All Forum Posts by: Matthew Bernal

🔹 Best Loan Options for Building an ADU in Garden Grove, CA 🔹

Great question! Since you own the property free and clear, you have several financing options to consider. Each has different advantages depending on your tax strategy, cash flow goals, and risk tolerance.

🏡 1. Home Equity Loan (HEL) – Best for Fixed Rates & Predictability

A Home Equity Loan (HEL) lets you borrow a lump sum against your home’s equity at a fixed interest rate. This is a solid option if:

✅ You want predictable monthly payments

✅ You’re looking for a one-time financing option for ADU construction

✅ You prefer a longer repayment period (10-30 years)

🔹 Potential Tax Benefit: Interest may be deductible if the loan is used for substantial improvements to the property. Consult your CPA to confirm.

💳 2. Home Equity Line of Credit (HELOC) – Best for Flexibility

A HELOC gives you a revolving line of credit based on your home’s equity. Think of it as a credit card secured by your property with a variable interest rate. Great if:

✅ You want flexibility and only borrow what you need

✅ You plan to do construction in phases

✅ You want interest-only payments during the draw period

⚠️ Risks: Since HELOCs have variable interest rates, your payment can increase if rates rise.

🔹 Tax Benefit? Similar to a HEL, interest is potentially deductible if funds are used for home improvements.

🏗️ 3. Cash-Out Refinance – Best for Low Interest Rates

With a cash-out refinance, you replace your existing mortgage (which you don’t have) with a new loan for a higher amount, pocketing the difference. This works well if:

✅ You want one mortgage payment instead of multiple loans

✅ You can lock in a low, fixed rate

✅ You plan to invest in additional renovations beyond the ADU

⚠️ Downside? You’ll start a new mortgage with closing costs, so it’s not always the best option unless you’re borrowing a large amount.

🏦 4. Construction Loan – Best for Larger Projects

If you’re building a high-end ADU, a construction loan may be a good option. These are typically short-term, interest-only loans that convert to a traditional mortgage upon project completion. Best if:

✅ You want funds disbursed in stages to control costs

✅ You plan to significantly increase property value

⚠️ Downside? These loans can have higher rates and require more paperwork.

📌 Final Thoughts: What’s the Best Option?

If you need a lump sum with a fixed rate → Home Equity Loan ✅

If you want flexibility to borrow as needed → HELOC ✅

If you want to refinance and access equity at a low rate → Cash-Out Refi ✅

If you plan a large-scale project → Construction Loan ✅

💡 Pro Tip: Talk to your lender and a CPA to ensure you’re maximizing tax benefits and choosing the best loan structure for your long-term goals. If you’re planning to rent the ADU, a HELOC or cash-out refi could be great options since interest may be deductible as a rental expense.

Would love to hear what others in the community have done for their ADU financing! 🚀

🚀 High-Yield Real Estate Investment – Earn $52,500 in 10 Months! 🔥

I’m seeking a private investor (NOT institutional money) to fund $350,000 for a high-value real estate redevelopment in Houston, TX (6636 Bellfort Street, 77087).

This is a short-term, secured investment with a 15% fixed return ($52,500)—backed by a $4M asset and strong investor protections.

💰 Deal Snapshot:
📌 Purchase Price: $1,200,000
📌 Rehab Budget: $550,000
📌 After-Repair Value (ARV): $4,000,000
📌 Hold Time: ~10 months
📌 Closing Date: March 31, 2025

💵 Investor Offering:
✅ Loan Amount: $350,000
✅ Fixed Return: $52,500 (15% ROI)
✅ Total Payback: $420,500 at closing

🔒 Your Investment is Secured By:
✔ Deed of Trust (recorded lien protection)
✔ Position on Property & Builder’s Risk Insurance
✔ Promissory Note & Personal Guarantee
✔ JV Agreement (optional for equity participation)
✔ Late Fee Protection: $250 per week if repayment is delayed

📢 Who This is For:
This opportunity is for an individual investor with liquidity looking for a hands-off, high-yield investment—NOT banks or institutional lenders.

💡 Why This is a Great Deal?
🔹 10-Month Hold – Shorter than a typical development project
🔹 Strong ROI – 15% fixed return on secured capital
🔹 $4M ARV – Significant upside potential
🔹 Secured Investment – Multiple layers of investor protection
🔹 Experienced Operator – Proven track record in real estate deals

📩 Let’s Make Money Together! 🚀
Interested? DM me now or comment below to learn more!

#PrivateMoneyLender #RealEstateInvesting #HoustonInvestments #FixAndFlip #HighReturns #PassiveIncome #PrivateLending

@Cody L. It's located off of Bellfort. I'm still in the fundraising process so maybe we can collaborate. 

@Taylor Georges wow. I'm sorry to hear that! How are you dealing with all of that?

You're in a solid position with a cash purchase and a tenant locked in for two years, which eliminates initial vacancy risks. Let's break down your Cash-on-Cash Return (CoC) target and whether this deal aligns with strong investment returns.

1️⃣ Calculate Your Cash-on-Cash Return (CoC)

Formula:

• Total Cash Invested = $272,000 (since you're buying in cash)
• Annual NOI = $10,600

Is 3.9% Good?
🔹 For cash purchases, investors typically aim for 6%–10%+ CoC returns.
🔹 3.9% is low for a pure cash deal, but appreciation & rent growth may improve the long-term picture.

2️⃣ Return When Factoring in Appreciation

You're estimating 3% appreciation annually.
After 5 years, estimated property value:

That’s $50K in appreciation in addition to your rental income.
Your total return (NOI + appreciation):

Over 5 years, this represents a 37.8% total return on your $272K investment (before selling costs).

3️⃣ How to Improve Your CoC Return

✅ Leverage the Purchase with a Mortgage

• Even at 50% LTV financing, your CoC return can jump to 10%–15% due to less cash invested.

✅ Increase Rent Over Time

• If rents increase 3–5% per year, your NOI rises, improving returns.

✅ Consider a Cash-Out Refinance Later

• If the property appreciates to $370K, you can pull cash out and reinvest in another deal.

Final Thoughts: Is This a Good Deal?

• For a purely cash purchase, 3.9% CoC is below ideal.
• If you plan to hold long-term & expect rent growth/appreciation, it can work.
• If you prefer higher returns now, consider adding leverage or finding a deal with stronger rental cash flow.

Mohit,

Your CPA’s advice is common, but your concern about the due-on-sale clause is valid. Here’s a breakdown of your options, along with risks and considerations:

1. Due-on-Sale Clause Risk – How Real Is It?

Most conventional mortgage lenders include a due-on-sale clause, meaning they could call the loan due if you transfer the property into an LLC. However, in practice, banks rarely enforce this unless:

• The loan is in default, giving them a reason to act.
• Interest rates rise significantly, making it profitable for the lender to call the loan and force you to refinance.
• The bank notices the transfer and wants to assert control.

That said, if you’re making payments on time, lenders typically don’t care. Thousands of investors transfer properties into LLCs without triggering an issue. However, it's always a risk.

2. Should You Use a Trust as an Intermediary?

Your idea of using a revocable trust (often called a land trust or grantor trust) to hold title before transferring it to an LLC is a smart workaround because:

• Most lenders allow transfers to a trust (especially if it's revocable and you remain the beneficiary).
• Once the property is in a trust, you can assign beneficial interest to your LLC without triggering lender scrutiny.
• It offers privacy benefits since the property will be in the trust's name, not your personal name or the LLC's.

🚨 Potential Issue:
While this method reduces visibility, some lenders may still flag it. If they ask about beneficial ownership changes, you’d have to explain (or unwind it if necessary).

✅ Best Use Case for the Trust Strategy:
If you want extra protection against due-on-sale enforcement, transfer into a revocable trust first and later shift ownership to the LLC quietly.

3. Your Three Options – Pros & Cons

✅ Pros:

• Directly achieves liability separation.
• You don’t have to maintain a trust.
• If the lender ignores it (likely), you’re set.

❌ Cons:

• If the lender does enforce the due-on-sale clause, you’ll have to refinance.
• Could impact financing flexibility for future loans.

🔹 Best for: Investors comfortable with some risk and those using commercial or DSCR loans (which don't have due-on-sale clauses).

✅ Pros:

• More lender-friendly.
• Adds privacy protection.
• Can maintain control while reducing direct LLC visibility.

❌ Cons:

• Slightly more complex structure.
• Could still be flagged if the lender looks deeper.
• Requires keeping up with trust documentation.

🔹 Best for: Risk-averse investors who want maximum protection against due-on-sale enforcement while still moving toward an LLC structure.

✅ Pros:

• No risk of triggering due-on-sale.
• Lower administrative burden.
• Can get $1M–$5M in umbrella coverage inexpensively.

❌ Cons:

• No asset separation—you personally own the properties, meaning a lawsuit against one rental exposes all your assets.
• Insurance does not prevent lawsuits; it only covers certain damages.

🔹 Best for: Small-scale investors who prefer simplicity over asset separation.

My Recommendation (Balanced Approach)

1️⃣ If minimizing risk is your priority:
➡ Use a revocable trust as an intermediary before moving properties into the LLC.

2️⃣ If you’re comfortable with potential lender pushback:
➡ Transfer one property at a time into the Series LLC and see if your lender reacts.

3️⃣ If you only own a few properties and don’t want legal complexity:
➡ Keep the properties in your name with solid umbrella insurance.

Final Thoughts

There’s no one-size-fits-all answer, but option B (trust first, then LLC) is the most conservative while still achieving asset protection. If you’re willing to risk a lender notice, option A (direct transfer to the LLC) could be fine. And if you prioritize simplicity, option C (insurance only) is viable for smaller portfolios.

Would you like recommendations for trust attorneys or lenders that are investor-friendly?

You're correct that Texas law prohibits HELOCs on investment properties—they are only allowed on primary residences. However, there are several alternative ways to access your equity without refinancing and losing your sub-5% mortgage rate.

1. Investment Property HELOC (Out-of-State Lender)

While Texas lenders won't issue a HELOC on an investment property, some out-of-state portfolio lenders and credit unions do offer investment property HELOCs in other states. You may need to structure it as a business-purpose loan under an LLC. Check with lenders outside of Texas that specialize in investment property HELOCs.

2. Home Equity Loan (Cash-Out) – Texas 50(a)(6)

• Texas allows a cash-out refinance on an investment property, but it would be treated as a 50(a)(6) loan, which can limit how much equity you can pull (typically 80% LTV max).
• Problem: This would replace your existing low-rate mortgage, which isn’t ideal.

3. Portfolio Loan or Cross-Collateral Loan

• Portfolio lenders (small banks, credit unions, private lenders) may offer a loan using the duplex as collateral while keeping your current mortgage intact.
• Cross-collateralization: Some lenders will let you pledge the equity in your Austin duplex as collateral for financing new acquisitions in Ohio, Indiana, Michigan, etc.

4. Business Line of Credit (BLOC)

• If you own the duplex in an LLC, you may be able to take out a business line of credit secured by the property.
• Even without an LLC, a lender may offer an unsecured business LOC based on your income, credit, and assets.

5. Private or Hard Money Lenders

• Private lenders might be willing to lend you 60-70% of your available equity with a second-position loan behind your first mortgage.
• Hard money lenders could provide short-term financing if you plan to BRRRR new acquisitions and repay quickly.

6. Seller Financing or Partnerships

If you're targeting MFR deals in OH, IN, MI, PA, TN, or AL, you could:

• Use seller financing on new deals instead of pulling equity.
• Bring in a partner who funds the down payment, and you contribute expertise and credit.

Best Move for You?

🔹 If you want to keep your mortgage intact, look into: ✅ Portfolio lenders for investment HELOCs or cross-collateral loans.
✅ Business LOCs (secured or unsecured).
✅ Hard money or private lenders for a short-term equity pull.

🔹 If you're okay replacing your mortgage, consider: ✅ A Texas 50(a)(6) cash-out refinance (only if the numbers still work).

Let me know if you want lender recommendations for these options!

Yes, you can use funds from your Traditional IRA to invest in real estate, but you must follow strict IRS rules to avoid penalties and taxes. Here are your main options:

1. Self-Directed IRA (SDIRA)

A Self-Directed IRA (SDIRA) allows you to invest in alternative assets like real estate while keeping the tax benefits of an IRA. Here's how it works:

• You roll over your Traditional IRA into a Self-Directed IRA (SDIRA).
• The SDIRA (not you personally) purchases the investment property.
• All expenses (down payment, rehab, taxes, insurance) must be paid from the SDIRA.
• All rental income and profits must go back into the SDIRA.
• You cannot live in or personally manage the property—it must be purely for investment.

🚨 Caution: If you withdraw funds directly from your Traditional IRA to make the down payment, you'll face a 10% early withdrawal penalty (if under 59 ½) and owe income taxes on the amount withdrawn.

2. IRA Non-Recourse Loan

If you don’t have enough in your SDIRA to buy a property outright, you may be able to finance part of it using a non-recourse loan (a loan where the lender can only go after the property, not you personally). The property is held by the IRA, and the income is subject to Unrelated Business Income Tax (UBIT).

3. 60-Day Rollover (Short-Term Strategy)

You can take an IRA distribution and roll it into another IRA within 60 days without penalty. However:

• The entire amount must be returned to an IRA within 60 days, or it will be taxed as ordinary income and subject to penalties.
• This is a very risky strategy if the deal falls through.

4. Roth Conversion (If You Qualify)

If your goal is long-term tax-free growth, you could convert part of your Traditional IRA into a Roth IRA (paying taxes on the converted amount) and then invest through a Self-Directed Roth IRA, which allows for tax-free withdrawals in retirement.

Bottom Line

Your best bet is to roll your Traditional IRA into a Self-Directed IRA (SDIRA) and buy the property through the SDIRA, ensuring you follow IRS rules to avoid penalties. Avoid direct withdrawals unless you’re over 59 ½ or using a short-term 60-day rollover. If financing, ensure it's a non-recourse loan.

Would you like recommendations on SDIRA custodians or lenders that specialize in non-recourse loans?

Hey Phillip! 

I'm closing on a 20 unit in Houston this month. What projects are you working on?

Hey @Jason Lopez! Always happy to help! I know a few great hard money lenders I can refer you to if you want!