All Forum Posts by: Michael Seeker

Looking for a Louisville Realtor with MLS access that can send me the full details of a listing that is pending including any agent notes. PM me for details if you can assist.

Thanks!

@Matt Mayotte - moving from SFR's to commercial multifamily (MFR) will require you to get into commercial financing if you haven't already. When it comes to small multifamily, most lenders will require 75-80% LTV on their loans. If the property cash flows and you have a reasonable track record as a landlord, then your financing limitations will be dictated by how much money you have available for a down payment. If you have $200K in cash, then you should be able to buy $1M of property. If you have $100K in cash, then you'll likely top out around $500K.

If you can find value-add multifamily properties, then the best way to increase your equity is by increasing the rents.  If you spend $500K on a property with rents that are $5000/month and you spend $100K and a bunch of time cleaning up the property but rents only go up to $5050/month, you might not be able to sell for a profit.  On the other hand, if you spend no money and just turn over the existing tenants and raise the rents to $6000/mo then you have likely added a lot of value.

When talking about NOI, it's important to understand what goes into that final number. The two main components are rental income and expenses. You want to maximize income and minimize expenses. Whether more units produce a higher NOI or not will depend heavily on where they are located and how you operate them. If they are in a bad location, then you can only get the rental income so high. If you manage them poorly then expenses can quickly exceed expectations. If they are in a great location and well managed, then rents may increase quickly while expenses can be kept to a minimum.

@Ethan Moore - I've always had the title company/attorney doing the closing draft up the secondary mortgage note.  If you are doing a conventional loan (30 year, fixed rate FNMA/FMCC mortgage) then what you are proposing might not work.

If the seller is providing a secondary mortgage it is very difficult to keep that information from the lender and they will likely not approve of you having very little (or no) skin in the game.  If you fail to disclose the loan from the seller to your primary lender, then you might run into issues at closing or be in a bad position if the lender ever finds out down the road.

Assuming your primary lender is okay with the owner financing, the closing company should be able to complete the paperwork at closing for a minimal cost (maybe $50-$100).

I'm assuming you'll be doing a conventional 30 year fixed interest rate loan. If you go some other route for a loan (commercial, hard money, etc) then it's possible the lender may not look as closely at your DTI or use the same formula to compute it. You might have an easier time getting a loan, but the terms will be less favorable (higher interest rate, lower amortization period, shorter term, etc).

I have been pre-approved for loans before based on information provided to the loan officer only to be turned down later after the underwriters reviewed all of my financial information. A good loan officer will do all the work on the front end and tell you whether or not you will be able to get the loan. A bad one will give you a pre-approval (which literally means nothing) and then let you find out later that you don't qualify because your DTI is 45% and 43% is the max.

For a conventional loan, the payments on a 401k loan should be counted towards your DTI. If a bank does not count it when computing your DTI, then it is an oversight on their part. I wouldn't count on a bank missing this.

Here's a link with an example of the difference between using a 401k loan vs bank loan for financing a purchase of a primary residence: https://smartasset.com/mortgage/when-to-leverage-a-401k-for-a-home-down-payment

@Camie Jelinek - you should post your questions on this thread.  You'll be more likely to get a legitimate response (and possibly multiple, sound opinions).  You may also help out others who have similar questions.

@Trevor Kropp - Did the appraiser come up with a value for income approach that was $50K higher than the sales method or did they neglect the income approach altogether?

Can you give us the appraised value based on the sales approach?  A $50K difference on $500K is not as big of a deal as a $50K difference on $150K.

In my experience, the appraiser will compute the value based on both an income and sales approach and they are almost always within a few percent of each other.

@Monica Young - You can certainly use a 401k loan to help get the ball rolling with investing. One thing to be aware of is how a lender will look at this. Since you have to repay the loan out of your paycheck, the payment amount on the 401k loan will count against you for DTI purposes. You might try to get the 401k loan after the lender calculates DTI, but they will also ask for bank statements showing you have the funds to close (usually going 1-3 months back). So you need the funds in your bank account or a good explanation of where they are coming from.

I'd highly recommend starting out with a multifamily property and living in one unit while renting out the other(s).  You will be able to get more favorable financing terms and you'll also get great hands-on experience.

@Howard C - how did you get to $10M in the first place?  That might be the best place to start.  If you don't have any capital and do not generate any from $10M in property, then you might be better off focusing on improving margins rather than expanding.

@Joshua Manning - this is definitely an ambitious plan and would be a great way to learn a lot from a variety of markets.  My father actually purchased my childhood home from a couple that did exactly this.  They bought really blighted properties, fixed them up and lived in them while doing so and did most of the work themselves.  I think they lived in the home for 12+ months or possibly even 24+ months for tax purposes.  You might want to consider something like this.

One thing I've found from dealing with contractors in multiple cities is that it is very difficult to find good ones and that will do quality work, show up on time and not price gauge you.  To do so with no background in it and in multiple cities would be a tall task.  It's also very difficult to move to a new city and quickly figure out where to target and find a deal.

If it takes you 6 mos to source a deal and another 2-3 mos to find contractors to get started, you'd be looking at a lot of nights in an expensive hotel.

While this may make for a great experience, it's not likely that you'll make much money doing it.

@Michael Shuell - Zillow and the newspaper are not generally good sources for area-specific home pricing information.  Either might say "house prices in Detroit are up 30% since 2013", but that completely ignores the fact that every city is made up of different pockets of more and less desirable areas.

Separate from that is how appraisers value houses.  Any bank lending money wants to make sure their loan is secure: enter appraisers.  When you purchase a property, the appraiser has the answer before they start and just needs to determine if that answer (i.e. the contracted purchase price) is reasonably accurate or not.

When you go to refinance, an appraiser does not have any "answer" or target in mind other than to give their fair assessment of the market value.  In my experience, refinance appraisals tend to come in more conservative than my personal opinion of what the property is worth.

You can try to get a second opinion which might mean going to a different bank for the loan.  You can also review the appraisal in great detail and make sure that nothing is missing from the analysis and that the comps are in fact comparable.  If the appraiser made any fundamental mistakes, you may be able to get them to make an adjustment or get the bank to order a new appraisal.