All Forum Posts by: Kyle Altenau

Years ago I was doing acquisitions for an investment firm mainly in Philadelphia, PA. I'd say among the 30-40 flips I oversaw, I sourced probably about 50% from the MLS and 50% between wholesalers/other off market sources.

I've since been doing my own investments for the last few years and have found that with the resurgence of interest in real estate investing, there is far too much competition on the MLS. This could of course differ by local markets, but that's been my experience in Philadelphia and New Jersey.

It does seem like looking to hit BRRR numbers on properties where you'd be competing with retail buyers is unrealistic. That type of buyer would be willing to accept far less equity in their purchase.

I'm not familiar with Ohio, but have you looked into Sheriff sales? I'm working on completing a 4 unit deal that I got from a Sheriff auction. The price I purchased it for ended up being an incredible deal. The downside there is that you have to put the deposit down at the auction hard for 10-20% depending on county in NJ. Then you have 30 days to pay the balance. Hard money lenders here will finance these though so that is what I am in now. 

Those assumptions are mostly correct, but there are a lot of other aspects that are easy to overlook. 

A lot of builders will take on as many projects as people will give them money for. They need liquidity to make payments to all these lenders, as well advance construction on the projects. Let's say they end up with a couple properties to take longer to sell than they planned for. They haven't planned for this liquidity. They go into default on one of these properties sitting on the market. The lender has a cross default provision with this borrower across 4 of his other loans that are still in the construction phase. Now that that builder can't draw construction money. He is now in a huge liquidity strain. He stops making your payments, and is in mid construction phase so you no longer give him construction draws. Now what? You have a half finished project. That's just another example of 1 of the many many things that can go wrong even with experienced flippers. 

The other thing to keep in mind is the construction budget. Are you qualified to review their budget before closing? How are you going to handle draws as well? Are you going to go out to the property to check the work? Do you feel qualified for that? 

It's a great way to earn interest on your cash, but thinking it is simple, even with experienced borrowers, can be dangerous. I'd make sure to really get a great grasp of proper underwriting and the fix and flip process first before putting any money out. You really need to prepare for the worst and hope for the best. 

Most lenders will be much closer to the 10% range. I know the going rate for a lot of fix and flip type loans right now is anywhere from 10-12% with 2-3 origination points. This depends on borrower experience, credit and the project/leverage. If you were planning to lend at a higher rate than that you'd need to do one of 2 things to get the business.

You'd either need to offer higher leverage. That obviously puts you at a much higher risk, so is it worth charging the higher interest rate? That's for you to decide.

The other factor, is you charge higher and you wind up with all borrowers that get rejected from other lenders. Again, that puts you in a much higher risk profile for your lending. 

I wouldn't be able to give you a good idea, but I could connect you with a local builder that may be able to give you an idea if you'd like. 

Google them. Get a background check. You'd be surprised what you can find just with those two things. 

I'd ask how they've been funding their deals previously as well. If you're offering market rates/terms and they suddenly want to put money with you, it'd raise flags for me that want to switch to you. 

I'd also ask for a schedule of real estate owned. I'd want to see how many projects they currently have out and understand what their cash flow is like compared to their debt and status of projects. If they are heavily levered with a lot of projects in the early stage, I'd be very wary of providing them more money to start more projects. 

Ned also made some good points. 

I've contested multiple appraisals. In all honesty, the majority of the time people are cherry picking comps as @Mark Johnson stated. There are other common misconceptions people make when finding their own comps. A finished basement doesn't count toward GLA, even if it's a walk out. Bedrooms and bathrooms in the basement count differently then those above grade. Those are some of the common mistakes I've seen borrowers make. 

The times contesting an appraisal were successful was when we provided clear comps that were good comps. Do you know what the house under contract is under contract for? Until that sale settles it'll be considered differently than actual sold comps. Is that the only comp you have? 

I'd take a good look at the comps he's provided too? You may want to argue that adjustments to those comps should have been more in your favor. One place where appraisers will willingly admit they're wrong that can change the valuation is square footage. Sometimes tax offices or previous listings will have the wrong square footage. If for instance he has your home at 1,500 sq ft but your actual plans may show that it's 2,0000. I've had similar instances like that. Technically that's not an error by the appraiser, but an error by either the tax office or previous Realtor ect so they'd be more willing to concede on that. You mentioned your house is new and cookie cutter. It may be easy to get your hands on the plans. 

Hi @Rosa Aponte.  Before Covid there was plenty of liquidity and borrowers could borrower anywhere from 8-12% typically and 2-3 points. This varies based on the sponsor's creditworthiness, asset, and experience. Now things are a lot more variable. Typically most of what I've been doing lately has been at 12% because like most other lenders I don't have the liquidity that I previously had. Keep in mind other costs you will have will be lender legal which should be somewhere around $1,000 for your standard simple fix and flip deal and then appraisal fees which can vary a lot depending on asset class and location. Then there are also the other standard closing costs, title, transfer fees etc. 

A lot of lenders are also now requiring 3-6 months of interest reserve up front. 

If you're sticking strictly to multifamily investing in the NJ, PA area, things haven't changed too drastically. We have been able to get a ton of deals done throughout Covid and at some great rates/terms. Depending on what kind of other terms and structure you are looking for DTI may or may not be a big factor. Regardless, if there is a high DSCR, you'll have SOME kind of options. It's just a matter of how good it is.

I don't work in FL as frequently, so I can't speak to terms down there.  

Where is the property located? I may be able to help. Feel free to PM me. 

Have you considered trying to leverage your current equity into your next deal? Some people would call this cross collateralizing. 

Here's an example of what you could look at doing. You find 123 Main St you'd like to purchase. Price is $100,000. Needs $50,000 in work. ARV is $225,000. You go to a hard money lender and get a loan for this property and the one you currently own. They pay off the first mortgage and give you $150,000 for the purchase and renovation of the new property. Your total loan amount would be $278,000. If both properties are worth $200,000 each you'd be at just over 65% LTV. You don't have the equity to pull cash out to pay down your other debts, but if you found a deal with more equity in it, or your current property appraises for more than $200,000, a lender may offer you some cash out as well.

This helps save on closing costs too as you're only getting one loan. Just keep in mind, that if you did do this option, then wanted to sell the current one, you might have to use 100% of the net proceeds from the sale to pay down your loan. That depends on how you structure it with the lender, but is something you would definitely want to keep in mind.