All Forum Posts by: Kyle Sosnowski

@Kyle Wells

- Slow and steady on base hits. Don't spend too much time chasing unicorns.

- Plan 3 to 5 years out.

Hey Kyle, nice to meet you. I'm a newer investor myself and bought my first deal in Feb 2022. It was a cosmetic fixer upper that I rehabbed, lived-in for a year, and now rented out to long terms tenants. I was able to extract the equity I created from the rehab and used a Home Equity Loan to convert the detached garage into an ADU. The ADU is now a MTR. I am cash flowing close to $2,000/month net. The property also has over 200k in equity. I forgot to mention that this property is in California. My advice will be more about the Mental aspect, which I think is the most important.

Don't get caught up in the "what-ifs". The more we focus on our fears, the more it magnifies. Fear feeds off attention, so you need to starve it of it's "food" by shifting your focus on the positives. You have to be able to adapt to situations and circumstances that WILL happen during your journey.  

Good luck!

Xavier, 

Like many others mentioned, be cognizant of the self-sufficiency test if you want to put 3.5% down on a 4 unit with FHA financing.

Find an agent in your area that works with house hackers and find a lender who is familiar with the house hacking strategy. These individuals will better understand your goals as well as your incentives/constraints for what you're trying to pursue. 

All the best! 

Quote from @Xavier A. Malave:

Hello!

I am currently looking to buy my first house and turned into a house hack with a fourplex,

Anyone in Texas that can recommend me lenders to get 3% or 5% as down payment since the lenders I have talked are asking for 25% down payment.

I'm doing my research but I'll appreciate any help!

 @Xavier A. Malave For a FHA you can in theory buy a 3-4 unit with 3.5% down. I say in theory because for a 3-4 unit you the property has to past the FHA self sufficiency test. What that means is 75% of the gross rental income HAS to cover the entire payment including prin/interest/taxes/insurance/FHA required mortgage insurance and any HOA dues. So, if the total rent is 4000 a month the entire payment has to be less then 3000. That is VERY hard in most markets right now due to property values and high rates. Please note that 2 units do NOT have to pass this test.

For 5% down on a conventional loan for a 2-4 unit you would have to qualify for a program called Home possible. The issue here is that your qualifying income has to be under 80% of the median income for the county that the property is located.  Here is where you can determine what that number is:  https://sf.freddiemac.com/working-with-us/affordable-lending...

and finally, the 25% is NON-OWNER occupied, so who you have been taking to is not versed in multi-family. You can see right from the source that Freddie Mac allows for 20% down on a owner occupied 3-4 family (as do a lot of non-conventional products):  https://sf.freddiemac.com/general/maximum-ltv-tltv-htltv-rat...

Should also add, there are some non-conventional products that will allow 3-4 unit with 15% and no mortgage insurance required.  

Concessions are a great way to make buying a home less expensive. There are a couple of ways you can use concessions and a couple of ways to get the seller to offer them. Here is an overview of concessions.

If you are able to negotiate concessions for the purchase of your house hack, here are the ways I would recommend using them:

     1. To cover closings costs

Using them to cover closing costs is essentially as good as cash. You were going to have to pay for the closing costs with your own cash. Now the seller is covering those costs. You get to keep that cash and use it for something else.

     2. To help with the cost of house hacking improvements or conversions

Another great way to use concessions is towards the conversion cost. If you are house hacking a property you more than likely want to convert a space into a bedroom or a basement into a separate unit. These conversions can be paid for with concessions from the seller. To do this you get a bid from a couple contractors to do the work you want done. Then you get a check to that contractor for some or all of the cost to convert the space. Pro Tip: ask the seller to break up the checks to a contractor into a couple of checks so you can do progress payments instead of paying the contractor the total amount upfront.

     3. Buying the interest rate down

Your lender can help you determine if it is worth buying your interest rate down. A good rule of thumb though: you want to save enough interest in two years to cover the cost of buying the rate down. Why two years? This has been the common number for a long time because people have assumed that at some point in two years rates will be lower than they are today. I'm not so sure that works anymore. So, if you think rates will stay high and not be lower for 3 years or maybe 5 years than make sure the amount of interest you save in that amount of years will be more than the cost to buy it down.

Now all of those ideas assumed you already negotiated concessions. But how does that process work? 

Here are a few ways you can negotiate concessions with the seller:

     1. In the initial offer

If the house is listed for 500k you could make an offer for any price you want and also put in the offer that the seller will give $X,XXX.00 amount of concessions to the seller at closing.

A good strategy, if the market is competitive, is to offer above the asking price by the amount of concessions you want.

For example, if the listing price is $500,000 and you want 10k of concessions. You can make an offer for 510k with 10k concessions. This gets you the cash you need now to cover closing costs or make a house hack improvement (bedroom addition or separate unit conversion). It also is the same net to the seller.

Essentially you have locked in a loan for 10k at a fixed rate over 30 years. You threw it into the mortgage. That's a great deal for you. Especially if you use that money towards a house hack improvement that will generate more rental income.

The one thing to be aware of here is that the higher you go with the offer price the less likely it will appraise.

     2. During the inspection negotiation period

If there are plenty of items in the inspection that are concerning or a major cost, you could ask for concessions at this point in the closing process.

I wouldn't start with concessions though. I would start by asking the seller to fix the problem and pay for it. Most sellers don't want to pay AND manage the problem. They will often counter with a concession.

There are some limits to concessions.

     1. Limitations about what they can be spent on:

Concessions cannot go towards the down payment. Concessions cannot be kept as cash.

     2. The amount of concessions you can receive is also limited depending on the type of loan you are using:

VA loans have a maximum of 4% of the purchase price, no matter of down payment.

FHA loans have a maximum of 6% of purchase price regardless of down payment.

Conventional loan limits depend on the amount of the downpayment:

• Less than 10% down = 3% maximum seller concession
• 10-25% down = 6% maximum seller concession
• 25% + down = 9% maximum seller concession

@Kyle Sosnowski It depends on the lender and the lending options they have. You can shop around! Not all lenders/lending products are created equally. 

For example, my second brrrr was a cash out refi with a fixed rate from the beginning (no variable rate), but I went with a different lender for that deal. 

Running numbers on a quadplex (this would be my 1st property) a 2…2b1b & 2...1b1b via seller finance. All 4 units are rented month to month right now!  Rents are at $500 on all 4 units… market rents are  average $700…. 3 of the 4 tenants have been there for years!  I would increase rents slowly.  Should I ask only to make principal payments for a few months or take the small cash flow $70 a month till I can get the rents up?? 

Quote from @Kyle Sosnowski:

Quote from @Ryan Muska:

Welcome to the REI Industry!

Turn-key is difficult to have cashflow.

I work with clients often in FL and would love to connect if you ever have questions or need some insight on deals!

 Hi Ryan, what would say some of the pros/cons are about choosing TurnKey Properties? 

Any info would be appreciated, thanks!

 Think about it this way:

A fix and flipper buys a property for $100k. They renovate it for an additional $50k. They are all in at $150k. Now, they sell it to a turnkey investor for $200k. That investor is going to have to pay the premium of the property and now, it may not even cashflow because they would have had to likely mortgage it at the 200k value with a 25% (50k) down payment at 8.5% = $1,153.37/month mortgage payment. On top of that who knows how much it could rent for. 

Now, let's be the person who buys the property initially:

We get a loan for 75% LTV on the purchase price and 100% of the reno costs with Interest only payments. That loan is for a full $125k. Let's say the whole renovation is going to take 8 months. With today's hard money interest rates, let's say the annual Interest rate is 12%. After the 8 months, here is your cost breakdown: $25k down payment, $1,200 ($150/month) for insurance, $8,000 for interest, taxes (let's say $600/month) of $4,800 = $39,000 (You can also add the hard money loan closing costs of ~$5k)

Now, the property you renovated is worth $200k and you can refinance from your Hard money Loan into a conventional or DSCR Loan with 75% LTV. You get $150k. You pay off the $125k hard money loan. Now you have $25k to work with. Let's take away $5k for the closing costs for the HML. Now you have $20k. Let's take away 10k for the closing costs on the refinance mortgage. You are left with $10k. Now you put that towards your expenses on the project $39k - $10k = $29k.

It cost you $29k to get $50k worth of equity in a newly renovated property doing that strategy.

Compared:

-$50k to get Turnkey, $50k of equity, and very little experience real estate investing

-$29k to get BRRRR strategy property, $50k equity, a TON of experience real estate investing

Hello! I am trying to survey people coming from a W2 and going into an entrepreneurial life for a new coaching program I am putting together. Would appreciate any insights you have on the following:

1. What are the biggest problems/struggles that you have when it comes from the transition between your W2 and entrepreneurship?
2. What do you want most out of becoming an entrepreneur?
3. What are your biggest fears in transitioning from a W2 to entrepreneur right now?

Thanks!