All Forum Posts by: Lawrence Williams

Hi Stephanie,

Thank you for your feedback. The point I was making in my response to Nicholas is that it can be done. Commercial or portfolio lenders, who often may follow, Fannie or Freddie guidelines prefer or require the property to be held in an LLC. This is the information I have been getting in the last few days based on my conversation. I appreciate all of the feedback that BP offers, but I think we all should be careful when telling others if something cannot be done, unless they are 100% sure in every case. There is a big difference between something being difficult and impossible. Luckily, I always speak with multiple people and do my own research to determine if what I am being told is possible or not. I have read a lot of BP posts and listened to BP podcasts where people regularly outline strategies that many people say can't be done. My main focus is on finding out the way how, not the difficulties associated with it. Thanks again.

Hello Michael,

Did you complete the purchase for your MFR in Cleveland? I am in the same situation that you were a year ago. Were you successful in finding a lender? If so, please refer me to the company you used.

Dante, 

I have a contact at Huntington Bank. Did they allow you to lend under an LLC?

Ryan,

Could you please refer me to someone? I have the same dilema as Michael did a year ago. 

Thank you all. 

Thank you for the suggestion Nicholas. I will reach out to someone tomorrow. The Fannie Mae website shows that delayed financing can definitely be used with an LLC, as long as certain conditions are met:

https://www.fanniemae.com/content/guide/selling/b2...

I meet the conditions listed. This section, which is shown in the link, shows that you can. Is there something that I am missing here?

Requirements for a Delayed Financing Exception

Thank you Brian. I will do that. I have been hearing that it is hard to find a commercial/portfolio lender to loan on a property with less than 5 units, but I will keep trying. Do you have any national lenders you could refer me to? 

Also, Ray, I wouldn't rely on a Zillow estimate for anything realistic. You would want to rely on an appraiser for an accurate number. Thank you.

Hello everyone,

I recently went under contract for a 3 unit MFR in the Cleveland Heights section of Cleveland, OH. I need to connect with a lender who can assist me with obtaining a loan based on the following criteria:

• I am a California resident. The property is in Ohio.
• The property needs to either close escrow under and LLC, or have the ability to be transferred to an LLC.
• I'd like at least an 80% LTV.
• I don't want to wait the standard 6 month period for seasoning. I would use the delayed financing exceptionfrom Fannie May/Freddie Mac, or a small local bank.

Here are details about the property:

• Purchase price:   $126,500
• Rehab:                   $0  (The seller has agreed to rehab the property based on a checklist I created from the inspection report)
• ARV: $167,000 (The agent estimates this to appraise between $150K - $200K. My own comps show about $167K
• Vacancy:               2 units vacant, 1 occupied. The other two may be occupied by closing.

Here is what I am looking to do:

1. Buy the property using all cash or financing.
2. If occupancy is not 100%, then fill vacancies.
3. Once building is 100% occupied, have the property appraised using tenant income and leases to help maximize the ARV.
4. Finance/refinance at 80% LTV.
5. Pull out all or most of my money within a 6 month period. 

I've done all of the calculations to make sure that this will work. I just need to be connected with a lender that can make this happen. Does anyone have any contacts or suggestions that they would like to share?

Thank you!

I made a revised version of these steps. As I am going through this process for the first time, I am finding more ways to be efficient and minimize mistakes. Here they are:

BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy buy-and-hold steps

PRE-BRRRR STEPS

• Set your buying standards for your target properties, and overall investing strategy. MFR or SFR, or Commercial? Cash flow requirements, how much forced appreciation can be added, etc.
• Collect members of your investment team (Lenders, Agents, Property Managers, Contractors, etc.). Ask for referrals. Make them aware of your strategy and goals, and that they align with them. Interview them and ask a lot of questions.
• Determine if an entity (LLC, etc.) is needed and fits into your strategy. Set this up in advance. If needed, set up a business checking account. Speak with a CPA and real estate attorney to find how you should be structured to minimize liability and taxes.
• Gather forms: Rental minimum qualifications form, application, annual lease form, etc.

BUY

• 1.Locate target property for sale.
• 2.Analyze target property.
• Run numbers. Account for all expenses. Verify rents (rentometer.com, Craigslist, property managers, etc.).
• Look at comps to compare. If market is depressed and has huge price gaps, rule out low priced distressed comps.
• Estimate rehab including holding costs from lender (if applicable).
• Determine grade of neighborhood (A+ through C-). Also factor distance to schools, nice shopping centers, crime, etc. and other important data.
• DETERMINE ARV!
• 3.Submit offer with inspection contingency. If market allows, initial offer should be 20% less than asking or pass 70% test. Choose the lower
• 4.If not using your own cash, shop for lenders. Use the information you gather for approval for hard or private money lender for the acquisition, and a conventional or portfolio lender to refi.
• 5.Your is offer accepted. Escrow opens.
• Take high quality pics of entire property. If out-of-state, ask realtor or use a service (wegolook.com)
• Have property inspected. Create checklist/punch list of needed fixes. Compare scope of work with multiple contractors for bids.
• Complete due diligence. If unit(s) are occupied, complete tenant due diligence.
• Identify a general design idea for the renovation, including materials. Use examples from Pinterest, Zillow, Trulia, etc.
• Determine if a bedroom and/or bathroom can be added to increase rent and ARV. Adjust numbers, if additions can be made.
• If needed, revise offer or ask for credits based on inspection, etc. If seller’s performing any work, have property re-inspected.
• Receive hard or private funds to close escrow. Loan will be between 9 – 12 months. Buy title insurance, etc.
• 6.Escrow closes. The property is sold. Buy insurance, etc.

REHAB

• 7.Select contractor to rehab the property. Create payment schedule to disperse funds at agreed rehab intervals. Communicate often and ask for pictures and video at each stage of rehab.
• 8.Select final design and materials for the rehab. Consult with your property manager about tenant tastes and the contractor on rental rehab styles for the area.
• 9.Have your property manager also check on the quality and status of the work. Ask for their stamp of approval before releasing final payment to the contractor.

RENT

• 10.If already occupied, have property manager direct tenant payments to you. If vacant, property manager should market to tenants based on your criteria.
• 11.Once a target tenant is found, collect deposit, first/last month’s rent and make sure to cover all policies and expectations. Tenant moves in.

REFINANCE

• 12.Appraise for ARV. Refinance with conventional or portfolio lender on 15/30-year term. Pay hard/private money lender back.

REPEAT!

 You got it Kathy. Thank you for the feedback. I am glad that you found it useful. 

 I will definitely do so. Thank you.

 Hello Millie,

So far, it has been very overwhelming. But that's a good thing. Cleveland has a huge amount of inventory to sort through, the rental rates are all over the place, and the property tax rates don't make sense with many deals. Bay Village is a nice area. Please send me more details about the deal to review. Thank you.

 Hi Justin,

Absolutely. I am trying to learn as much as I can about this market as necessary.