All Forum Posts by: Michael Hutchinson

Agreed thinking that business's should only keep 250k in each bank is ridiculous statement on so many levels. What about companies that have payrolls of millions a month they going to have 25 separate banks to deal with ?? And Should syndicators and other investors that are pooling money for a deal and say are raising 5 million in cash they should go out and get 20 separate accounts.. Growing up in Cupertino ( Silicon Valley) Always thought SVB to be a good institution catering to high tech. Maybe they needed more real estate loans tied to prime on their books..

so SVB business model is bit different, they have special loan program for the tech/startup founder but the rule is that they have to invest in SVB.

This problem actually happened because Peter Thiel is saying to everyone in VC world that they should withdraw their fund from SVB.

Btw last time I checked all the big VC has large $$$ in SVB, I guess we will see catastropic changes in bay area in next few month. If bank and Gov cant be trusted what can we do :) lol

All depositors are going to be kept whole. This is an unintended consequence of rapid rise in rates. They'll be taken care of.

The thing is most of the "deposit" in SVB is "corporation" account, for example payroll account.

Guy in roblox and roku can't be paid because thei bank is gone after stupid goverment action :-) even the SVB CEO is not at fault here....

SVB leadership is partially at fault (along with the Fed). SVB put a large portion of their assets in long term instruments like treasuries and MBS. One of those instruments in MBS was declining in value because of the Fed raising rates which was public knowledge. Sure it is a paper loss that doesn't even have to be recognized if they hold the paper for 10 years or more, but clearly their liquidity mix was incorrectly calculated. Their leadership had two issues:

- How they allocated capital (this is just stupid, but not criminal)

- The lunacy of doing things like selling stock and paying large bonuses days and hours in some instances before the Feds took over (I hope they go to jail for this as it was likely criminal)

Now the question will be the long term changes in banking with the Fed. They blew a hole in FDIC insurance now as they backstopped all deposits, not insured deposits, to quell a bank run. What is the new moral hazard created by the Fed for banks now that they will feel ALL deposits are guaranteed going forward? It would seem that banks are impowered to take on more risk knowing they have a larger backstop. If the Fed doesn't clearly make its actual policy actions known for future events, they have increased risk in the market over the long term IMO.

5 Votes

Quote from @Jason Malabute:

Quote from @Michael Hutchinson:

Quote from @Jay Hinrichs:

Quote from @Mike Dymski:

Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.

In 2008 I think they changed the FDIC limit from $100k to $250k. I suspect they create a second business FDIC limit at say $10M now IMO. This gives businesses some flexibility and eases the risk. Now, that might mean competence from the Federal Reserve which we haven't seen recently (COVID cash, keeping rates too long and raising them too fast), but that is my guess on the mid-term fix.

Short term though,

- Big banks get bigger ... again

- Lots of deposits flow to short term treasuries

- Fed announces they are pausing interest rates hikes because they have miscalculated the risk in the market (not sure they say that though)

I agree though that I would not do a big bailout for those deposits. Maybe 50 cents on the dollar as you don't want to encourage future risk with an implied government guarantee.

didn't they propose or do something like that in the 90s? not sure

Not that I am aware of. Heard the suggestion today on a podcast "unheard". Most of the suggestions I didn't love, but that one hit me as right. Here are the changes that actually went through, not sure what was proposed though.

History and Timeline of Changes to FDIC Coverage Limits - ADM (americandeposits.com)

History and Timeline of Changes to FDIC Coverage Limits - ADM (americandeposits.com)

0 Votes

Quote from @Maribel Manibo:

There's a ton of FB groups where people claim to be a lender but turns out they are not individual private lenders or are part of a "network", which is fine. Would like to know how you tell if they are legit, especially the brokers. What steps do you take to check them out? What are red flags? Are there ones to stay away from... etc? Has anyone had any bad/non ideal experiences and what lessons did you learn and what would you have done differently?

I am a retail lender today, but moving to the broker/correspondent channel in a few weeks. My observation is that many of the depositories are specialized at the moment (good at sometimes and poor at others) and often a slow moving entity. On the retail side, they are fat with overhead most times and it is negatively affecting pricing because margins have compressed and they struggle to adjust. With the broker/correspondent channel I believe it will give me more power to match offering fit to each client, while also giving me control of margin in the deal. What I will lack though is internal control of the process, so I will need to do a great job up front for each customer to ensure each loan is a great experience. Personally, I have always closed on time, with great client reviews and I plan to keep those trends alive.

I agree that you should look at reviews/referral partners or ideally meet them in person if you are unsure.

1 Vote

Quote from @Jay Hinrichs:

Quote from @Mike Dymski:

Commercial depositors spreading their large deposit accounts across hundreds or thousands of banks is a nonstarter.

Short term though,

- Big banks get bigger ... again

- Lots of deposits flow to short term treasuries

- Fed announces they are pausing interest rates hikes because they have miscalculated the risk in the market (not sure they say that though)

I agree though that I would not do a big bailout for those deposits. Maybe 50 cents on the dollar as you don't want to encourage future risk with an implied government guarantee.

2 Votes

Quote from @Azaleia Sinclair:

Hello Bp friends, I am looking for a lender that is VA loan friendly. So, the issue I am having currently with all the lenders I've spoken with so far is that they are not willing to allow me to us my GI bill as additional income. The housing payments I receive through GI bill will up my annual income by almost 30k, which serves to benefit me in lowering my DTI as well as qualifying for a higher loan amount. From the research I've done I know that housing payments can be considered as income at the lender's discretion. I know that they may come a dime a dozen so I figured I would ask BP family if they've come across any or have worked with any in the past?

Additionally, like I mentioned earlier I am in the process of speaking with some lenders and I would like to hear from anyone the top 5 questions you like to ask lenders? This is my first deal and I know the best teacher is experience but going in on a good fit doesn't hurt. Thank you, guys, ahead of time.

Hi Azaleia, I am happy to look at it with both of my companies (leaving one and joining another on the 22nd). However, I am not quite following you. The GI Bill is to offset your educational benefits cost. Are you referring to something else? If that is what you are saying, I don't see why we couldn't document the debt and offseting income. Is there more to this?

Azaleia

0 Votes

Quote from @Christian M. Conroy:

Hi all,

My partner and I plan to buy with the broader DMV area with the intention of moving in around March, 2024 when out rental lease ends. We're giving ourselves a good lead time to do all the necessary research and numbers running, especially given the high price of the market we live in. And that's even accounting for the fact that we're willing to move anywhere around a ~1 hour drive into DC radius.

We are very interested in house hacking. I've read lots of the main books on the topic and now am just figuring out how to tailor the approach to our specific market. One of the key points discussed in a lot of these books is a strategy that involves buying a place with a 3.5% FHA interest loan, living in it for at least a year and for as long as needed to get up to 20% for a conventional loan, refinancing to a conventional loan, buying another place with an FHA loan, and then doing it all over again while also renting out that original unit fully.

I'm a bit unclear as to how that is a feasible strategy given the amortization schedules I am looking at. For example, let's say one buys a place for $400,000 at 3.5% down for a 30-year fixed term with an FHA loan. That means a loan of $386,000. Let's go back to the good ole days just for the example and use an interest rate of 3%.

I've calculated out the monthly principal and interest rate payments manually, but you could also see the full amortization schedule conveniently with a tool like calculator.net.

In month one, you'd have a principal of $662.39 and interest of $965.00. In month two, that would be $963.34 and $664.05. In month three, that would be $961.68 and $664.05. And so on. Each month the principal pays down the loan balance and adds to equity. Starting from the 3.5% equity at the onset of the loan, it would take 89 months, or 7 years and 5 months to reach 20%. Not exactly a timeline that seems to be part of an early retirement plan.

Adjusting the interest rate down to 1% changes it to 70 months, or 5 years and 10 months.
Moving it to 0% only gets it to 61 months, or 5 years and a month.

So when people are suggesting this as a useful house hack strategy, are they suggesting you pay more than your required monthly at some point to build equity faster?

Or is this just a lesson that this strategy is only worth it in a very low interest rate environment in a low price market?

Or am I just doing the math completely wrong here?

Thanks in advance for any answer!

I think your math is fine, but it seems like a costly strategy. Sure you will get a point or even 2 lower on FHA depending on your credit. However, you have to calculate the ROI on that savings. You will pay the PMI up front and monthly. Up front is 1.75% and then you need to add in the refinance cost (say $4k). Here would be my napkin math if I were considering it:

Someone can correct my math as I am interested in how people would value this:

- Fixed cost of $6,755 UFMIP + $4k refinance cost = $10,755

- If you save 2% on rate and PMI is the same across loans, you only save $198 per month on interest.

To me that means you have to be in that loan 4 1/2 years with a 2% savings in interest rate to even break even. That UFMIP will kill you in my view and just not worth it since the monthly PMI will stay throughout the entirety of the loan and that there is a strong likelihood you refi-cash out to use your equity. JMO though.

I agree with the thought of doing a 3% down conventional loan and refinance if/when rates get better. Seems like a costly strategy IMO.

0 Votes

Washington, DC

Quote from @Ryan Overcash:

Quote from @Michael Hutchinson:

Quote from @Pat Lulewicz:

Cole - you'll struggle to find much small to mid-sized multifamily that cash flows in Y3, let alone Y1, in Raleigh. Trails Corner Apartments in Raleigh, a 57 unit C-class value add just sold for $9.975M ($175k/unit) at a 5.3 cap. Earlier in the year, a B/B-, 24 unit stabilized apartment with some rent increase opportunity on the NE side of Raleigh up Capital Blvd between 440 and 540 sold off-marketfor $4.56M ($200k/unit), presumably around a 4 cap based on my underwriting. Would have probably gone for over $200K on-market. There are opportunities for off-market buys in the 10 and under space especially if you're a cash buyer and can buy a value-add. The other issue is that we've worked off-market with owners to either buy or list their units, and everyone's seen such explosive growth in rent and value, that there's no point to sell...many refinanced during low rates and are now in a position to never have to sell.

Greensboro and the greater Triad market (High Point and Winston Salem, and even Thomasville and Lexington, included) are much more cash-flow markets than the Triangle (Raleigh/Durham). With that being said, the secrets out on the markets and between OOS investors and Private Equity, our Triad prices have shot up in line with Charlotte and the Triangle. Value-add is generally all you'll see come available on-market. We just had a 12-unit, C-class value-add hit the market at $75k/unit, and went under contract in a week, so there's high demand from buyers. Should sell around a 6 cap. Easy cosmetic renovation and rental demand is through the roof for affordable/workforce housing. B-class will trade off-market north of $100k/unit and generally be 24s or 32s (3 or 4 x 8-plexes was the name of the game for developers for a while there). A-class and anything that's a large B-class complex is almost solely off-market to institutional. All of that to say - there's great opportunities here to buy cash-flowing stuff and take it up a level in repositioning.

Happy to send you my analysis of the 12-unit that recently came and left the market. Let me know if you do come down to either market and I'd be happy to show you around.

This is wonderful advice IMO. I am closer to CLT, but invest mostly in NC. I have found that if you are looking for something like this you have to move away from the main cities (Winston, CLT, Triad) and go to the cities adjacent. I recently bought in Granite Falls because it was near Hickory/Statesville/Ashville, but was more of a value to me in the C class market.

Your advice is right on point IMO.

How do you determine if a market is A/B/C/D class? Would you consider Charlotte/Raleigh A markets? Greensboro/Winston B markets?

In our markets, I think it is really proximity to population centers. Maybe market is the wrong word and area is better. I think CLT/Raleigh are all A areas for sure along with the beach areas (where I don't invest at all). I am closer to Charlotte than Raleigh and from a personal strategy I would buy lower class C/D properties only in an A/B area, but in a C/D area I might go up to a B class property. Just my own style though. If you are familiar with CLT area, I would call the A/B areas like this and I would be unlikely to buy in those areas because the property values are generally so high and it is hard to find a deal.

Lancaster is kinda split and not a true B area, but the north is for sure. I actually live in the York area, but I would be unlikely to buy investment property here unless I could get it off market. The purchase prices would just make it a much harder deal to cash flow IMO.

Here is a good link on the areas around Clemson that show the idea of A/B/C/D properties and A/B/C/D areas. I would add to that, the further you get from center city in the surrounding areas your likelihood of a A/B property are less likely. https://www.coachcarson.com/wh...

0 Votes

Raleigh, North Carolina

Quote from @Shane Craig:

Quote from @Michael Hutchinson:

Quote from @Shane Craig:

I'm writing this post to get everyones opinions on a deal I'm considering.

All of my previous deals I have purchased were for cashflow. This deal I'm considering has minimal cashflow( 1K-2K a month) but has a high equity potential (500K).

Deal break down: 17 houses ( 3bedrooms/ 1 baths) that have been maintained very well by the same owners all within in a mile radius. Each house rents for $750-800 a month. The seller will sell the homes for $1,275,000( $75,000 a house). I'm a realtor and I know the market well each house is worth 105-110K. Also the seller has sold two homes for $105K each over the last two years.

This will be my biggest purchase and I'm worried on the low cash flow.

What are your opinions on cash flow vs equity ?

I would look at Michael Blank's multifamily stuff IMO. I got a sweet deal calculator from his services several years ago and it is my mini-bible in this kind of decision.

My personal thought is if it cash flows, even low, then I like equity. You just need some reserves for issues and you can take out the equity when the interest rates drop to keep on keepin on with a new property. That is my style though, both approaches can be appropriate.

Thats what I'm thinking the instant equity and the debt pay down is 4k a month at 15 years.

This is different that I'm use because I always look for cashflow but this in equity play. I also like that fact that I could sell the homes individually if needed.

I am a long term hold guy. I like to find undervalued, potentially rehab and hold for long run. That's my style though. Here is a little 8 plex that I bought undervalued and I needed to rehab. My strategy was to evict a bad tenant and rehab the unit. Once rehabbed, I offered next lease expiration increased rent or same rent in rehabbed unit if they moved. This helped me cycle all units and I am finally to market rent this year. I am ok with lower rent as long as I can keep vacancy to virtually zero.

I will draw off equity most likely this year on this one and buy a few more. It should be 2x or 2.5x increased value at this point and I want to look for new deals in a down economy. Below doesn't obviously include everything like tax benefit, etc. but it helps me see the general picture. Good luck.

0 Votes

Huntington, West Virginia

Quote from @Shane Craig:

I'm writing this post to get everyones opinions on a deal I'm considering.

All of my previous deals I have purchased were for cashflow. This deal I'm considering has minimal cashflow( 1K-2K a month) but has a high equity potential (500K).

This will be my biggest purchase and I'm worried on the low cash flow.

What are your opinions on cash flow vs equity ?

I would look at Michael Blank's multifamily stuff IMO. I got a sweet deal calculator from his services several years ago and it is my mini-bible in this kind of decision.

0 Votes

Huntington, West Virginia

Quote from @Tony Kimbril:

The bank is stating they want us to verify $1000 per month rent to meet the loan requirements for a property we have made an offer to purchase. We aren't sure the property would bring in that amount in the area we are in. We could collect less and it would still generate cash flow, but it would not meet bank requirements. The question comes down to would they want proof, if so how would that work?

I am changing companies and will ask the new. However, in my current firm we would ask for a 12 month signed lease typically. Is it rented today or you plan to rehab and then rent?

0 Votes

All Forum Posts by: Michael Hutchinson

Michael Hutchinson has started 7 posts and replied 67 times.

Post: MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

Post: MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

Post: Vetting corporate private lenders and brokers

Post: MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

Post: VA LOAN FREINDLY LENDER

Post: How to Go from FHA 3.5% to 20% Realistically

Post: Raleigh Vs Greensboro Mid-sized Multifamily

Post: Cash flow vs equity?

Post: Cash flow vs equity?

Post: Bank requirements for mortgage on rental property