All Forum Posts by: Lem Diaz

Disclaimer: I live in the SF Bay Area (aka reallllly expensive to buy anything).

Help me understand how lenders view debt. So let's say I purchase a SFH for $800k and put down 160k (20%). So now I owe 640k. For that level of mortgage I'd be paying circa $3200/month.

If I want to purchase a second property for investment, while living in the first one, what are my options for financing? As I understand most "retail lenders" (Wells Fargo, Credit Unions, etc) will want a 43% debt to income ratio to qualify for another loan. So in this scenario lets assume I have a DTI of 50% or higher, but I can still manage to put down 20% on the next investment property...let's say it's another 800k house.

How do investors manage through these scenarios? I doubt a bank would want to give me a loan given how high the DTI would be across both houses.

Would the situation be different if the investment property had a zero dollar cash flow?  Meaning after all the capex, mortgage, insurance, property management, etc are all said and done I even out every month. What about the 3rd, 4th, 5th, etc property? Even if they even out from a cash flow perspective the debt starts to accumulate.

I guess in the end what I'm trying to figure out is how people can convince banks or lenders to give them these big loans when they're leveraged beyond a 43% DTI across all their properties.

@Kyle J. Comerica has, what I think is, the best deal I've found so far. Prime +0.5% with an intro rate of 3% for the 1st 9 months. This comes with no closing cost but a $500 early termination fee.  There is an annual fee of $65. 

What I think I'll end up doing is a cash out refinance after ~3month (on property #2 that I'm using this money to purchase), So I have to think through the math. I think it still works out in my favor if I pursue no early term fee or closing costs vs one with a lower APR.

Can you fine folks recommend a good institution to get a HELOC? I've done some research already around Comerica, Alliant CU, Stanford CU, BofA, and Wells Fargo. Seems to me that the trade off is higher rate or higher closing cost + early termination fees. Would love to find an institution that was the "best of both".

Thanks!

@Charles Stubblebine looks like you're leveraging your current investments to purchase other properties?  I'm looking to do the same.  Curious if you had any follow up from these last few posts about HELOCs and could share any new learnings.  Cheers!  

Lem

@Account Closed I owe 575k on a 1.2M property and am looking to leverage a HELOC to purchase my 1st "investment property" (in quotes because I'll move into this property and hold my current residence). I would love to better understand the mechanics of how to *loan* yourself/your LLC money. Is that literal..where you set up a personal note (aka hard money loan??) to the LLC with interest, principle, etc?

@Kyle J. Thanks a ton for your response. The heloc rep I talked to told me based on my numbers the max I can get on loan via a heloc at wells is $369k. That said, there's a better than zero chance that it was this guy's first day on the job because it took him 45 minutes to finally get to that information for me. Although I could hear someone coaching him. Definitely need to get some additional data points. Thanks for the clarification on the LTV calculations. I had him walk me through his math like 4 times...but sounds like we both were using the wrong formulas here.

Sigh...this puts me in even worse positioning then.  Doh!  Unfortunately I don't have many friends or family that are in a position to loan me ~$200-300k.

Regarding the hard money lender not wanting to loan on an owner occupied property...it won't be owner occupied once I move to PROP2.  2 out of the three rooms are already rented in my current house...if that matters. Will that matter in the lender's mind at all? 

I'm looking to buy a 2nd property which will become my primary residence (SFH or Duplex). Here's where I'm at with my primary residence:

Appraised value: $1.189M

Loan balance: $574k

My question to BP folks is what are my best financing options to purchase this next property. The likely purchase range in my area for things we're looking at is between $550k and $800k. The ARV (rehab cost of ~20k) on them is 700k for the low end ones and about 875k for the high end one. The deals I'm trying to get into are off market and require all cash offers. This leaves me in a bit of a bind as I only have about $200k in liquid cash right now. From my limited knowledge I understand my options to be as follows:

1. Heloc on PROP1 to pay in full for PROP2. 

a) Limits my purchasing power to the low end of my range based on 60% LTV on the equity (Wells Fargo) [(1.189M - 574k)*0.60 = $369k --> $369k + $200k = $569k of all cash purchasing power].

b) I'm not entirely clear on the restrictions of refinancing PROP1 or PROP2 after everything closes. If anyone could shed light on this I would greatly appreciate it.

2. Hard Money Loan

*a) New to this form of lending, but my understanding is that I use PROP1 as collateral for a hard money loan.  Will a hard money lender take 2nd position to a bank mortgage with that much equity as collateral?  What is "industry standard" for these types of hard money loans?  2-3 points and 10% interest or something along those lines? Will it be difficult to refinance PROP2 to a traditional mortgage and pull enough money out to pay down the HELOC to zero?

3. Financing options that I'm not thinking of or aware of...

There are a lot of questions baked in there, but hopefully that give enough of a sense of my situation to elicit some good discussion/advice. 

Is there a difference between these two? I guess one thing that comes to mind is that a "seller" doesn't necessarily need to be the "owner" right?

Edit: I just realized I posted this in the wrong section.  Apologies

Just got the downloads.  Going to give this a read over the next few days.

I know all (okay...probably less than half) of the methods like "drive for dollars", put up signs, yellow letters, etc type of methods to find deals. Truth is...I don't have time to allocate to doing those things and be effective (or perhaps in part because I'm lazy, sure). So I've been asking myself...is networking with wholesalers and letting them do the leg work the only real viable option for me that doesn't require tons of upfront work? Or...are there other methods where I can just pay a nominal fee for someone to do this leg work for me? I feel like the best deals are the bank owned/REO/Foreclosure deals in this market. I wonder if someone has built a service to just source deals that aren't obvious like one on MLS/Redfin.

If we can outsource pretty much anything to India/China or elsewhere...I wonder if someone has outsourced this?

Okay...okay...yes I'm seeking the silver bullet...but that aside I would appreciate your collective insights!  Thanks!