All Forum Posts by: Matty Foley

Let's combine knowledge to help everyone have a better chance of success in their first or next investment property. No restrictions here: Ask questions, give tips, tell mistakes, give strategies, share stories (both good and bad), thoughts on the market. In the end, I'm hoping a new investor will be able to walk away ready to start their investment journey. with all of this knowledge. *Sharing your current experience level may help. 

@Scott Roy you’re not wrong. If you have nothing to lose and someone who would help you if you were to get laid off, or had unexpected medical expenses, car repairs, etc...Then go for it. I’m just putting on my financial advisor hat. Just like when picking a rental property to purchase - you always want to give yourself a cushion for the unexpected - the same applies in personal finance. But, obviously you are free to use your money however you feel is best. Everyone’s situation is different.

I agree with the one above posts; if the first property is a rental then you should explore a cash-out refinance first. Secondly, if you have to cross-collateralize the 2 properties, I would tell the bank directly that you will only move forward if they will release the first property when the CLTV reaches 65%-70%. Or, explore some other local community banks. Good luck!

@Adam Richards some banks will require stabilization (12 months seems excessive). The Bank I work for, and another local bank down the street, will do the refinance as soon as the property is leased. I always assumed that was standard until one of my Borrowers told me about his past bank.

@Johnny Situ are these rental properties? Are you doing this because you need the cash-out? If all is equal , I would not give up 23 years fixed for 75 basis points. Who knows what rates you could be looking at in 7 years or 15 years. We’ve all become so accustomed to extremely low rates that anything with a 5 in front of it seems high. historically, it’s a very good rate. I would bet a lot of money that keeping the 5.5% works out heavily in your favor over the next 30 years.

@Lance Stahl @Lance Stahl are you making income. I am a commercial portfolio lender. The bank will want to see

1) DSCR: Does the rental income cover the debt service at a ratio of 1.2x or better (after expenses and vacancy). 1.2 is a ballpark, different banks have different polices.

2) Global cash flow: This is a ratio of annual income to annual debt. *If there is a one time event like selling a property, or an inheritance, that would not usually be counted as income. Then your annual debt. living expenses may be factored. And if you have children that live with you they may increase that amount of living expense. They will want this number to be positive, probably around 1.2 to 1. If it’s not, it means you are losing money each year and will have trouble paying the debt.

3) Personal Financial Strength. What is your net worth (assets - liabilities) and what do your assets consist of? Most banks won’t even count things like cars, jewelry, art, a 401k you can’t touch for 20 years. Cash and marketable securities are important as well as substantial equity in property, among other things.

4) Credit history and score:

5) Collateral: Is the property falling apart, is it in a depressed area or an emerging market.

To me it sounds like a tough deal for a commercial bank depending on how much you owe the private lender. I don’t know nearly enough so it’s quite possible you could find a bank to that would do it.

@Marduk Mooshoolzadeh when you say $10K saved, is that all of your cash? Or do you have a decent cash position and but have saved an additional $10k for this purpose. I hope it’s the latter.

If it’s the former, do not start investing at this point. This is an enthusiastic group of investors, and I respect that, but be patient and build some more liquidity. You should always have $10k in savings for emergencies, life happens. Don’t invest in real estate, or anything yet for that matter. Set aside a separate account and build some more cash specifically for investments. For now check out VIO bank and move whatever you don’t need for living purposes to a high yield savings account.

@Justin Hayden I just want to point out that if you decide to go multifamily you should keep in mind that anything 5 units or more is considered a commercial property, at least if you finance with a Bank. That increase your cost a bit, the appraisal alone would likely run $2500-$3000 more than a residential appraisal. I would be inclined to say to start a 1-4 unit if you the multifamily route (with this you can still get a commercial mortgage, but the property asset type would be residential). On top of that, if you plan on managing this yourself, then more tenants = the more hassle you are dealing with. Managing a multifamily property is no walk in the park.

Just my input, good luck!

@Ian Walsh Not a bad outlook. I’m a new member but quickly learning I should probably avoid the topics that aren’t my expertise. There’s enough knowledge here that my half-baked responses probably don’t serve much good haha, I’ll stick to questions about commercial loans!

I'm no professional on the subject, but I'm surprised by most of the responses. It's really not very expensive to form and it adds just one more layer of protection. If something terrible happened and a tenant tried to sue you, it certainly wouldn't hurt to have the peace of mind that you can't be held personally liable. If you lost the lawsuit and the property is in your own name, the court could decide to seize your property and more. I know there can be tax benefits but that's not my expertise. In my entire loan portfolio, just about every investment property is held in an LLC. I'm smart enough to know that most of the investors I work with are much smarter than me, so if they all form real estate holding LLC's it certainly can't hurt. Maybe there are reasons not to form an LLC that I'm not aware of, but conventional wisdom tells me it's probably not a bad idea.