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All Forum Posts by: Lionel Church

Lionel Church has started 4 posts and replied 8 times.

Post: Moving my parents onto my property: ADU, Renovation, or Addition?

Lionel ChurchPosted
  • Rental Property Investor
  • Berkeley, CA
  • Posts 8
  • Votes 2

Hi all - buckle up because this is complicated. Would LOVE any advice you have on how i can solve this problem, or if you find any gaps in my assumptions.

First, I'll start out with the end-goal: 

My parents are aging and I'd like to move them onto my property ASAP so I can help take care of them. I'd like them to live in a space that is at least 750 Sq Ft, has 2 bedrooms, and is all one level.

Next, here's what I have to work with:
I own a duplex in Oakland. I live in the upper unit with my wife & a roommate, and I rent out the lower unit to tenants who I love, and whose income covers 37% of my mortgage. We have a big backyard (~50 ft by 50 ft). I have an excellent interest rate (3.125%), so i'd be very hesitant to refinance.

Limitations

-I bought my home in 2021, so I don't have much equity in the home, which means my LTV is very high (~80%). Similarly, my debt-to-income ratio (DTI) is very high (~80%). Because of this, banks don't want to lend to me. Nearly every mortgage broker I've spoken to has said my DTI is a non-starter for any loan.

-Cash is limited. Even though I make a relatively good income, I spent most of my cash on my home purchase, and my parents don't have much cash either. They can afford to pay off a monthly amount, but they don't have a lump-sum amount.

-Because it is my property, my parents themselves cannot get a loan, the loan must be to me.

-Fannie Mae will not allow financing of an ADU on a Duplex. Even if I had a lower DTI, Fannie Mae wouldn't back any loan to build an ADU on my property.

Options I've considered

-Prefab ADU: I've looked at a LOT of ADUs and ADU companies. Building an ADU in my backyard seems like the best case scenario - i don't have to kick out my tenants (or forfeit their rent), my property increases in value, my parents get a nice space to live in, my parents could afford the cost of a monthly mortgage, and I'm increasing housing density in a city that needs it. The problem here is financing - the cheapest ADU I can find that meets my criteria is ~$400k, which banks will not lend me.

-Renovate the lower unit & evict my current tenants: This is an unsavory option for many reasons. First, I would hate hate hate to evict my tenants - they've been living here for a long time, they're wonderful, we have a great relationship, and they pay rent on timeSecond, the unit isn't in great shape (most notably, there are a bunch of weird steps up and down between rooms, and the bathroom has like 3 steps in it - all of which is bad news for old folks), so to make it nice (and level) would cost up to $300k. On top of that, kicking out the tenants would increase my family's costs 2x - we'd need to somehow cover the cost of lost rent, AND we'd need to pay whatever the construction loan is. All of this on top of the fact that i likely can't even get a construction loan due to my DTI.

-Build a small (~300-500 sq foot) addition to the lower unit, and then divide the first floor into two equal sized units, so that I end up with a Triplex. Parents live in one unit, tenants live in the other unit. Sadly, this still seems somewhat expensive and relies upon my ability to get a loan.

-Renovate the lower unit with a very small budget. This seems like the likeliest option - we can only do a few things (unclear if we can even get the basics covered), but we can get my parents moved in, and have minimal cost. They would pay me the same rent my tenants used to :(, so no major uptick in cost.

What I'm pursuing

-Getting a loan from Family - this is pretty unlikely, but it seems like the only situation that may be able to grant us the cash to move forward with some of these options

-Lower unit with very small budget - Next steps here are determining how much cash i have at my disposal for a project like this (not huge), and then getting quotes from contractors for building the basics.

What I'd love help on

-What haven't I considered? Are there financing options out there for me? Are there organizations that help with this? Are there companies that can help build an ADU within the constraints that I have?

Post: Should I use a business name for managing my personal property?

Lionel ChurchPosted
  • Rental Property Investor
  • Berkeley, CA
  • Posts 8
  • Votes 2

@Simon W. that's a very interesting idea. I do already own an LLC and I could easily set up another one for my real estate investing business. You're saying my LLC could be my rental property management company. That's attractive to me because I could even then pay the LLC the same rates as I would be paying to another property management company and it would make it very clear what my expenses are on the property (with property management included). I like the idea and I'm going to look into it.

Post: Should I use a business name for managing my personal property?

Lionel ChurchPosted
  • Rental Property Investor
  • Berkeley, CA
  • Posts 8
  • Votes 2

Hello, Bigger Pockets community! Should I set up a DBA as a sole proprietor and open a separate business bank account for paying my mortgage and all property-related expenses?

I am in-contract for a multi-unit property in the state of Vermont and I am receiving residential financing. In order to run a professional operation, I would love to send all of my tenants documents as "Rental Property Business Name" rather than with my name. This is partly aesthetic but it also seems practical since I want to operate my real estate business as a professional.

Lastly, the bank has of course given me a residential property loan so even if I were to set up the DBA, my mortgage will be paid using through a personal account. It all seems like a lot to go through just to be able to write "Rental Property Business Name" at the top of documents for tenants... and I would love to hear from experienced real estate investors whether there is an easier way. Like should I just write "[Property Address] Management" on all documents in order to keep things simple with this single property that I'll own?

Post: The Marcus Effect: Relationships Create Opportunity

Lionel ChurchPosted
  • Rental Property Investor
  • Berkeley, CA
  • Posts 8
  • Votes 2

If you're not building new and deeper relationships, you're not investing. 

Building knowledge and doing research and analysis is necessary but it's not enough. You need to talk with people who are real estate investors in order to build the psychological and emotional courage to take the steps. 

I'm still not a great guitar player but when I was starting to learn, a professional musician and close friend said, "practice but don't wait too long before you play with other people." She'd seen people who spent too much time practicing all alone and they became poor musicians compared with those who regularly played with other people.

The people you build relationships with are also who you will turn to for advice when big questions come up. There is no such thing as solo success. We succeed or fail based on the quality of our relationships.

Today I talked with successful real estate investor Marcus Maloney, who is proactive about relationship building and finding mutual benefit in relationships. He told his story on the BP podcast so before our conversation, I knew he's the kind of person who goes out of his way to be a responsible landlord and protects the human interests of the people he comes into contact with.

I was able to get ahold of Marcus easily through his website. He asked me thoughtful questions and then really listened to what I had to say, what I care about, and offered his perspective on how best to accomplish it.

Then I turned the questions around to Marcus and learned about what he's pursuing. It turns out that from the first $19K check Marcus brought in for his family (told in detail on the podcast) to the present, his success is built upon strong relationships with other people. Through human connections and the information Marcus generously shares online, he's able to find deals, sell properties, and build win-win scenarios.

What Marcus is doing improves the lives of everyone involved and it's built upon strong relationships. That greater-than-the-sum-of-it's-parts quality is what I'm calling "The Marcus Effect".

Wherever you are in your real estate investing journey, you'll benefit from building new and deeper relationships with other investors and real estate professionals. We are instinctually social creatures so relationships are not an option. When you extend yourself to others, it gives you new opportunities and improves your own level of motivation.

If what I've shared makes sense to you, ask yourself this question: "Who do I need to reach out to today?" Just taking that small step will take you further in your real estate investing journey.

Post: Multifamily Mastermind Zoom

Lionel ChurchPosted
  • Rental Property Investor
  • Berkeley, CA
  • Posts 8
  • Votes 2

@Gregory McKinley I’m down. Send me a private message and we can set a time.

Post: Valuing 2-4 unit properties

Lionel ChurchPosted
  • Rental Property Investor
  • Berkeley, CA
  • Posts 8
  • Votes 2

@MarieChele Porter I'm buying in my local Vermont market but I'm from the Bay Area and I've run the numbers there. The price to rental income ratio in the Bay Area is very unfavorable for investors that are looking for cash flow properties. If I were committed to getting started in the Bay Area, I might buy a foreclosure at as low a price as possible and renovate it with a FHA 203k loan. Then you're buying low, taking up to 6 months to renovate, and then living there. Other options are buying in other parts of CA, like Stockton, or out of state using the methods shared by various BiggerPockets real estate investing gurus. Do you already own your primary residence or will this multi-family be your first purchase? I ask because the FHA 203k loan is intended to be for first-time homebuyers that don't already own a property.

Post: Valuing 2-4 unit properties

Lionel ChurchPosted
  • Rental Property Investor
  • Berkeley, CA
  • Posts 8
  • Votes 2

Hi MarieChele, I'm only starting out and I'm also buying my first multi-family but I have done a ton of work to prepare. What I'm doing is looking at revenue minus expenses. I just posted last night and listed out which expenses I'm taking into account. You'll need to know what the revenue is on the property in order to understand whether it'll be a financial sink you in the long run or will remain profitable. I hope I've answered your question!

Post: Obsessed, Committed, Excited

Lionel ChurchPosted
  • Rental Property Investor
  • Berkeley, CA
  • Posts 8
  • Votes 2

I'm about to buy a property and I'm really excited but F$#@, it's taken grit for me to get here.

Is it normal for new real estate investors to become completely obsessed and work a gazillion hours per day to analyze deals and get through to the finish line? Two years ago I committed myself to learn real estate investing and the first big hurdle I had to cross was figuring out how to analyze deals. I had just left my cushy job as Chief Operating Officer of a small company I'd helped start alongside the owner, but I'd arranged to have 2 months of pay after I stopped working so that I could qualify for a loan during that time. (Story spoiler: I failed to buy a place then.) 

For a month I lived, breathed, and dreamed real estate analysis. I read through countless articles online, learning about all of the different expense factors, from mortgage to taxes, insurance, vacancy, repairs, capital expenditures, water & sewer, snow removal, yard care, HOA/Coop dues, and property management. After taking notes on all of the factors, I put it all into a spreadsheet and started analyzing deals. I lived in New York City then and I looked at every single property for sale within my loan pre-qualification amount of $615k and some beyond. I first checked to see whether they might come anywhere close to the 1% rule. Then for properties that seemed like they could be anywhere close to a good deal, I dropped them into my spreadsheet for deeper analysis. I've got a record of all of those deals still so I can see that I did a deeper dive analysis on 98 properties in that month.

When I discovered BiggerPockets and how insanely helpful it is, I was so happy. I dropped my most promising deals into the Rental Property Analyser and got gorgeous PDFs showing the income, expenses, cash flow, and projected equity-over-time on prospective deals. That really helped convince my friends and family to support my endeavors in real estate because they could see that I was doing my due diligence and I didn't have to show them my scary spreadsheet.

I found an awesome real estate agent that specialized in representing buyers and we visited a lot of properties in New York City. I was going to the fringes, mostly Staten Island, in order to find properties that fit my criteria and she went there with me. A lot of the places scared the **** out of me. The issue is that they needed a lot of work. And my problem is that I had no idea how I would ever get the money to do that work. Would I ask to borrow it from people as a loan? Could I get a personal loan? Could I get a repair loan on top of my mortgage loan? These questions seem dumb to me now because I know more but at the time I could not figure out how to get around that problem.

And then a few properties seemed to pass my tests and seemed like they were in decent rentable shape already, but the listing real estate agents just never got back to my agent. I remember feeling really pissed off about that—here I thought I'd finally found a deal and no response.

After pursing this for a couple of weeks, I tripped over my own bright line. I had drawn a line in the sand for myself at the start of my quest, saying I needed to initiate a purchase before the end of the month. I believed I would not qualify for a loan after that. And when the end of the month came, I considered my quest a failure and decided to move on to other things in my life. It was a rough transition. I had wanted it so bad. But I believed I was doing the prudent thing by moving on.

Looking back, I now see all kinds of issues with that decision but at the time I didn't know how to proceed. I actually would have probably gotten a loan and buying in a place back then probably would have been a great investment for me. But the key thing I didn't know back then was how to fund repairs.

What's changed everything for me now is that I've learned about the FHA 203k loan. BiggerPockets' own Brandon Turner talks about these loans in his book Real Estate Investing with No (and Low) Money Down and they're incredible because it lets residential homebuyers put down just 3.5% and get a 30-year loan covering the cost of both the property purchase and repairs. And the program, I've learned, is allowed for up to 4 unit properties AND it allows a "non-occupant co-buyer" on the loan. That means that even if you wouldn't qualify for the loan with your own income, a generous friend or family member who believes in your analysis can help you get qualified. With such a low down payment, you're talking about $3,500 per $100,000 worth of property. That's a great deal if I've ever seen one. And the ability to include repair costs in the loan is, to me, an incredible opportunity.

That leads me to now. In the last two years, I've launched a business doing Business Growth Consulting and founded a nonprofit that helps businesses understand and improve their level of social responsibility and environmental sustainability. Those endeavors are incredibly fulfilling and they're making money, but something I've learned is that I'm still hungry for real estate investing. When you own a cash flow property that's being handled by a property management company, you can leave it alone and build wealth while tenants pay off the mortgage over 30 years. That's an incredible wealth-building tool and I just can't ignore it. If I invest in even 1 rental property per year, I will reach financial independence sooner and build wealth much faster.

I've experienced crazy inner turbulence about when and whether to invest in real estate but now I'm done with hemming and hawing and I'm simply committed to investing in my first property and then moving on to my next deal. I'm going to do it with tenacity. I don't care what it takes, I'm committed to getting my first deal done ASAP, and I'm working towards my goal every day. 

You'll now find me investing in multi-family properties in the beautiful state of Vermont. It's been awesome to meet local investors and real estate professionals in my area and I look forward to working with a lot of people in this field.