear property that rents for $800 per month, what is your annual return after vacancies and maintenance? Probably not great for someone looking to grow their portfolio. The question would be, can you get a better return if you refinance or sell the property and re-invest using more leverage? If the answer is yes and you are looking to grow quicker then that might be a better option, but not the option for everyone.

With more leverage comes more risk but potentially faster growth. If you are close to your goal or lets say retirement, a bunch of free and clear properties to support your lifestyle is a great option. Simply different strokes for different folks.