All Forum Posts by: Joshua Fulenwider

Hayden,

I think the docs are just a starting point. You should use whatever the standard is for your area and type of property. Vacancy on a 3/2 house may be 2% but a 1 bedroom apartment may be 10% in the same neighborhood. May be worth a call to a property manager to find out this information. Another way to find this out would be to ask people at your local REIA meeting. Also, give yourself some wiggle room. Vacancy is averaging 2% in my market for almost everything but I use 5% in my analysis because that is a more healthy market number.

Expenses are a whole different animal.  They can vary wildly depending on the age of the property, who pays utilities, type of tenants, and more.  Rather than using a percentage I would again recommend you talk to a property manager or local investors and ask them what they budget for annual per unit expenses.  They may give you a percentage but more than likely they will give you a hard dollar amount.

If you are looking for smaller amounts one of the best strategies I saw an investor use was that he established himself as an expert at raising and using private money.  He then offered to do presentations on investing money as a private lender.  He typical spoke to groups of those at or near retirement age that were wanting better returns on their money.  He never once asked for money but just explored the pitfalls and possibilities during these presentations.  All of his potential investors approached him about investing with him.  He eventually grew and did some radio interviews which he recorded and then distributed which allowed him to attract more potential investors.

@Ralph R. I love portfolio lenders and completely agree with you.

You should definitely put together a partnership agreement spelling out responsibilities and limitations.  

Also, have you talked with your lender about financing the property conventionally and then immediately using a quit claim deed to put it into an LLC? This may be an option for you.

You have the option of qualifying the mortgage with just one of you, but then only one of you can take title to the property (at least that was the way it was last explained to me). However, you can then immediately quit claim it into both of your names (or possibly the LLC).

You can also both sign for the note.  Sometimes as co-signers or possibly with one as a secondary.  However, I believe it will impact both of you when counting towards your ten unless you go with my earlier option of having just one of you qualify and then using a quit claim deed.

Hope this helps.  Let me know if I can explain any part better.

1. This is typically correct for standard residential mortgages.  Most of my experience is that they want 6 months of reserve payments for all your debts.  That can get pretty steep.
2. You can go through a commercial/portfolio lender at any time.  It's better to approach them with some experience or at least a solid business plan.  I got my first commercial loan after my 2nd investment property.
3. Commercial/portfolio lenders can require a large down payment or they may be similar to a conventional mortgage.  However, the commercial loans I have seen are amortized over 20 years which makes the monthly payment a bit larger.  On larger projects they can be more flexible, especially when they are under pressure to grow.
4. Once you get your first deal done using commercial financing it actually gets much easier.  Every time you apply for a conventional mortgage you will have to provide the same information on taxes, banks statements, outstanding debts, AND they will pull your credit with each request.  As a commercial lender I have a database built with borrower's tax, income, debt, and net worth history.  I only need to pull credit if I haven't pulled one in the last 6-12 months or I suspect material changes.  

Hope this helps.  Let me know if I can be of further assistance.

I've read a handful of real estate tax books.  They were all pretty dry.  The one I kept because I found it the most valuable was "Wealth Protection Secrets of a Millionaire Real Estate Investor" by William Bronchick.

If you've already got your real estate agent picked out I would recommend asking him/her to walk you through your state's standard residential purchase contract.  Do the same with your lender and a standard note and mortgage (or deed of trust).  

Hope this helps

I do not know if a conventional residential mortgage would work for this.  However, a good portfolio lender could easily do a commercial loan on this.  I would recommend talking to some of your local banks.

Wendy there is a lot that goes into this topic.  A lot of restrictions and a lot of ways around them.

If you were to go out and attempt to finance four houses using conventional mortgages without any experience you would have to qualify with your income alone as the sole source of repayment.  Which means you had better have some great income.  Conventional mortgage lenders typically cannot count the potential rents of a property.  In addition to this they also like to see six months of reserves for all of your mortgage payments (not just the property they are financing).  This is pretty strict stuff and makes it hard to finance.

Now for options to get around those restrictions:

• Portfolio Lenders - typically community banks that make commercial loans.  Rate is usually higher and amortization period is usually shorter than convention financing.  However they may count potential rents from the property towards your ability to repay.  They also analyze the deal and like to see debt coverage ratio after expenses that more than covers their payment rather than getting you to an acceptable debt-to-income ratio.  This is my favorite way to finance right now.
• Private lenders - this can be a family member or a professional.  Anyone that ahs money has the potential to lend it to you and the terms will vary wildly.
• Hard money lenders - professional private lenders that usually charge a lot of points and high interest.  Great to use to get into great deals quickly but not a long-term funding solution.

My strategy has been to use one portfolio lenders to finance deals until the properties are seasoned and I can count the rents they produce as income in order to refinance them into conventional mortgages so that I can get a better rate and a longer repayment term in order to lower my payments.

This is a very broad answer to your question so if you want me to explain any topic in more detail just let me know.

Hope this helps.

Tough to make an actual judgement on this as it may be something specific to your state or specific to the lender.  I would lean towards your second opinion.

That being said it can be fairly common for lenders to prohibit 2nd liens in cases where they are concerned about the collateral or the borrower on commercial loans.

Compare all the new documents to the existing ones (you may want an attorney to do this).  If that is the only change you should be okay.  While it is not standard to do this it does happen.  If there were delays in your original closing an underwriter may have forgotten to update the dates, they may have plugged in dates from another file they were working on or they may have just had a bad day.

If items other than the adjustment date that you mentioned have also been re-worded, changed, left out completely, or new items have been added you should be wary and consult with an attorney.

In any case it is something you should run past a trusted adviser.

Hope this helps.