All Forum Posts by: Jared McCullough

It comes down to what kind of lifestyle do you want to build for yourself. If you already work and have a great income from your job, you probably dont need the cashflow. You can put as much cash as you can to pay down the mortgages so that you have several paid off rental properties.

If you want to get out of working for "The Man", you might still do the above for a few years, but get to a lower cost of living so that you can have a couple paid off in no time and can leave your job.

OR if you like to work and plan on staying there quite a while, refi as much as possible, get the cash out and go buy a bunch more. They will be leveraged up quite a bit so if rental rates fall or properties stay vacant, you may have to put in some cash to keep them afloat.

It depends on what YOU want.

Thanks for the repose. The first depiction was not so much about mortgage pay down but instead using the benefit of leveraging the full refinance to gain substantial business capital to grow a lot faster. All of my houses will be on 15 year mortgages with the plan that in 15 or 20 years most are paid off for when I would like to quit working for "The Man".

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Fairly new to this and although I understand how to run most of the critical calculations to analyze the deal the part I am struggling with is understanding the best methodology when it comes to the "Refinance" portion of the deal.

There are (2) extremes:

Option 1: Take the full LTV that is offered even if it means running cash neutral/negative as it is buying the next house and the combined income of the (2) houses versus one is more than just the one. (i.e. 2 houses funding 1 mortgage) In this model you keep snowballing until you determine you have reached the limit that you can handle.

Option 2: Set a "Cashflow" you are wanting to get from each unit then backcalculate what the max LTV is you can use to still meet the desired cashflow. (i.e bank may offer 80% LTV but to meet cashflow goal you can only take 60%)

Option 3: Somewhere in between these (2)

Skip the math below if you have a generalized approach of how you would recommend. If you would like to see my specific example see below.

Now to my real world example that someone can hopefully help me decipher (i.e. My business partner is all about getting as much capital and he keeps telling me that it doesn't matter because your are always at least 1 house ahead but I am struggling to wrap my head around the numbers)

I was HML for the first house purchase $25,000 and plan to withdraw it after the 3rd house closes and refinance goes through.

House 1:

Purchase $25,000

Apprasied: $65,000

LTV 80%

Max Refinance $52,000

Payment: $430 (15 YR @ 5.7%)

Rent $850

House 2: (Duplex)

Purchase $40,000

Apprasied: $75,000

LTV 80%

Max Refinance $60,000

Payment: $487 (15 YR @ 5.4%)

Rent $1300

House 3:

Purchase $20,000

Apprasied: $40,000

LTV 80%

Max Refinance $32,000

Payment: $260 (15 YR @ 5.4%)

Rent $600

After these (3) deals are done I can then pull my $25K out and have $59,000 of gained business capital to keep doing the process with...but I suffer on monthly cashflow.

House 1 $25 ----> $52

House 2 $52 - $40 = $12 + $60 (refinance) = $72

House 3: $72 - $20 = $52 - $25 (My money) = $27 + $32 (refinance) = $59k

Gained Business Capital = $59,000

Monthly Rent = 2750

Monthly Debt = 1177

Gross Cashflow = 1573

The other thought would be to set end business capital goal with the intent to increase gross cashflow

House 1:

Purchase $25,000

Apprasied: $65,000

LTV 69%

Max Refinance $45,000

Payment: $365 (15 YR @ 5.7%)

Rent $850

House 2: (Duplex)

Purchase $40,000

Apprasied: $75,000

LTV 53%

Max Refinance $40,000

Payment: $324 (15 YR @ 5.4%)

Rent $1300

House 3:

Purchase $20,000

Apprasied: $40,000

LTV 80%

Max Refinance $25,000

Payment: $203 (15 YR @ 5.4%)

Rent $600

After these (3) deals are done I can then pull my $25K out and have $59,000 of gained business capital to keep doing the process with...but I suffer on monthly cashflow.

House 1 $25 ----> $45

House 2 $45 - $40 = $5 + $40 (refinance) = $45

House 3: $45 - $20 = $25 - $25 (My money) = $0 + $25 (refinance) = $25k

Gained Business Capital = $25,000

Monthly Rent = 2750

Monthly Debt = 892

Gross Cashflow = 1858

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Originally posted by @Jeff C.:

Hello all -

I'm curious if anyone has any insight on small western PA markets (Edinboro, Franklin, Punxsutawney, Meadville, Clarion, Indiana, etc).

There is a lot in these forums about Pittsburgh, but finding info on some of these other areas is harder to come by. I am mainly interested in 2-4 unit multi-family properties for cash-flow purposes. Does anyone have any thoughts on the viability of these markets for cash-flow investment, what one should expect to pay per-unit for a decent property, and any "gotchas?"

I'm looking to invest from out-of-state and would like to familiarize myself with the region.

Thanks!

I am currently investing in Indiana County and plan to build most of my inventory their as that is where I would like to relocate after I semi-retire as well as I have family their to assist with PM and Rehab efforts. Right now my (2) markets seem to be Homer City and Blairsville but I am open to just about anywhere in the area whenever the deal is right.

I noted that many of the areas you speak have near by campuses which offer a little different perspective than just SFR in small rural towns. My market is really focused on what I would call "blue collar" or "Coal" towns probably "C" areas for the most part. My focus is sub $50k housing that rents at $700+ a month.

I think one key thing you are missing is the "local tribal" knowledge. Growing up in the area allows me to be successful in deciphering deals as there is a decent amount of inventory but you have to know where you are going to get decent rent vs. not. Plenty of areas Pittsburgh where cheap housing can be bought but the issue is understanding the market cap for rent.

The reality is I could have a $200k house and I am going to struggle to get above $1000+ rent in most areas of Indiana County. That is why I try to find my pockets where I know I can get close to $700 and then try to buy the cheapest "decent" houses I can. There are plenty of "slums" around though so that is probably the hardest thing to recognize being out of state. Ford City, Vandergrift, New Castle, Tarentum, New Kensington, Johnstown,....I could go on and on but these areas just have a low market rent (i.e. Sub $600 a lot of times), have generally saturated markets, and break the threshold of what I would say is "C" to "D" class rentals.

As far as Indiana County feel free to ask away as I have a lot of working knowledge. Regarding Multi's....small towns avoid for the most part but in places like Indiana you are going to overpay as people inflate because its a school town so it is just a hard business to get into in general.

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Originally posted by @Gregory H.:

why not use the standard one put out by the PA Association of Realtors

Greg,

Any chance you would have a resource to find a copy of this that does not require actually being a member?

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Originally posted by @David Smith:

Purchase price + rehab price = 3 years of NOI

In many places, it won’t happen. But , doable in some places. Working for you ?

I am usually aiming for more like 4 to 5. That is a really tough metric to hit especially using NOI as I could see Gross Income being more realistic.

That would mean you would have to be getting a $30k property all in that rents for $1k a month and has less than $200/month OpEx. That is a very narrow market I have to feel like.

This being said I calculated and my last deal is right around that but it was not what I am expecting to be my norm and I am just hoping I can keep the rent where it is at.

All in Purchase: $24,000

Rent: $875

OpEx: $200 (Taxes: $700/yr Insurance: $300/yr)

NOI: $675

3 Year Rule: ($675*12)*3 = $24300

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If you live up north and the house is claiming to be "winterized" I would advise be prepared to have some plumbing issues even if you don't see any immediately noticeable water damage or piping concerns. Other than this I would say similar to what others have suggested get in there do an assessment and come up with an estimate of what you think needs done.

I have seen extremes on both sides so there is no magic number. The last foreclosure I bought I had $1k in repairs and it was off and renting.

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Originally posted by @Stephanie P.:

Originally posted by @Jared McCullough:

Originally posted by @Stephanie P.:

Originally posted by @Andrew Hejtmanek:

Friends,

My partner and I are currently rehabbing a property in Tulsa, Oklahoma. We will have pretty good equity in the property when completed. We would prefer to hold the SFR for 2-5 years, but banks I have spoken with are not willing to go more than 20 years on the amortization (5 YR balloon, 20 YR Amortization). I have spoken with quite a few organizations & decided I would seek input before inquiring with local bankers. Is anyone seeing 30 year amortizations on LLC debt for properties that are not new (this one is a 1950's SFR in a very strong neighborhood).

Thanks for the feedback.

Andrew

30 year terms are actually the norm in the portfolio world. Big difference between 30 year amortizations and 30 year fixed loans (although both are available).

If your business model is based on paying them back quickly (like a 15 year loan), I would still recommend going with the 30 year fixed and paying it like a 15. As long as you don't pay down more than 20% of the principal in any given year when there's a prepayment penalty, it won't be triggered (generally).

Best of luck

Stephanie

Stephanie,

This is essentially what my plan was but was unable to identify lenders that provided 30 year loans especially fixed to my LLC (i.e. multi-member). My options based on the handful of banks I solicited were 15 or 20 year Cashout Refinances with a 5 year reset. I am not as familiar with portfolio loans but should I specifically be asking the banks if they offer portfolio loans and would I expect the rates to be much different than that of a Cash Out Refinance?

Jared

To answer your question, you should be speaking directly to a local bank or credit union and then a portfolio broker. You won't be able to keep the loan in an LLC using conventional financing because Fannie Mae and Freddie mac won't allow it. If you have multiple members, it's unlikely you will be able to change the ownership structure.

With the local bank or credit union, they may charge more for cash out. With a portfolio broker, you should be able to get 75% ltv for cash out without an additional hit to the rate. Be wary of how the operating agreement is structured because some lenders will gravitate toward the member with the lowest credit score for pricing. If you have someone that is a member with beat up credit, they should show a significantly lower percentage of ownership than the members with good credit because members over 20% ownership will have to sign a personal guarantee.

Lending has become tiered these days. There are:

Big banks
Credit Unions and Local Banks
Non-banks
Brokers

Going down to your local bank, you may get a loan. You may not. Lots of paperwork, overlays and restrictions. They make money when they lend money out, but they also make money on CD's and deposits.

Credit unions and local banks are great resources. Sometimes they have aggressive underwriting guidelines that are geared toward investors; but they are specific to their local footprint.

Non-banks get paid when you close your loan, so they have a vested interest in getting a loan to close. The name of the game for them, though is to sell that loan to Fannie Mae and Freddie Mac, so they are going to be restricted by their guidelines. The non-bank may do everything they can to aggressively follow the guidelines meaning they may not have overlays or extended guidelines, but their guidelines Fannie Mae and Freddie Mac guidelines will be followed. Still lots of paperwork; tax returns, pay stubs etc...

Portfolio brokers use a wide variety of lenders to fit the borrower's situation with the specific lender. They may have 4 or 5 different hard money lenders they send loans to and 4 or 5 long term lenders they send buy/refinance and hold borrowers to. Their rates are higher than the options above because the loans are riskier and the lender charges more to use their money.

All of these tiers have a place in our business. The key for borrowers is to know which one will help you and which one will be wasting your time or costing you money. I always recommend borrowers exhaust their conventional financing options before going the portfolio broker route. The money is cheaper and the ltv's can be higher (sometimes). Once the borrower finds they don't qualify for conventional financing from a bank, a credit union and a non-bank lender they find the portfolio lender is their best and easiest bet. Not the cheapest option, but losing a deal over a couple points can be like stepping over dollars to pick up dimes.

Stephanie,

Thank you for the elaborate response I am still trying to digest this information. Thus far our method has been to purchase with cash then seek a "Cash Out" after the purchase to obtain the money back to reinvest. We are currently working with a Local Bank using 80% LTV @ 5.7% Interest. They offer both 20 and 15 year terms of which we have selected 15 although I understand your point about moving to 30 but we have been unable to source someone who is willing to do 30 year terms. As well I have been unable to find anyone willing to give fixed rates as most have a 5 year reset. I guess my initial question is as a Multi-Member LLC should I be seeking a portfolio broker based on your opinion or just stick with the loan options that I am currently at?

Jared

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Originally posted by @Stephanie P.:

Originally posted by @Andrew Hejtmanek:

Friends,

Thanks for the feedback.

Andrew

30 year terms are actually the norm in the portfolio world. Big difference between 30 year amortizations and 30 year fixed loans (although both are available).

Best of luck

Stephanie

Stephanie,

Jared

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All Forum Posts by: Jared McCullough

Jared McCullough has started 19 posts and replied 118 times.

Post: For my 8th BRRRR I bought a house that had a fire in it!

Post: How to determine the best Cash Out to take? (Capital vs Cashflow)

Post: How to determine the best Cash Out to take? (Capital vs Cashflow)

Post: How to determine the best Cash Out to take? (Capital vs Cashflow)

Post: Small western PA markets (Edinboro, Franklin, Punxsutawney, etc)?

Post: PA key lease terms and sample lease?

Post: 3-year rule — anyone ?

Post: How much cash should I have for repairs when buying foreclosures?

Post: LLC Cash Out Refi - Can You Get 30 YR Amorization

Post: LLC Cash Out Refi - Can You Get 30 YR Amorization