All Forum Posts by: Account Closed

Hi Jannah,

I see you're asking for another piece of the real estate puzzle. As the old saying goes, riches are in the niches. If you want to find riches, find a niche. 

Every lender has a niche in their business model. It's your job to seek them out. Here are some of the lenders that we have used. Bank of the Orient and Avid Bank do bridge lending at preferable rates, around 5% with 1 point, on non-performing assets up to 75% LTV. Once the asset is stabilized, you can refinance through various lenders like Chase, WF and BofA. However, we've moving away from Chase and have been getting our loans from Luther Burbank. They have better rates between 3.75% to 4.2% recently with no points on cash out refinance up to 75% LTV.

For the best rates if you're okay with lower LTV, 60% max, First Republic Bank (FRB) is our go to lender. They offered us 3.2% on a 5/1 ARM IO loan when we did the cash out refinance last summer. It may be 3.5% now. If you're willing to let the loan float (adjustable), you can borrow for as low as around 2.5-2.75% with FRB.

To put things in perspective, our portfolio is about $15M. The delta in 15% LTV (75% to 60%) is $2.25M of cash in hand. The question would be would you pay a slightly premium rate to have access to that cash in hand? If yes, go with Luther Burbank. If no, go with FRB.

For no doc loans up to 50-60% LTV, there's always East West Bank, who is offering around 5.5%. Yes, no doc loans still exist. ;)

Congrats on your accomplishments thus far. I understand folks would look at Bay Area real estate, throw their hands up because it's too expensive and take their money elsewhere. As Master Oogway said "One often meets his destiny on the road he takes to avoid it."

Cheers!

Hi again Jannah,

Thanks for the vote of confident. Before you get roasted investing out of area using the 1% rule, please allow me to share my 2 cents to give you an apples to apples comparison:

Say $700/mo/unit for a 4plex asking $280k.

Property management: $70/mo/unit or 10% of gross rent (don't know if they charge you half or full first month rent)

Utility expenses: say average $100/mo/unit (Based on my experience)

Repairs & maintenance: say $70/mo/unit

Cap-ex: say $70/mo/unit

Vacancy: let's be optimistic and say 5% or $35/mo/unit

Insurance: say $35/mo/unit

Property taxes: say 1.2% or $70/mo/unit

Your monthly expenses are about 65%. In terms of cap rate, it's a 4.2 cap. What's the interest rate you think you can borrow on this type of assets? If it's higher than 4.2%, you're negatively leveraging.

Say in my San Jose market, the average rent is $1,800/mo/unit for a 1-bedroom.

Property management: $90/mo/unit or 5% FLAT of monthly gross rent. No half or full first month rent BS.

Utility expenses: say average $100/mo/unit

Repairs and maintenance: say $90/mo/unit

Cap-ex: say $90/mo/unit

Vacancy: 5%. Actual is closer to 2%

Insurance: $35/mo/unit (actual is closer to $25/mo/unit)

Property tax: say 1.2% for comparison purposes. It's a tad more.

My monthly expenses are about 38%. That's a 7.4 cap. We can borrow at 3.25-3.75% from our lenders here. So the spread is about 400 basis points. Even with 0.8% rule, our assets here still yield better than the 1% rule on those cheaper out of area assets.

Lastly, 1% rule assets are reserved for folks in the inner circle and established closers. I own a few myself in San Jose with a partner so I'm speaking from personal experience. ;)

Just want to share my 2 cents and best of luck with your real estate endeavors.

Hi Jannah,

A lot of sound advice from the successful local investors. Real estate investing is a journey. Look 10, 20 and 30 years out and see what Bay Area real estate has done for its residents and investors and can potentially do for you. 

If history is any indication, the appreciation and future cash flow of your Bay Area Real Estate will outperform the $2k/mo initial cash flow from your OOS investments. 

A big time BP poster on here sold his house in Palo Alto in 1992 for just over $500k. He thought people were insane to pay those prices for a 1,800sf ranch house. Today, that same house is worth around $2.5-$3M. Say that house could have rented for $2,500/mo at the time and I'm being generous here. At $2.5M, that house has appreciated at $6,400/mo in the last 26 years. That's more than double the rent. 

I cluelessly bought a 3/2 house for $200k in 1996. The neighbor with the same floor plan sold their home a couple months ago for $1.2M. Equivalent rent at the time was $1,200/mo. It has appreciated at a rate of just shy of $3,800/mo. In 1999, I used the equity and some savings and bought a 4/2 house for $330k. It's worth $1.3-$1.4M now. It was rented for $1,800/mo at the time while it has appreciated at $4,400/mo in the last 19 years. 

In 2003, I bought my current home for $945k. It's worth about $2M now. At best, it would have rented for $3k at the time. It has appreciated at a rate of $5,500/mo. The stuff I bought between 2009-2017 would blow these numbers out of the water. 

You own assets that everyone wants to own. You have a couple of golden goose that are actually laying golden eggs. Don't be short-sighted on the short-term cash flow OOS crap. They are money pits in the long run. They're cheap for a reason. If it were cheaper to own than to rent, why aren't the local folks buy them? Your massive cash flow payday will come. Patience is a virtue. 

Best of luck.

Why would you hope a fellow real estate investor lose his butt? What made you think it is so stupid? Could it be that you have no clue about our market and talking out of your rear end? 

“Better to remain silent and be thought a fool than to speak and to remove all doubt.” — Abraham Lincoln

Hi Dilip,

My favorite is Meriwest Credit Union. Their HELOC rate is prime - 0.25% up to 80% LTV for primary resident. It's free to obtain. Based on my experience, they tend to be a little conservative on the appraisal. Their process is easy and you can get your HELOC within 2 weeks.

My friend told me recently that BBVA Compass Bank also offers HELOC at the same rate.

My little brother recently obtained a HELOC with SDFCU at prime - 1% with 3.99% floor rate. However, he had to pay some fees and pay for the appraisal, but they give up to 95% LTV, which sounds like what you're looking for.

I heard a lot of good things about Everbank, but haven’t dealt with them so you may want to check them out. 

US Bank used to do HELOC up to 90% LTV at prime + 1. Rate was at prime for 80% LTV. However, they're quite aggressive on the appraisal. Haven't dealt with them for a while so you may want to double check to see if their criteria have changed.

Don’t deal with Bank of America and Wells Fargo if you don’t have to. 

Good luck. 

Sabrina,

Google his name. Here’s a link. 

https://www.ripoffreport.com/reports/cherif-medawar/internet/cherif-medawar-cherif-medawar-real-estate-investing-claims-to-be-a-commercial-real-estate-641161

Good luck. 

Sure, let's play. When was the last time rate goes up and real estate prices went down? Can you give an example? 

Huser, the delta in the interest rate is 0.375%. That's equivalent to $3,375/yr premium to lock in a 30-year fixed on a $900k loan. You can call it the cost of buying insurance. I believe in my thesis so it doesn't make sense for me to pay a premium when I know there's a high probability I will get an opportunity to refinance at a lower rate within the next decade. 

Life is a journey in and of its course. Take risks or make bets along the way. If you're right, you'll be wealthier. If you're wrong, you'll be wiser....hopefully. ;)

Huser,

@Russell Brazil, my thesis is that he will have an opportunity to refinance to a lower mortgage rate within the next 10 years. In fact, I’m willing to make this bet on whoever is willing to take me on it.

@Steve Vaughan, although the spread is not significant in this case, the payment on a 15-yr mortgage vs. 30-yr is significant on a $900k loan. Also, if history is any indication, he’ll have an opportunity to refinance to a lower mortgage rate within the 10-yr window. 

We’re in a balance sheet recession. Rates have no where to go but down. That’s my thesis, and I’m putting my money where my mouth is. 

Huser, at the end of the day, it’s your final decision, and you have to live with the consequences. Just remember Happy wife = Happy life. 

Huser,

If it were me, I'd go with the 10/1 ARM.

I’m not a Nostradamus, but if history is any indication, we should have a downturn within the next 10 years. The Fed will likely cut interest rates to 0%. I’m willing to bet mortgage rates will drop below 3%. In fact, this has been my thesis since 2009 and I’ve been making bets based on this thesis. However, property value may take a hit too. If you don’t have healthy equity, you may need to bring cash-in to obtain the new lower mortgage rate. 

By the way, my little sister just completed a refinance on her residence. It was also a 10/1 ARM at 3.625%. However, her closing costs were less than $4k. This was with Meriwest Credit Union.

Best of luck. 

Chris,

It's unfortunate that you're going through this, but it's a business. You will run into this occasionally. Don't let it deter you from continuing to invest in real estate. It's a rewarding journey once you iron out all the kinks.

If the property is in Santa Clara County, attorney Daniel Paris hands down is the best. Go to evictionservicecenter dot com. Otherwise, google his name. BP sucks for this because they don't allow people to post contact info on here.

If the property is located in Alameda or SF county, I suggest you hire Bornstein & Bernstein. Google is your friend.

Best of luck.

Minh