All Forum Posts by: Michael Key

Hi

Quick background; my wife @JorDanee Key and I are working on closing on our first investment property. We plan on using a conventional mortgage for our second property as well.

After this, we are strongly considering working with a private lender to do either a flip or BRRRR deal in 2017.
This seems like a really smart move, as working with a private lender can sort of make us a cash buyer and allow us to get deals faster than the traditional route.

My question is, in preparation for this, what kind of things do private lenders want to see from me, beyond the basics of the deal?

DTI? Savings? How much money I can contribute? I assume every lender wants to know how much of my personal stake will be involved.

I guess what I am trying to ask/understand is, should we prepare our finances the same way we did for a traditional (ie having 20-25% down cash on hand) or do you want me to have other things in place. What would make me someone you'd consider doing business with? I want to prepare us, and understand what makes us a good investment for the private lender we'd do business with.

Sorry if this is a total n00b question and isn't 100% clear.

It's interesting that some seem that limiting the increases to retain tenants is the better economic strategy. When it would seem like over the long term, the economic loss of the additional income would actually cost more than the change over in tenants associated with the risk of physical vacancy.

BiggerPockets actually has a great post about this very topic: https://www.biggerpockets.com/renewsblog/2016/07/0...

I'll share some of my insights since we have similar stories.

We have an unusual circumstance in which we've spent the last year and a half traveling the country full-time living out one of our dreams.

But we are ready to settle ourselves now. As I mentioned earlier, we considered the house hacking route. In my mind, if I'm paying for it, I'm not making any money, it costs me money.

We considered moving from property to property. But like you, we have two small children. Ages 2 1/2 and 1 1/2. And very quickly learned we weren't going to get into a duplex quickly. We came to the conclusion we'd like a little more space to spread out too. 

That lead to our change in focus to finding a SFH first, that we can get some appreciation out of, and hold for 2-3 yrs. And then exit by either renting or selling the and rent or sell.

We connected with @StacyA McBain who has been great to work with. And have our first property under contract. (Fingers crossed)

That covers "place to live" for us. And allows us to focus on acquiring additional properties without the added stress of living in the rental. 

In regards to your 2% testing, I feel like 2% is hard. 1% is doable if you find the right deal. I have been told what is happening right now is that rents haven't caught up with home prices in some areas. And are only just now starting to rise.

BiggerPockets has an article about this (https://www.biggerpockets.com/renewsblog/2016/07/06/landlord-financial-threat/); most investors are more afraid of Physical vacancy than they are of Economic vacancy. And they can be slow to raise rent prices. 

So I wouldn't worry too much that you are going to miss out on deals. There will still be deals to be had, and in another year when rents catch up, there might even be more deals. But again, I'm just speaking from my perspective. Someone more informed on the area, who has been here for a longer time, and working with investors or is an investor, can give you better information.

We are very new to the area and are just fast learners. Biggest advice is learn as much as you can about where you want to invest. And NETWORK.

As for income ideas, my wife and I both changed careers. We are fortunate to have remote jobs with total schedule flexibility.

My wife took a pay cut when she changed careers two and a half years ago. She spent a year working remotely for one company doing customer support and now has a new job with another company doing sort of the same, but doubled her income and now exceeds the income of her previous career. My point being, don't worry about an initial pay cut, if you think it will lead to greater flexibility later.

A year worth of half a salary for both of us to be home with our kids 24/7 was worth the pay cut.

If your husband is looking to change gears, maybe you should start now, and find something that will allow him to work remotely.

My company is based in Paris, France, I've never been to the office.

You can check out a website like weworkremotely.com to find jobs.

And don't discount customer service, remote support engineers make upwards of 100k a year.

Disagree @Account Closed - while many are right to worry about "piercing the veil"; it's actually something that rarely occurs. Very little case precedence. And something that generally only occurs with gross incompetence, intentional fraud, and criminal investigations.

If you setup your LLC and plan on using real estate for money laundering, well guess what...

Piercing the veil is not easy. That's why we have these systems. And a good lawyer can help you properly structure your business for maximum protection. And can guide you and inform you of common mistakes and the laws in your area you need to be aware of.

I'm not a lawyer, and this isn't legal advice. It's just informed opinion.

Hi  @Account Closed

I noticed in another thread you were seeking to move from Texas to Boise, Idaho. My wife and I just did this, with the original intent of house hacking ourselves.

Boise is extremely competitive. It's a hot sellers market with a housing shortage, and very low vacancy rates. Out of state investors from Utah and California are snatching up deals. Deals that hit the market are gone in less than 6 days. So you need to have your financing and money in order before you start working with an agent. We were told no one is excepting offers without pre-approval letters or cash. We had a few deals disappear right under us because we didn't have our money in order first.

Another thing, because of the area's low vacancy rate almost all the Duplex's, Tri's and Fours are already rented. This is great for an investor, but it also means you'll need a plan in place to house hack, because you'll have to give one of those tenants 30 days notice to move out.

But the good thing is, you shouldn't have problems keeping units rented here, from all I've heard.

We've switched gears and are looking at SFH now because we need a place to live, like tomorrow.

To answer your question about which is better. One thing too note is if you go over 4 units, it's very difficult to get traditional financing as the property is no longer considered residential but commercial. So you'll want to look at duplex's, triplex's and fourplex's. 

This type of housing generally attracts lower income blue collar type tenants. So you tend to have higher turnover (sometimes) than you would with a SFH, and the rents you can charge tend to be less than a SFH. So worrying about amenities isn't a huge deal. You could offer things like community washer and dryers shared between tenants that are coin operated. Or you could include units with washer and dryer already if you aren't worried about the added expense of maintaince.

A duplex is a great learning start, as you'll only have to deal with one person. Rent should be enough to cover the mortgage or pay half of it depending on what the rents are in the area for similar housing.

With house hacking a triplex, you'll have to deal with two people, and you might be able to cover the whole mortgage and some expenses. Maybe even all of it; depending again on rents.

House hacking a fourplex, you'll have to deal with three people and might even be able to put some cash back into your pocket.

So which one you chose should depend on; how much you can afford and your comfort zone for dealing with people.

I would say come up with a plan, figure out what you can afford to purchase, and then start reaching out to some of the agents that work with investors in the area who are on bigger pockets.

Do you already have said properties? Or do you just have leads for said properties?

Welcome to BP, we invest in Idaho too and love this state. Here here to your future! Sounds like a great why.

Boise is a tough market. We just moved here, and out of state investors are killing it. Deals are on and off the market in a matter of days. Plus it's currently a sellers market because of a housing shortage. People are paying above list for SF homes, and that makes finding deals tough unless you're willing to do the work, like mailings, driving for dollars, auctions, etc. 

It's possible, though, but someone else keeps beating me to it. We found a killer deal on two duplex's next to each other that cash flowed really well. I told my wife, well let's think about it some before we make the offer. Go to make the offer the next day and the realtor says it just went under contract an hour ago. Ugh. Should have offered after I ran my numbers. Oh well, live and learn right.

But the benefit of Boise is that it's a metro area of 3 other large cities, Meridian, Nampa and Caldwell. But the danger is rent in areas that don't produce enough income to cash flow and property taxes that are absurd in my mind wiping out cash flow. So networking and finding some people to work with is crucial, who know the area. 

We are now working with some people. If you move to an area, start networking and get your money in order so you can move quickly. 

My wife and I just arrived in Boise, and are trying to find the same sort of deals. 

Congratulations on your first deal.