All Forum Posts by: Jeff Lezark

Have had several investors look at this but passed. Reason why is zoning. The property will essentially become a 'hotel' and if it isn't located in the proper zone for this the owner will be fined and forced to cease the operation. Most recently happened in a residential neighborhood in Delray Beach when neighbors complained to the city about the number of overnight 'guests' of the owner.

If you're looking for permanent financing for rental properties, we underwrite the income generated from the property and do not verify your other income. Call me directly if you're interested.

Hi Jackie,

I'm not a conventional lender but was one for 30+ years here in South Florida. The closing costs seem in line with a typical transaction assuming the property is located in Florida. Here's why:

The State has 2 taxes they charge on mortgage loans. The 1st is Intangible Tax which is .002 x the loan amount and the second is simply called a Mortgage Tax. This is calculated by multiplying the loan amount x .0035. In your case these come to $1,650. Recording fees at the county will add another $250 or so depending on which county the property lies in.

Title insurance on the mortgage will be based on the lender's coverage requirement of $300,000 to cover the note. The cost of insurance, document prep, lien searches, settlement fee, etc will cost you roughly $2,500 depending upon the company you choose to close with.

Your lender will want an appraisal of the property. Typical cost for a residential appraisal is $450-$600. Depending upon the interest rate you choose points may be charged to you. For example, If you were to choose a hypothetical rate of 4.25% for a 30 year fixed you may have to pay an origination fee of 1% or so (loan amount x 1% = $3,000 in your case). If you choose a higher rate you may not have to pay points but the long term trade off in higher payment may not be worth it. Your anticipated length of ownership will dictate which way to go on this.

Beyond points lenders also charge ancillary or 'junk' fees. You'll see terms like 'underwriting fee' or 'document prep'. These fees can easily reach $1,000 per deal.

So to recap, the closing costs on a $300,000 conventional mortgage in Florida with the lender charging 1 point will come to approximately $9,000 which comes out to 3% of your loan amount.

Hope this helps clarify for you.

@Nicole A. is correct - do whatever gives you the best rate since these are long term holds for you. Interest rates below 5% are still in the historically low range for conventional investor financing. Holding title in your personal names will keep you eligible for these rates. If you title in a corporate entity you'll not be allowed to use conventional loans and will move into local bank (commercial) or private financing where the rates are higher. For example, an average rate for a 30 year fixed in my (private lending) world is roughly 7.50%. While significantly higher than conventional the flexibility offered tends to offset the price.

Something to be aware of down the road should you finance these conventionally. These properties will have to stay in your personal names. At some point you'll want to protect your equity by placing properties in a corporate entity such as an LLC. Transferring the title from your personal name to your entity will initiate the 'Due On Sale' clause of your mortgage which simply means all funds are due and payable to the lender upon sale or transfer of title. Some will argue that lenders don't pay attention to this as long as the loan is performing well. I don't buy it. The lender holds all the cards and they may let you do this if you reach out to them before doing so but they may not. Each lender is different.

As @Franco Li alludes to, you're describing a common strategy found here called BRRRR - Buy, Rehab, Rent, Refinance, Repeat - and private money or hard money is typically the avenue most take to accomplish the first 2 letters in the acronym. Most banks do not participate in the purchase and rehab portion so private or hard money is usually the next best choice after all family options have been exhausted. The caveat here is that even private and hard money lenders look for experience in the flipping business of some sort. Banks are especially sensitive to lack of experience so new or relatively new investors are shut out.

To answer you directly, yes and no. There is an advantage to using private or hard money for your deals in that your chances of actually being approved are far greater in the private world and the time to close is dramatically shorter. I typically close loans in less than 10 business days from application and just recently closed a loan on a Tuesday that was applied for late on the prior Thursday. Banks simply can not do this and it matters. Why? Because you're competing for deals with other investors who use private money or cash and can close within days, not weeks or months. Sellers do not consider offers with delayed closings due to financing contingencies. 

The downside is my rates will be higher than what you'll find at a bank. For a well qualified borrower (740+ credit) with good cash reserves and all the stars in alignment a 30 year fixed rate with me will be in the high 6's to low 7's. A bank price will come in around 5% but not allow the loan to be taken in the name of your corporate entity and limit you to the number of deals they can do for you at those rates. I do not have those issues.

There's more but I'll leave it here. Hope this helps and welcome to BP!

@Nick L., your mortgage broker may not be aware of the ramifications of doing what he/she is suggesting. If you are applying for any kind of conventional financing you will have to have the property titled in your personal name as conventional lenders lend to people, not corporate entities. If you obtain a conventional loan and attempt to quit claim to your entity you will indeed be breaching the Due On Sale clause as this is in fact a transfer of ownership. Some have had success with contacting the lender and seeking permission to do so but the vast majority do not. The upside is you'll get a much better deal going conventional than portfolio or private lending so it may be in your best interests to quit claim from your entity to your personal name and then leave it there.

@Diane G. While you may be a qualified conventional candidate from an income, asset and credit standpoint, your loan amount of $700,000 exceeds conventional limitations so you should not expect to see conforming interest rates on a non-conforming loan amount. Based on your qualifications you should be able to find a non-conforming loan at a fixed rate roughly 1/2% higher than conventional loans and no points.

I had 1 seller question my client so I reached out to the seller and resolved the issue. From a seller or seller's agent perspective, if I show them a bank account that's not related to me personally or my LLC then the red flags start waving. If your private lender is willing to fund you up to a certain amount he should state as much in written form on his letterhead. At least this ties you and the lender together in some fashion and lets the seller know you have his backing so yes, to answer you directly, this is what my letter of pre-approval (letter of intent) accomplishes for my clients.

I will gladly share my boiler plate pre-approval to you with redacted client info. Send a PM to me.

Hi @Corey Owen,

It makes sense that a seller wants assurance that you actually have the cash to close especially if your offer is written as 'cash' with no financing contingency. As part of my service (I'm a Private Lender) I provide proof of funds letters to my clients when they ask for one. Most of the time they need this to compete against other offers. While I'm not putting cash in their hands with this letter, it does tell the world that this client has already been through an approval process and has provided credit info as well as bank statements and income tax returns. All we look at post pre-approval is the appraisal of the property so our POF is only dependent on the results of an independent appraisal report. Your HML should be able to provide something similar for you to use.

Asking questions is how one learns so don't stop asking. I agree that you should simply comply with the lender as long as you fully understand what they are saying. I can speculate on what they mean by you being in control of the property but that does you no good. If it were me I'd call and clarify what they mean by this. Outside of that you're in great shape and I wish you continued success.