All Forum Posts by: Joe Facenda

Choosing a lender for pre approval:  

If you are looking for a loan for a unique situation (say fix and flip), find a lender who can help but if you are looking at standard conventional or FHA programs do not even ask about rates.  Typically you can not lock a rate until you have a contract and since rates change daily whatever the lender tells you today will be different in two weeks when you are under contract. 

Furthermore, if you asked 3 lenders for rates today and the same three lenders each day for the rest of the week, you would likely have different winners each day.

Once you get under contract, shop rates and if the lender who provided your letter is way off, ask them if they will match it. 

Do select a lender based on their reputation in the market.  Your approval letter will go with your contract to the seller and listing agent.  You want to make sure the seller has confidence your lender will get you to settlement.  

How to find great lenders?  Ask your Realtor.  They are several types of lenders - big banks, online lenders, small local lenders, credit unions, etc.  Some turn off agents.  Ask your Realtor if they think that is important.  Now, if your Realtor can say to the listing agent,  "I've worked with this lender for x years..."  that is strong.  

Again, once ratified, most contracts allow you to shop for rates and give you the opportunity to switch lenders within a short period after ratification.  (At least the contract here in Northern Virginia does.  It may be different where you are.)

Your note presumes you are starting with a lender.  I would start with the Realtor and utilize their team for service providers for a smooth transactions.  And know that unless disclosed to you, a Realtor is not allowed to take any referrals from a service provider.  I know that everyone I refer is referred because they provide good service at a fair price. 

Hope that helps. 

When you contract is presented, you want to make that listing agent feel comfortable about getting to closing.  

Agree and disagree with some of the comments above....

Agree that the selected agent should also invest.  But disagree that an agent that invests will be competition for you.  I mostly invest outside my market.  I'm not competition for any of my clients.  Plus I don't do flips so again no conflicts.  But as @Lee Ripma said, there is only so much money any person has.  They can't buy everything!  

Completely disagree that you should use the listing agent. I am a Realtor.  I DO NOT like being on both sides.  Yes more money but also more opportunity for post settlement issues. Post settlement problems, even if they don't end up in court are a major pain.  The time involved is extensive and this is time where you make $0, tick off your client who was previously your champion and the negotiations over the problemtake you away from moving on to the next deal.  I do all I can to make sure we have a clean settlement.  For me,  the the extra income is not worth the risk and potential loss of time. 

Also, you can not represent opposing sides in a transaction. This all depends upon state law but in Virginia, there are 2 ways you can be on both sides. You can represent one side and the other is unrepresented or you can "represent???" both side but not be an advocate for either.  So why would a listing agent "go all out" for a buyer to get them a deal?  Doesn't that mean they are also "going all out" against the seller who hired them?  

Maybe it appears to the buyer they are going all out but what is going on behind the scenes?  Are their issues with the property not being disclosed?  Maybe not factual issues but opinions that a buyer agent would share with you.  If am a representing an investor, I can say, "I think this home would be hard to resell/rent because of the (the power station out back/the slope of the yard/the road in the back/upcoming construction in the area/ the new complex down the street, etc.)  If I am a listing agent I am obligated to remain silent on all of those items as I represent the seller.  Yes, I still need to disclose adverse material facts relevant to the physical property but I can not offer my opinion as to why this would not be the best flip or rental.  (Again what must or must not be disclosed is governed by state law.  In Virginia we are only obligated to disclose facts relevant to the physical property or piece of land. No obligation to disclose issues outside the property.)

Another question I would ask. "You said you've worked with x number of investors. How many have bought multiple properties with you?" We know most investors are not one and done. Of course the agent could lie, but if they give multiple examples of clients buying multiple properties, that is a good sign. Why? Well it means they gave the investor an accurate ARV or accurate rent number. If I were to tell an investor a number that is too high, I am pretty sure they would not come back to work with me again.

Hope that helps. 

Time is money.  I am not a flipper.  I'm a buy and hold investor.  However, as a Realtor, I've helped many flippers.

Biggest mistake I've seen investors make- trying to renovate on their own.  Yes, as stated  above there are liability and quality issues if it is not what you do regularly.  But even if you are skilled and pull permits, doing it yourself LIMITS your profits.

Turn, baby, turn.

In and out and on to the next one.  Do you want to do two $50,000 flips in 6 months or one $75,000 flip in maybe 6 months?

The longer you hold the loan, the more your carrying costs and the greater your taxes and insurance. 

But the big one is opportunity cost.  Can't do the next one until the first one is complete.  Impossible to do 2 or 3 at a time if you do all the work. 

If you were one and done, without a doubt, the VA would be better. But if you plan to buy multiple properties over time, then I would keep the VA in my back pocket and go with the physician loan now..... if the rates were were not dramatically worse.

As far as not impacting DTI, I will leave it to a loan officer to answer but I don't see how it would not be on your credit report. When you mean privately held, you may mean that it is a portfolio loan for the lender and not resold in the open market - Fannie, Freddie, etc - but it would still be on your credit report.

Just so you know when you go to buy the second property, the lender will count all of your expenses and only credit you 75% of the rent. So if rent is $1000 and PITI is $1000, the lender will see it as a $250 a month debt obligation.

Hope that helps.

Assuming the rates are relatively similar, use the physician loan now. 

There is only so much entitlement you have with a VA loan. You can have more than one VA loan at the same time as long as you have entitlement left. I am not a loan officer so I don't want to get into the math. Also, different regions of the country have different loan limits. It may be best to keep the entitlement intact for the larger purchase a year out.

If you are going with no downpayment, the funding fee increases for your second VA loan. (Under the current rules, if you put down 5% or more, the funding fee does not change for a 2nd VA loan.)

I don't know the markets where you will be buying this year (I do know the Northern Virginia market outside DC as that is where I practice.) Almost all are extremely competitive now. Most homes are getting multiple offers. In a multiple offer situation, some sellers are reluctant to work with VA loans. It is too complicated to get into here but mainly it has to do with appraisal requirements. Plus, conventional buyers can waive an appraisal but VA borrowers, by law, can not. The physician loan may be more appealing to a seller in today's market.

Last, while physician loans are popular and have been available with many lenders over the years, they come and go and terms change. VA will always be there.

So, without knowing specific circumstances, I would suggest using the physician loan now and keep the VA loan in reserve for future use.

Hope that helps. 

At one point in my investing career, I thought about student housing.  I am more oriented toward cash flow vs appreciation and I thought student housing would offer steady cash flow with limited long term vacancies.  I also thought I would not need to upgrade with the latest and shiniest updates.  I figured students would want a clean, safe place but whether it had the latest top of the line floors, cabinets and counters would not be important.

I never got deep into this niche but did buy one investment in this space and it was the worst investment I have made in my career.  That is not to say student housing is a bad investment.  I still believe under the right circumstances with the right type of housing it certainly can be.  Just don't do what I did.

So, I bought a condo close to a major state university that at the time was a little under housed.

This condo was brand new and the whole complex was designed for student housing and investors owned the majority if not all of the units.

We had options to buy 1 bedrooms, 2 bedrooms, 3 bedrooms or 4 bedrooms.  I wanted a 1 bedroom but the they were so popular that the the sales group would only let 1 bedrooms go to folks who bought a 3 or 4 bedroom.  So I settled for a 2.

The rental office would rent the units per bedroom.  I can't remember the exact numbers but say the rent was $1000 for the 2 bedroom, they would have 2 independent leases for $500 with 2 students. (Once I got lucky and one grad student took the place for himself and paid for both bedrooms)

I will say I was glad I had a 2 bedroom.  Every year, the 1 bedrooms were 100% rented, the 4 bedrooms were rarely full, the 3 bedrooms mostly full but a high level of vacant rooms and the 2 bedrooms were probably 80% to 90% full.

But.... a few times I was not rented by the start of the school year and that meant months of vacancy.  Once I did get a local non-student to come in a few months after the school started but if she had not taken the place, it could have been a whole year of vacancy.

Warning 1:  If you are not rented by the start of the year, big trouble.

Now, this complex was brand new but a little far from campus.  It was not walkable.  They had regular shuttles and the complex had lots of amenities but the location made it not the first choice of those looking for housing.  At the start of this venture, the university was under housed, so that was not a problem.  But the market recognized the need for housing and other apartments and condos were developed so the competition for students increased.  What did that mean?  Limited or non existent ability to increase rents.

Warning 2: Get as close to campus as possible

Warning 3: If  there is shortage of housing on your campus today, tomorrow there will not be. The market will react.

But there is an opportunity with warnings 2 and 3.  Almost all new development will be away from the campus and likely not walkable.  If you have a close in unit, you are golden. But if a student needs to bus or drive to campus, whether they are 10 minutes away or 15 minutes away makes no difference.  In that case they will go for the nicest or cheapest option and you can get into a downward spiral of rents.

Lease terms:  We had the option to use the in house leasing office to find our tenants or use outside sources. Students would walk into the leasing office so I used them. Their policy was to do an 11 month lease.  Something like mid July to mid June. While I did have a few multi year leases, for the most part I was always out 1 month of rent per year.  With my sons on their campuses I saw that their landlords usually required a full year lease. I would assume some of this is based on market conditions at the campus but, if as a student, I can get an 11 month lease vs a 12 month lease, well I go for 11.  

Warning 4: Know the lease terms of the competition and make sure your numbers can work with whatever term you will need to use to stay relevant. 

Last issue with my rental.  It was a condo.  Now condos are not usually the first choice for investors in most scenarios but I thought that with college students it might be better because I would not have to worry about exterior maintenance and damage and they would be less likely to have a huge blowout, house damaging party in a condo vs a house.  I think I was right on the party thought.  I never had any issue with my students being wild.  And I had several friends who also bought in this complex and never heard of kegs going through windows or that sort of thing.

But the issue with the condo was that the the entire complex was owned by investors.  That meant two things.  1) the condo board was composed of non-residents and while they were great people, they didn't live there and didn't fully understand the day to day operations of the community. The community was well maintained but there was always tension between spending for enhancements vs keeping the fee down because this was, after all, a investment for profit. 2) your exit strategy was limited.  Getting a unit financed was hard.

Warning 5: Do not buy into a condo owned almost exclusively by investors.  I don't care whether it is student housing or regular housing.  It limits your options and the community has the potential to take a turn for the worst.  

So what was end of my story?

Well, unfortunately, I bought this unit in 2005 or 2006.  I quickly realized that it was not going to work out for me the way I thought.  But we all know what happened in 2008 and the next few years. I was under water very quickly as were the other investors.  Many of them went the short sale route.  I did not.  I could weather the rental losses and did not want a short sale on my record.  So somewhere around 2014/15 when I was slightly positive, I sold.  

I still think student housing is a great niche but it has to be at the right school and the right type of housing in the right location with the right lease terms. And I think more than "regular" rental investments, it requires a greater degree of knowledge and different skill sets. 

Hope that helps

I think @John Mendez mistook my comments.

Yes, you need to be an investor to be a great investor-friendly Realtor but as a new Realtor and one with no investment experience, which comes first the chicken or the egg?

You are billing yourself as an investor friendly Realtor, not a Realtor friendly investor.  So the emphasis is on your Realtor skills and how you add value because you know the market and know your contract.  You have negotiating skills.  You know how employ leverage in a transaction so your side gets a little more of what they want.

All of this comes from getting transactions under your belt.

Think of it another way. An investor comes to you who has bought a few properties. Sure they want your help on the investing side of things. But they really want you to artfully and skillfully navigate the sale process for them. They probably already have an idea as to what the home would rent for or the ARV and probably have a set of financial parameters they use to decide if a deal is good or not.

With Zillow and all of the other sites, for listed property anyway, finding the property is not the trick.  Getting it under contract with great terms and getting it to settlement is where the value is added.  

When I go to a new market to invest, I want a Realtor with both Realtor experience and investor experience.  

However, I had to choose between an experienced investor who just got their license and an experience Realtor with no investing experience, I would take the experience Realtor every time. 

Best way to become an investor friendly Realtor?

Become a great Realtor, first.  

Meaning?  

Get a Realtor mentor.  Do deals.  Work with traditional buyers and sellers.  Do rentals.  Prospect.  Market.  Get transactions under your belt. 

You can know all the ins and outs of investing and recognize a good deal but if you can't get to the settlement table, you haven't helped anyone.  Or, more likely if you are not skilled at negotiating and spotting the minefields in a transaction, getting to the settlement table will be like flying a plane thru a thunderstorm.  Having your clients pull out the air sickness bag and place the oxygen mask over their nose is not a great way to build a business and get future referrals.

Yes, to top it off, you should have your own investments. But learn the skills as a Realtor first. 

The Out of Town Landlord site I created requires all Realtors on the site to be both experienced Realtors (at least 3 years) AND investors.  

I value the Realtor expertise as much as the investor expertise. 

Hope that helps. 

So many questions.

What was the issue owning long distance? Why couldn't you just buy elsewhere and do it differently so as to avoid that issue you had before.

Why o why do you want to want to buy a 1 bedroom hi rise condo as your only rental property?  Now I know nothing about your market but that particular type of housing is often the hardest to rent and hardest to sell.  Even more so now when folks work at home.  2 at home professionals trying to zoom in a 1 bedroom?  Pretty tight!

You are afraid of risk?  Diversify geographically by buying 3 detached homes in less expensive markets vs going all in on hi rise condo?

The amount of the condo fee as a stand alone data point is irrelevant.  Factoring in the condo fee, does the property give you a decent return?  Whether $100 or $700 makes no difference.

1% rule?  Pretty much forget about it.  Again, I know nothing about your market but I would be shocked....shocked.... if that 1 bedroom condo rented for $5700.

The $150,000 detached homes in other market will rent for about $1200-$1300.  Pretty decent for B neighborhoods.

Last, why wait to save $575,000 when you can buy for much less elsewhere?  Get started now.

And last, last, never try to time the market.  Stuff happens.  

Ever hear of Covid in 2019?  And when you did in 2020, you probably thought it would kill the market.  It didn't (Well early on there was one category it did kill - downtown hi rises. People didn't like elevators, closed amenities and who needed to be close to commuting routes?)

Were you thinking Ukraine in 2021?  The horror and tragedy that country is experiencing in the most important thing to think and pray about - obviously more important than rental returns.  But that said, there will an economic impact form the war. Can you project the impact of the sanctions being imposed on Russia?  How will that impact our economy 6 months from now?

When a property is right, buy it.  Does it cash flow and meet your metrics?  If yes, buy.  Don't try and time it.

Will the market slow?  Who the heck knows?  If you see inventory levels tripling in the next little bit, yes it will slow.  But even a drop off in buyer demand won't change the inventory problem.   When homes get 8 to 12 contracts, demand could drop off 50% and we would still be hot.

Don't over analyze.  Find the right home and do it.

One guys' thoughts. 

I learned something new today.  Great discussion.