All Forum Posts by: Jacob Trogan

Quote from @Justin Schrey:

Hi, my name is Justin. I live in the San Diego Area and my family and I are looking to finally jump into some investment real estate. I am trying to ingest as much info and education that I can and figured I would ask this question here…

Goals: To have a supplemental income when I retire in 8 years and enough knowledge and capital to try to pursue real estate investing full time in retirement.

We have about $400,000 available to us in equity in our home if we did a heloc but with interest rates going up, it seems way more risky to go that route. We have about $20k that we feel comfortable putting down on a down payment which means we will be investing out of state. We have family in the Wichita, KS area which helps because we travel there every few years and our family has good area familiarity that we dont have. I have found a few duplexes for right around $100k which would be great for our down payment and we could absorb the entirety of the payment if we had issues renting it for a period of time. The problem is, at that price point, the properties are in areas that have higher crime and are labeled as “bad areas” to live. Single family homes are available in better areas of the city but would bring in less cash flow. I would like to do this model every few years and hopefully have 3-4 properties within the 8 year time-frame goal of retirement and then move onto bigger and better properties. 

Any thoughts? Thanks in advance!

You don’t have money you have equity you can use as debt to invest. Don’t lie to yourself a HELOC in this environment is not ideal to have open without an immediate exit strategy. I would open a HELOC an use that to buy a property you can flip out of state so do one that is not too in depth. Than take that additional profit and set it aside as the down payment along with the 20k. Then you can get into higher end properties. That way you can then have more options and not buy something out of desperation. Investments in C/D class areas are not investments they are jobs that barely make money when you look at a number called IRR. I like everyone is biased but don’t buy yourself a job and if you are buying yourself a job don’t lie to yourself and say it’s not do a flip, build capital, take profit, invest that profit. Return % are a lie. The number is what matters. A 3% return on 1 million invested is 30k a 3% return on 20 leveraged into a property at 5 to 1 is $4500 - you are in California you can make $4500 more a year from a million other things that are less difficult. Save more or use the HELOC as short term capital not long term that is tied up and will cause you stress as rates go higher and higher

Quote from @Stephanie P.:

Not sure about 5-10% interest rates. This isn't the 80's. FHA loans are in the 2's and 3's

Home Possible is for first time home buyers generally, but it doesn't have a rehab component.  With Home Possible, the borrowers' annual income cannot exceed 100 percent of the area median income (AMI) or a higher percentage in designated high-cost areas.
If you can do the Homestyle Renovation loan from Fannie Mae, it's a better deal than FHA just because of the mortgage insurance.

Don't be cowed by the paperwork on a 203K.  If you have a good lender, they can walk you through it.

 I think I responded to you on another thread and even though this thread is old I found this comment funny... haha it aged poorly we love those interest rates

Quote from @Austin Henry:

Thanks for the replies everyone. It sounds like the gist of things is that pursuing a renovation loan in this market could be shooting myself in the foot because it would saddle my offer with all of the inefficiencies/requirements that accompany this loan type. On top of that, most of these loans require an outside contractor which immediately takes the loan off the table for me.

Its important to note that I don't necessarily need to have renovation costs covered in the loan. As long as I am not North of 10% down payment, I can cover the cost of a moderate renovation myself. Also my partner and I are fortunate to both have very good credit.

Not sure if it's a pipe dream, but the priorities I have for a loan are:
1) The ability to be my own contractor on the renovation
2) The ability to finance a property that is underneath the minimum standards of most traditional loans (Safety, Security, Soundness and all that jazz)
3) The ability to be competitive with other buyers

It sounds like there are not conventional products that work with these requirements. Is it worth it to try talking to small banks to see if they would provide a loan like this in a one-off fashion?

I did a live in flip in my own home... If I could do it again I would have just done a flip or BRRRR on an investment home and continued renting. That way you can make a quick profit especially in a market like the one you are in or you can have a rental to start building your landlord experience and start getting income on your taxes as a landlord. You can get loans on investment properties with very little money out of pocket if it is a good deal. These loans either through private individuals/hard money will be super competitive but the problem is your #1 and #2 priorities are mutually exclusive. If you want a private loan it will be more expensive to hold long term so therefore you should get contractors in place and not do the work yourself to get out of that loan ASAP. If you want to do the work yourself a live in flip like I have done is a great option. I have disliked doing the work although it can be very satisfying you will learn how you operate everyone is different. If you don't want to do a larger rehab and you are fine living in the horribleness of a live-in-flip like I have done then do an owner occupied loan on a SFH. Take all of the options into account and just do what allows you to move forward the quickest thats all that matters, no matter what it will not be the perfect move.

MY TOP solution is to find a multi family and analyze the deal based solely off of cash flow and not based on potential ARV or creating equity. Most everything on market is overpriced anyways with very frothy values. Don't get caught up in the sexy money that comes from appreciation it is a cherry on top but not a stable foundation. So unless you are finding a deal off market you probably will not find something worth doing a rehab on financially speaking anyways. Not saying you can't since there are plenty of deals on MLS but it being your first time probably not. Just do what builds momentum and you will get more excited to continue investing in the future. I am telling you a live in flip has not made me more gung ho about real estate, all it has been is more expenses and time for me on swinging a hammer rather than spending my time increasing my income or looking for more deals. I would have enjoyed living rent free by house hacking and I think that would have allowed me to build momentum quicker due to increased savings. Anyways there is a lot here, but house hacking does not need a lot of rehab and will allow you to possibly reduce your rent. It will also not leave you underwater if there is a downturn. It will allow you to do the work yourself but not that much work since its not a major rehab and qualifies with a traditional loan. That's my vote. So to be clear I am a hard money lender telling YOU to not do hard money because your mindset is not in the place to be profitable. Keep in mind Dave Ramsey went bankrupt from hard money haha, now look at him. Don't be Dave Ramsey, take little steps to move forward. A giant leap can be great for learning but usually stalls process.

Quote from @Stephanie P.:

Quote from @Aaron Bihl:

Quote from @Stephanie P.:

Quote from @Aaron Bihl:

We occasionally come across properties that need little to no work that we would like to keep as rentals. We are buying at a discount but when talking to DSCR lenders all want a 20% percent down payment even if the property is being bought at less than 75-80 percent of the appraisal value.
Has anyone worked with lenders that will do a purchase and base the downpayment (or lack of downpayment) on the appraisal value not purchase price? 
***I'm not talking about refinances, I'm talking about purchasing a turnkey property at a discount and wanting to immediately buy with a 30 year DSCR product***

Nobody does that because when you buy it at a discount, in almost every instance, the discount becomes the market price. 
The market is whatever someone will pay for something.
Your subject property is a comparable sale and depressing the market if you buy it at a discount (another way to look at it).

If you purchased a property and did nothing to it and then sold it for a substantial profit 8 months later (congratulations), the conventional underwriter had to justify the original value as an anomaly and more than likely put in the notes of the file that the first purchase was a distress sale of some sort.  

 lol this is the perfect example of why I think lenders just don't understand.
I own a company that buys off market properties, literally everything we buy is discounted and often they are nice houses not just distressed ones.  
The price I'm buying at doesn't make it market value, and I'm in a non-disclosure state so it's not super easy to find out how much I purchased a property for.  And if it was market value I wouldn't be buying it.

Doesn't matter if you buy discounted properties or off-market properties, they're a part of the broader market and get lumped into the market as a whole.  The appraisal will allow for condition adjustments, square footage adjustments and other adjustments, but a sale in the market of a property that's of similar quality, style, size and condition is a sale regardless of your purchase strategy. 
Lenders understand that some properties are purchased at a discount and try to justify why (distress sale etc...).  They won't just say "The market for those houses is 250K, but for Aaron, it's 200 because that's what he does."  It doesn't work that way.  

 I disagree so strongly. But I also think the appraisal market is a racket which will probably get me some objections. I have considered becoming an appraiser because I can charge $1000 to tell people the price they willingly agreed to is fair. Easy money for me. Anyways appraisals are for lenders not borrowers and rarely consider a property bought/sold off market as a comp.

Quote from @Aaron Bihl:

We occasionally come across properties that need little to no work that we would like to keep as rentals. We are buying at a discount but when talking to DSCR lenders all want a 20% percent down payment even if the property is being bought at less than 75-80 percent of the appraisal value.

Has anyone worked with lenders that will do a purchase and base the downpayment (or lack of downpayment) on the appraisal value not purchase price? 

***I'm not talking about refinances, I'm talking about purchasing a turnkey property at a discount and wanting to immediately buy with a 30 year DSCR product***

Great question, great responses. Yes you can get a loan without a down payment on something like this, we do it with private capital. But as others have noted usually a DSCR loan is bought so like a conventional loan it must fit inside general criteria for investors to buy it one of them being that 20% down. You can easily get a short term loan that would do what you want to do but it won’t be a “DSCR”. Also small local banks will do this. You need a loan that is not sold on the secondary market that is all.

Hey Mike, I work with a hard money lender here in KC, his name is Rex, he is pretty well known locally and personally did 30+ flips last year. I used to do regular loans and then started helping Rex with his local hard money lending operation because I got into lending because of bigger pockets and wanting to invest myself. There are a few other local HML that are good here in KC. A lot will not work with newbies, you do have some experience though. One in particular is pretty bad which is why it primarily attracts newbies. I would be happy to talk, reach out to me if you want. For us your out of pocket would be 6k for anything in the sub 200k range. You could either flip that or BRRRR it. Although both of those strategies are harder to find properties to work on market right now. Also the company is called KC Investor Funding if you search up hard money lender here in KC you will see it.

Quote from @Quinn Hahs:

Hello everyone, I have had an interest in real estate for the last decade and am finally putting energy into taking action. I know I have a lot to learn and would love to connect those of you who are already investing. Currently I have a full time job as a mechanical engineer but my goal is to find a place in the real estate community that I can turn into a full time job. I live in KC, MO but have also considered investing outside of KC as well. Excited to tabe part of the community!

Welcome! Reach out to Caleb here in this forum for a good start, I would also be happy to point you towards a local lender so you can buy your first home. If you want to go off the deep end to begin with and buy a property that needs rehab I personally help people with those loans. This can be a quicker way to scale quick but is way more involved which many don’t like. Depends on your goals. 

Quote from @Katherine Wiltse:

Hi Quinn, my name is Katherine and am an investor/agent in Southern MO. I think Kansas City seems like a good market, although parts seem pretty rough. I would walk any neighborhood day, night, weekday and weekend, before investing. If you don't feel safe, or see criminal activity, I personally wouldn't invest there. There is a model I am interested in that is often referred to as "co-housing" or "co-living" and I think it would do great in Kansas City. The idea is you would find a SFR with a big square footage and a lot of bathrooms (or the potential to add 1-2 bathrooms), and rent by the room. Check out the Bigger Pockets show with Sam Wegert (I think #560?). If you are looking for passive investment, then this is NOT the model. However, if you are looking for a way to 3x or 4x your rental income, it is worth looking into. I want to try it, even though my broker and husband think I am crazy.

This is getting more popular here in KC you can also do this with an AIRBNB vs the boarding home model. Airbnb May be more upfront due to furnishing but seems like a good option 

Also for future readers the solution to this problem seems to be business lines of credit and other such loans that are tied to business entities and not your personal credit

Quote from @Megan Templeton:

Hi @Jacob Trogan,

The only recommendation I would have is that you need to consult with a lender to strategize.

Thanks,

-Megan

I am a lender. I will tell you what I have found out. I did conventional mortgages so most people in that realm will give me an absolute answer that there is no solution, but there is, so they are wrong. The next place to look is a mortgage broker. But most of them do not do any LOC but one may and if anyone reading this has a recommendation I am all ears. So the next course of action is call banks but the bureaucracy of these banks is so bad that most people you can speak with have no clue what you are talking about since personal bankers these days are glorified tellers (I was one also). So basically I need a credit union or bank that is local because I will need to go in person to speak with anyone competent which is obviously possible but just more time consuming. If someone has a person to call please share.