All Forum Posts by: Jesse Waters

Rey,

Welcome & congrats on taking the plunge into REI. None of the lenders that I deal with have been that difficult. Basically, from what I have gathered from them, when you buy with enough equity (down payment) they can count the expected rent, in their estimation, towards your income. Usually have to put 20-25% down for this to work. Otherwise they have wanted to see one year rental history on the property.

As far as a LOC on a property, I would find another lender. From my understanding, someone correct me if I am wrong, you don't have to get a LOC, 2nd mortage, etc from the same lender that originally wrote the loan. Swing by some of the local credit union's, talk to their lending guys and see what they say. They may refer you to someone else they know in your local banking industry that has a product that meets your needs.

Best

JW

It does make sense to bundle and sell, be sure to do a 1031 exchange to avoid taxes on the sale.  I like what @Jon Klaus said about borrowing against your portfolio. We are in the same situation, only not hypothetical. We have a 10 unit portfolio and are trying to break into larger properties. The best option that we have found going forward is to leverage our equity in our properties (basically re-fi putting the equity towards the down payment) and come up with our own cash for the rest of the DP. We have considered filling in any gaps in the down payment with our LLC's business line of credit.

As a word of caution, be very confident in your numbers before leveraging yourself too high. You want to make sure that however you do your deal you have a good enough DCR (debt coverage ratio) to cover all the notes on the property even when times are tough.

You could also look at finding a lender who will let your combine all 10 properties under one loan (blanket) and go to say 80% LTV taking the rest of the cash out for your DP.

Hope that helps.

JW

Thanks @Edgar Collado , I couldn't remember the term "House Hacking."  @Account Closed I think there is a pod cast on the subject. Wish I had done it, I became a land lord and REI by accident after the housing bubble and have since embraced it working towards making real estate my primary income.

Best

JW

There are lots of ways to say the same thing. Before I knew what CAP rate was my business partner and I came up with a formula that determined down payment pay back in terms of months. When analyzing properties & deals we would score them based on months. That was really a round about way to come up with CAP rate. I would agree with @Brie Schmidt (enjoyed the pod cast btw) we now don't look at things below 10.  

We also look at cash on cash return. Fist, if it isn't cash flowing then I don't want it. Secondly I want to know what I am getting back on what I put in. For a single family properties we have been getting 10-15% and on our quads 22-25% for a combined COC of about 18%.

Hope that answers your questions.

David,

Congrats on deciding to start investing right out of college.  First, here's an idea to jump start your investing career.  Move into your first investment property.  If I were in your shoe's I would go get a duplex or a quad (4-plex) live in one and rent the rest out.  You will have an easier time qualifying for a loan if the property is going to be owner occupied, even if you plan on renting out the other 1, 2 or 3 units.  Your tenants will be paying your mortgage and perhaps a little extra on the side.  You will only have to stay in that property for about 2 years before you can repeat the process, buy another multi family property with intent to live in one unit.  Just food for thought.  This way you aren't paying a mortgage on a primary residence THEN trying to invest.

As far as property managers go, I really like using them.  They handle alot of the task that I can't handle either because of my primary job, which takes me out of the country about half time time, or because some of my properties are in another state.  I would recommend investing locally.  My out of state property was not intended to be an investment, its just a hold over from the housing bubble.

I use a property manager with all my properties, and yes, I could potentially make more with out using them, but I have to weight what I pay them vs could I do what they do as efficiently?  Most property managers charge 10% then usually some sort of tenant placement fee, either an additional 10-50% of the first month's rent.  The manager that handles the bulk of my portfolio gave me a discount from 10% to 8% once she started managing more than 5 units for me, cutting that cost by 20% for doing business in bulk.

Hope that helps, best of luck.

Jesse Waters 

Shane,

First, congrats on your first 4-plex, this is a big step.  I would brush up on your state's landlord-tenant act to get the lay of the legal landscape, this should help determining reasons for why you can turn someone down.  Secondly, set your criteria for tenants including rental history, credit score, income (usually 3x rent) etc.  You should be able to charge an application fee for each perspective tenant to offset the cost of the credit & background check.  Typically, if we approve a tenant we credit the application fee off the first month's rent.  Also, ask for references like previous land lords, give them a call, they can be very insightful.

I have had perspective tenants that I had good feelings about, but when talking with their current landlord their story didn't check out.  I had one who was attempting to stiff their landlord by not paying and walking out on the lease they just signed to move into one of my properties.  Fortunately, we had someone else come through before they could come up with their deposit & first month's rent so we didn't have to turn them down.

How ever you decide to run your system, establish your standards and stick with them.  

Best of Luck,

Jesse Waters

Welcome Craig.  I grew up in Irmo and live in Aiken now.  I have a few properties in W. Columbia.  In the process of expanding our holdings in the Columbia metro area.  Always good to see others from SC on here.

Best of luck.

Jesse

You can call your utility company and ask them to add individual meters to the building, however, last time I looked into that option, it was rather expensive.   You could install your own flow meter on each unit, then you would have to read it monthly and assign the bill accordingly.  Honestly, I just factor it into the rent.  Most of the quads in my area all include water as part of the rent.  I have on occasion threatened my tenants with water charges when the bill has been high, ie they didn't report a leaking toilet, which ran the bill up.

Good luck. 

I allow pets in single family homes, but not multi-family.  It opens you up to a broader market.  We usually charge a non-refundable pet deposit in addition to the regular security deposit and depending on the situation, we have charged an additional monthly fee for the pet.  Check your laws on security deposits before you start asking for more fee's.

I am doing something similar, though, not buying out another investor. We have all of our properties under different loans and are looking at rolling them to a single loan. At the same time, we will be using the equity we have across our portfolio as the down payment on another property, with no additional cash needed. Saves us from doing a bunch of cash out re-fi's or LOC's.

I am not looking to sell out any of my properties so I don't mind them all being under one loan, and will have terms that allow me to sell one out if need be.

I am opting to go towards commercial lending so that I can clear up my personal credit as well as build up my business credit so I can expand into larger properties with ease.