All Forum Posts by: John Havel

@Paul Welden

Gotcha 

On the one year residency of the property that follows the property when you buy it then? Is that based on the day that you actually move in or the day that you purchase as well? 

So if I purchase the property on September 1st and then rehab the property taking two months so I move in on November 1st. Would that clock start on November 1st or September 1st? Also if I refinance on March 1st after the 6 months waiting time does that clock restart with the refinanced loan so I would in total have to stay there for 1.5 years or does it continue on from the first loan? 

@David M.

Gotcha and yeah I appreciate that I'll be sure to reach sometime. 

@Paul Welden

Gotcha are there any requirements that the payments be spread out over time or simply that 6 payments be made? For instance if the payment is $1000 then is it that $6000 must be paid before refinance or 6 $1000 dollar payments spread across the typical 6 months.

Yeah I was just reading about the difference between owner occupant and non occupant loans. I didnt even realize there was any difference just figured a mortgage was a mortgage and if you were the listed owner you could do what you wanted with the property. So definitely learned something there. Mortgage fraud does not sound like a good time. 

So basically my options would be to refinance with an owner occupied loan for lower rates and then live there for some period of time or refinance with a non occupant loan and pay the higher rates but get to rent out sooner. 

What is the typical time frame they require you to live there to qualify for primary residence rates? 

Does that time frame reset with the new refinanced loan or follow the property while in your ownership?

Does that have any bearing on renting out rooms or additional units if multifamily? For instance buying a fourplex and renting out the other three units immediately upon completion of rehab or a single family 3 bedroom and renting out the 2 other rooms. 

@David M.

I didnt even realize you could get a conventional loan that low that definitely seems much more simple. 

Is there a specific name for Conventional loans with the renovation option included?

I had always assumed you'd have to get a mortgage and then another loan or just pay cash for the renovations. Oh yeah not afraid of it so much just figured finding a way not to pay it would be better than paying it you know. I'll definitely look into the low down conventional loans though so thank you for letting me know about that. 

Gotcha stay on top of the numbers. Yeah I'm sure I can find some breakdowns of the calculations so no worries there.

@David M.

Thank you David, yeah that was pretty much what I was asking I wasn't sure if there were any issues doing something like that since I know they want you to live there as your primary residence for a year if I'm not mistaken. Between my brother and I we have around $35,000 so we could probably do a full down payment on something but I figure It might be a bit better to have some of that cash on hand incase things don't go as expected and start with the 3.5% FHA or 203K loan. I was figuring we could do that and then refinance into the conventional loan so we can rent it out sooner and get it cash flowing and also save on the PMI if the deal works out right. I've been working in residential remodeling for the last 7 or 8 years so we were probably going to do most of the work ourselves for the first few deals to keep costs a bit lower.

I hadn't realized that with the BRRR method I suppose paying in cash would mitigate much of the risk and complexity quite a bit as opposed to something like I was thinking using different debt vehicles.

What would you define as "great" properties as far as numbers are concerned? As opposed to a more average property. Or is it more so dependent on structure of the deal and the financing and other considerations beyond just numbers? Is there anything in particular you'd recommend looking for in a prospective property? 

I'm wondering how long it typically takes to refinance an FHA or 203K loan to a conventional or if its even possible to do that in a short timeframe such as within the first year of the FHA loan. I'm just getting started with my brother on looking for deals and the low money down and potential for improvement costs covered under the FHA loans would make it much more feasible to fund a deal for us. We have a sizeable chunk of money between us but because of inexperience would prefer to keep a nice cushion going into any deal at the moment.

My thought is to get in the door with an FHA or 203K loan on a distressed property which we could refinance under a conventional (cash out or non cash out) loan once the renovations are finished to get our money back out or at the very least eliminate the MIP on it with the additional equity built through the renovations. Sort of a BRRRR strategy using FHA loans to get going. doing something this way my understanding is that we would then be able to rent out the property without MIP and also free us and potentially our initial cash up to do another FHA loan on another deal going forward.

If anyone has any thoughts on this strategy and has any idea if you can even do a refinance that fast on an FHA loan it would be greatly appreciated.

@Hector Naranjo

My bad Hector I didn't see that it was bought in 2011 nice job on the unexpected profit though. I wish you the best in your endeavors. When you get a new deal let me know how it goes. I'd love to here about it.

@Hector Naranjo

Your costs were $2300 just in mortgage and pmi. Holy crap! 

How much were you paying in property taxes, insurance, repairs, cap ex, maintenance, vacancy, etc? 

If you were only getting that much in rent you might've payed too much for the property unless it was your primary residence you bought and then decided to rent out later on. I'd rerun the numbers on it if your not able to cover expenses. It may be better to sell the property and invest in a better deal if that's the case but don't take my word for it I haven't done any deals yet still in the research phases for finding my first deal.

In the city I'm trying to invest in housing prices took a massive hit during the recession and have not recovered very well. Houses here are going for $100K or less in many cases, cross the city line and your looking at houses less than a mile away selling for $200-$400K. There is a lot of chatter about potential developments and other projects coming in within the next few years. But so far my numbers work out based on what i've found online just need to confirm with local real estate agents and property managers, etc.

Hope this helps Hector.

I'm totally new to real estate investing mostly trying to learn as much as I can at the moment but have been analyzing properties in my area for a few weeks now and have come across a duplex that I think might make a good investment if I could get it for the right price. 

The only way I could afford this duplex is if I were to do a 203k FHA loan. This would mean being an owner occupier which is fine since I'm interested in house hacking. My plan tentatively unless there are some legal issues i'm not aware of is to purchase the duplex with a 3.5% down payment. Rehab the property and live in one unit and rent the other and maybe one of the rooms in my unit to a friend or family member. Based on the numbers I ran this would allow me to live there with minimal if any housing expense. I intend to refinance as soon as I can after the rehab and renting is done. hopefully within the year to cash out my initial money and hopefully a bit more equity for funneling into another deal.

Is this something you can do with FHA loans having their one year occupancy clauses?

If doing this can I rent the second unit under section 8 while on the FHA loan or conventional loan after the refinance?

Are there any considerations I should be aware of when considering renting the unit under section 8?

Based on my preliminary market research I should be able to get around $900-$1000 a month in rent for the units as an average. Under section 8 for my region the FMR for a 3 bedroom is $1266, a full $266/mo more than my market research indicated.

My question would be if I can get that much under section 8 or is there some other valuing metric that they use as well which would result in getting the same amount as what my market research was showing? 

Additionally how do they catagorize bedrooms under section 8 because the units are listed as 3 bedrooms 2  of which would be standard bedrooms and another room which could be used as a bedroom, office, etc?  

Any info or suggestions on all this would be greatly appreciated. Thanks.

@Chris Seveney @Jamie Bateman

Thank you both for your insights into this. 

The case study was along pretty much exactly what I was thinking of doing. Although, I see what you were saying about the significant risks involved in buying notes for this purpose Chris. My thoughts were best case I purchase a note that could be used to acquire a property for buy and hold rental. Or if it didn't seem to work out that way there were always other exit strategies to utilize with the note like bringing it to performing status and flipping it or continuing to hold it for the purpose of creating a monthly cash flow. 

I am currently looking into a number of real estate investing strategies and this one caught my interest. I am trying to determine what is the best use of my money and time since i am just getting started with real estate investing. I'm leaning toward more conventional rental property strategies but this might be an avenue to pursue later on once i get a handle on the basics. 

Certainly, there is much I need to educate myself on with regards to note investing. Do either of you have any suggested books or other resources on the topic?

Another question as well with regards to buying notes.

As I understand it it is easiest to get into note investing through local banks or private notes. Do you typically get the option to buy notes from a specific city or region or are they usually just whatever is available from the lender be it a note in your city or on the other side of the country?

Recently heard about buying mortgage notes and it got me thinking about potentially using this strategy in the future for acquiring real estate. Anything you can tell me about this especially in the case of non-performing notes would be extremely helpful in my education on the topic. 

The main thing I would like to know currently is how the process would work in the case that you buy a non-performing note and foreclose on the note. Lets say your goal in buying this note was to acquire the property at a discount for a buy and hold rental situation.

If you own the first lien but there are other liens on the asset and instead of selling the asset decide to keep it are you as the new owner now on the hook for the other liens or is the person who the liens were against on the hook? 

What if you are a second lien holder and foreclose how would that work if there still exists a first lien?  

Is it even possible or worth it to foreclose on the property in this case? 

What other pitfalls might there be to be aware of in this investment strategy?

Again any information would help immensely.

John Havel