All Forum Posts by: Matthew Terry

@Jason Shackleton

I completely agree with what you are saying, but opportunity costs are what is nagging at me. If it takes me 5 years for it to makes sense to refinance into a commercial loan, that's 5 years of lost opportunity and cash just sitting around losing value. 

I guess I need to find some private money then! 

I don't have experience yet. My issue is that I just started investing last year when multi-family became the goto diversification from the stock market and properties are going for cash, above asking price, as-is, and under contract within minutes from when the opportunity is emailed to me. I'm also pretty risk-averse and decided to go Section 8 SFH to start my adventure to weather the true economic fallout from COVID that has yet to hit us. The government pays the rent and there is no lack of demand for single-family homes if I had to exit quickly.

In the current environment, I don't mind paying more in closing costs for SFH for the decreased risk and I have a diversified portfolio that mimics the benefits of multi-family (I'm still covering all my debt service with a vacancy or two). I'm not letting FOMO interfere with my cashflow and risk mitigation focus. I think a lot of these "investors" are just trying to park cash in a safer income-producing asset than the stock market and many of them won't be keeping up with maintenance or won't be forcing appreciation with rehabs, etc, and the deals will be coming. 

Why is 6 unit the magic number? Why not 5 or 8? You said you would entertain a fourplex.

I'm asking because if you are willing to invest in a four-plex, you can get conventional financing for a lower rate and longer terms and a much easier time to find a lender.  You have a much larger pool of buyers for an exit strategy. There is less risk and complication involved and it is probably easier to cash flow on a conventional loan than a commercial loan. You will get a similar experience from a learning perspective. I don't think the benefit of economies of scale will really shine in a 6 unit versus a 4 unit. Maybe I'm wrong, I'd love to get your thoughts.

@Tyler Stephenson

I can tell you from experience because I'm going through this right now. I've purchased my first two properties last year, just closed on a third, and in the underwriting process for a 4th. All money came out of my personal checking account. I did transfer funds from other investment accounts to my personal account and they will ask for a paper trail for that, but they didn't care that ultimately it's from my personal account. I use two lenders and both were the same. All conventional 30yr where I'm the only person on the deed and loan, your situation might be different. 

To @Joe Splitrock point, I did finance a car in the middle of closing on one property and going under contract on another. The creditor will actively monitor any credit inquiries during 120 day period. They saw this pop up and I had to fill out a form stating why I opened the credit line and send over the auto loan paperwork and we were good. However, the loan did not really affect my credit score or put me over 45% debt: income ratio. Your personal situation might be different. I would take Joe's advice, it was just poor timing as I was waiting 6 months for my car to be built and delivered and it happened to be in the middle of closing on two properties. 

Greetings BP Mates,

I'm closing on my 5th SFH and intend to buy a 6th soon, but this pesky thing called the debt-to-income (DtI) ratio is starting to get a little high for conventional loans. I started investing early last year so I hope to improve my DtI after my taxes are done for 2020 and I can claim the rents as income.

I could use some advice, or better yet, real experiences from my fellow investors. If I can't find private financing to keep future investments off my credit report, I will be forced to refinance my existing conventional loans into a commercial portfolio loan. I want to make sure my timing is good on this though. I feel guilty refinancing out of loans I just took out less than a year ago and I haven't gained a ton of appreciation or principal paydown since it hasn't been long. While my properties easily meet or exceed a 1.2 DSCR, they are in a few different states and I'm finding that only local community banks typically offer a portfolio loan and they only service the surrounding city, let alone take on properties out of state.

My questions are:

1. Should I keep my current conventional loans for another 4-5 years so it makes sense to refinance them into a portfolio loan and then purchase new properties using commercial loans or
2. Refinance now into a commercial loan to clear my DtI and purchase new homes with conventional loans
3. If my next purchase all but seals my fate for conventional loans, should I look to purchase this new property AND refinance my existing properties all into a single commercial loan so I save the $5K on closing costs of a conventional loan only to then have to pay closing costs again to refinance soon after.

4. Is there such thing as a bank that will provide a commercial loan to a portfolio that spans multiple markets\states?

@Elias Munoz

I'm in Phoenix and invest out of state. While Cleveland is a hot investment market, there are other markets with similar opportunity that have lower property taxes. I decided to stay out of Cleveland for this reason, cash flow suffers.

I get that repealing 1031 and higher taxes for $400K+ income does not make many RE investors happy. However, minimum wage increase and canceling of $50K in student loan debt and trillions of stimulus $ will allow for higher rent increases in near\mid future. 

Hello BP Mates,

My mother-in-law wants to partner on a SFH with me. The strategy for me is I'll have 50% equity and profit sharing (and expenses) but the conventional loan will only be in her name so I don't use a mortgage slot on my credit. I will also be the PoC and operator.

Any advice on how I split the down payment with her without it being "gift funds" or me having to be on the mortgage? Know any good JV agreement templates to download?

Bottom line, how strong is your desire to learn and work? Roth takes no skill, knowledge, work and your returns mirror that effort. REI is the opposite and is much more rewarding and real. You don't learn, harness creativity, gain skills, and meet great people with $6,000 going into a Roth, but you do in REI.

IMO, Roth is a great "high" interest bank account. Max it out for a few years and then pull the principle out and house hack a duplex or wait three years and you could have a down payment for a decent cash flowing single family. This is what I did and it was an amazing decision.

REI, if done right, can easily return 25% or more in year one and over 6% compound growth because of appreciation and increase rent rate. It also provides cash immediately.

Check this out, why not buy RE that cash flows $6K a year and then use that money, which is taxed way less than your W2 income, to then max out your IRA? Now you aren't working for your IRA contributions.

@Alan Jorgenson

Thats a great point. I didn't mention this before but I want to capture the 25%+ ROI when you factor in amortization and appreciation. All the other benefits are important as well, like building relationships with lenders, contractors, PMs and agents.

Also, not accredited yet, so most of the good deals are unavailable to me.