All Forum Posts by: Jim Horne

Thanks Nicholas!  What does “qm” stand for?

Any REIs in the Charlotte area have a good lead on a lender doing HELOCs on investment properties? I've made 7 calls so far and haven't found one yet. Navy FCU was not offering a HELOC secured against an investment property (i.e. non-owner occupied), neither Wells Fargo nor the several small credit unions I called were "doing investment HELOCS right now".

Details: 3/2 SFR. We've owned 2.5 years and it's been 100% occupied and cash flowing the entire time. We owe $131K and Zillow shows a market value estimate of ~$207K.

@Tim Sherrod.... interesting as well. Your NFCU HELOC was secured with your non-owner occupied investment property?

The property I'm trying to get a HELOC for is a 3/2 SFR. It's currently tenant occupied and has been casflowing solidly for 2.5 years. Zillow currently shows its value at ~$207K and we owe $131K. So my LTV ratio is currently 68%. At an 80% LTV ratio I'm not going to get much equity out of it (~$12K), but the issue I'm finding is that I haven't found a bank willing to lend against an investment property.

Need your help BP team!!  My sister-in-law brough me a problem I'm having a really hard time figuring out.  Here's the deal:

- She owns a small disaster recovery services business and has a newly awarded contract with FEMA

- She pays herself a fairly low salary from the contract because it's all she needs, so from the bank's perspective she has low income

- She has a huge cash savings stockpiled and which she is building (she just started this business) in order to make payroll in periods where FEMA contract disbursements are slow

- She's preparing to place an offer on a multi-family she currently lives in and rents from; she could pay cash for the property from her small business savings but needs to save that cash for the above mentioned reason

- She's called multiple banks but can't find one willing to lend due to her "low DTI ratio"

I think she just hasn't found the right lender and is probably calling big box banks looking for conforming loan terms.  Thoughts?  Does she just need to find the right private, portfolio or investment-oriented lender?  What's the best way to find the right kind of lender for this situation?

@Micah Dison 3/2 SFR in Matthews, NC

@Tim Sherrod  I called both.  Right now neither NFCU nor WF are doing investment HELOCS

Any REIs in the Charlotte area have a good lead on a lender doing HELOCs on investment properties?  I’ve made 7 calls so far and haven’t found one yet.

@Jack Pinney I’m pretty sure you can have two VA loans gong at once, it all depends on your entitlement status (the amount the VA will guarantee to the bank in default). You can absolutely use your VA entitlement multiple times, practically infinitely, so long as you pay off (or refinance to a conventional) before using your entitlement again. As for down payment, you can choose no money down, which is a great way to get started, but have the option to place a down payment if able. So your only limited to your ability to make the down payment from that perspective. We’ve used our VA loan benefit twice now. Currently we’re doing a live in flip so we can leverage the zero taxes if lived in for at least two years and sold within 5 (unless the tax laws change). I think you’re on to something, it’s certainly part of our strategy. The biggest challenge will be the LTV status to allow you to refinance out of the loan so you can recycle it on the other side. Definitely consult a loan specialist and the VA for all the restrictions.

@Gary Dezoysa Great question and one I've had myself.  I agree with @Account Closed that this always comes down to a personal choice that is unique to your particular situation, personality, comfort with risk, etc. That said, there are useful guides. First I'd say if someone waits until they're 100% debt free they'll likely never invest in real estate at all. I think many use that approach as a convenient excuse not to make the jump into REI. Second, a common rule of thumb for savings on hand is at least two to three months of expenses for each investment. This would cover the mortgage and expenses plus a buffer to handle vacancies. Planning for vacancies up front in your expenses also helps with this buffer (generally 2-5% vacancy rate annually on average, but totally dependent on the local market and type of investment property). Third, pertaining to debt payoff vs investing, I like to approach it from the perspective of which provides the better return, i.e. if the rate of return from the investment exceeds the interest rate of the debt, all else being equal, it generally makes more sense to invest.

One surprising way I learned to balance this in a realistic way was by playing a game.  Many might argue differently, but I found Richard  Kiyosaki's (author of Rich Dad, Poor Dad) game called "Cashflow" a very realistic way to practice balancing investment vs debt payoff.  It really taught me how to make that trade off in an abstract but retainable way.

Best of luck in the future!

@Pesi S. There are some who will say you should only ever pay cash, and others that will say you should always leverage. It really depends on your comfort level, specific situation, and other factors important to you. The benefits to having leverage include tax avoidance, liability protection (tenants tend not to sue leveraged properties since there'd be much less to recover), great ROI due to lower cash invested, etc. I'd say a good ratio is anywhere from 75%/25% to 60%/40% for leverage to equity. Most banks tend not to refi for anything more than 75% of the market value.

The key is to make your money going into the deal.  If you've done the math, are conservative in your estimates, and still make positive cashflow after paying all expenses and liabilities, you should be able to weather market conditions.  Most people got burned in the market crash, me included, because they were gambling with market appreciation.  People were buying houses despite the negative cashflow betting that they'd sell eventually and make a ton of money on the appreciation regardless of the short term cash loss.  That turned out badly for many people.  Smart investors were getting out early before the crash, or weathered the storm because they did their math right.

As for how many loans, a conventional bank will limit you to between 3-10, with most stopping well before 10 loans.  Most folks look for seller financing, portfolio lenders, or private investors at that point. The key is not to overextend yourself and have a good exit plan.

I'd highly recommend Brandon Turner's "The Book on Rental Property Investing".  You can buy it on BP and download it in pdf, hard copy, or audio.  It covers everything we've just discussed and a ton more.

Jim

Pesi S. that's right, you refinance the rehabbed property and pull out the equity based on the After Repair Value (ARV), and then reinvest that equity in your next deal. You can just as easily take the money from the flip and reinvest, but the problem is you will be taxed on that profit for that tax year. If you refi, I'm pretty sure that equity is not taxed.