All Forum Posts by: Matt Wan

In short, no. The vast majority of "regular" or traditional (Conv/Govt) mortgages are originated by specialty lenders and brokers and are sold in the secondary market to provide yield on bank balance sheets (think Chase or BoA) or to be securitized into MBS. The investors in the secondary market have a very good grip on the prepayment risk associated with a drop in mortgage rates and use pricing or yield to offset this, which is why you so often hear of borrowers paying points and lender fees. None of these originators are allowed to assess you as a higher risk because you paid off a mortgage early. 

That being said, most originators are hit with a clawback penalty if you payoff your loan within 6-9 months, meaning that the originator has to repay all commissions and fees to the buyer of the loan if you payoff the loan within that period. I mention this because if you're working with a lender or broker and tell them up front that you intend to payoff your loan in a few months, they probably arent going to waste time on you because they dont want to work for free. They arent really allowed to turn you away, but they will push you away with terrible loan pricing and intentionally bad service. 

Investment mortgages, like DSCR loans for investment properties, typically come with prepayment penalties (PPP) to protect against prepayment risk and the keep portfolio CPR in line. Three years is the standard PPP, but 0-5 year options are usually available. If you elect a PPP shorter than 2-3 years in most cases, the lender is simply going to collect that fee A) upfront as points rather than as a PPP, or B) with yield, meaning a much higher rate.

How much knowledge do you have on US real estate?

I used to invest up to an hour (drive) away, now I've shortened that to 20-30mins. Of the investors I've known who invest remotely, 9 out of 10 of them have lost money and sold those properties within a few years. This is because they didn't budget properly and rent wasn't high enough to cover actual expenses (repairs and maintenance, cap ex, vacancy and loss, tenant damage and turnovers, etc don't expect to have any money left over after all of these expenses are accounted for if the rent is less than $1,500/month). The 1 out of 10 who are successful are investing in markets that they were already familiar with or have personal connections to (they used to live there and know the neighborhoods, have a family member who currently lives in the property helping them manage it, have the very best real estate agent, handyman, and manager ever (very, very rare in all 3 professions) etc.). I'm not saying it's impossible, just that your chances of success are very low. Your chances of success will be much higher in the best locations because the high demand of people wanting to live there combined with high appreciation potential will make up for the inefficiencies and risks of operating remotely. But it'll be harder to find properties that cash flow positively on day one with a 20% down payment in the best locations, which is what a lot of remote investors are after. You can overcome this by putting more down, which reduces you ROE and COC return, but if the appreciation is good enough you can make up for this with overall returns over time as rents increase and the property appreciates. Down payment/ financing may be a moot point if your are foreign.

@Matt Wan From overseas I would suggest buying in a market that is readily and easily accessible from one of the airports you can conveniently get to. If possible I would try to stay within an hour drive of one of these places.

I have 2 properties (10 units) that are about 40 minutes drive from my home. I do not visit them as often especially during winter months due to the distance.

As an overseas investor you likely won’t visit that often but there may be times you need to and you won’t want it to be a huge amount of difficulty getting there.

@Matt Wan around 50% of our clients are from overseas.

Some, we've only done a Zoom video chat with!

Many though, struggle to understand our market and the US culture of tenants.

At the first negative issue, many panic and either want to sell or terminate us:(

It can be done, but depends on your team and YOUR management of the manager.

I bought a few out of state without ever seeing it. There are a couple of things you can do:

1. Use Google Street Scene. It allows you to check out the area. 

2. I always have my Realtors send me photos of the neighborhood. Sometimes Google is outdated.

3. I actually rely heavily on my property manager. I've noticed now in a few markets property managers are getting picky on what they manage. If they won't manage a property because of the neighborhood, then I know that is a red flag for me to avoid.

4. Do inspections. I recently cancelled escrow on a property because it was in rough shape. It actually sold to someone else for $20K more. Chances are they didn't do inspections and grossly overpaid for the property.