All Forum Posts by: Mitch Davidson

@Daniel Paul Goodman. I applaud the idea. People will surely pay a premium for an experience that is very different than home. We have a few container homes in my local market (Western NC, greater Asheville), and I've seen some others. 

For you as a business concept though, I think you might find yourself having to travel often, due to lacking demand density, which could be a pain.

And, container homes aren't a fit for many of us because post-construction it seems that we won't be able to pull equity via refi or heloc, due to lack of comps. Perhaps after a year or two of performance a commercial lender or Visio type would consider a refinance, but I wouldn't want to count on it. 

As a compromise, I've seen builders use shipping containers inside of homes, to give a different experience inside a home that can be comped. Perhaps it's worth considering a partnership with a developer focused on STR communities.

@David Taylor

- I disagree with the idea of only buying in locations that already have a permitting system. The start of permitting here in Asheville was a sign of more extreme restrictions to come.
- I would focus on border communities, close enough to the action but less regulated, perhaps with a view or other outdoors attraction.
- You could also lessen your risk by avoiding properties that are ultra different/special yet hard to sell or comp (ex: container homes).
- I agree that you should worry just as much about HOA's, even small, almost non-existent ones. It only takes one motivated neighbor to cause change.
- I agree that you can take comfort that you should still be able to cashflow if you have to flip to a furnished month-to-month approach. The demand seems poised to continue to rise for a while.

@Mike Szabo, thanks for sharing the details. Super helpful! That's great cash flow, on top of the value you built for your next investment. 

Regarding demand for furnished monthly rentals, I think the demand is massive in our market, and quite underserved. The approach works really great for us.

Hey @Dillon Ramsey. Long time no see. Seems like you can get there quicker by focusing on setting up short-term rentals, and perhaps ones that don't need extensive initial rehab. The potential cashflow is so strong in our market. Also, you could consider the arbitrage model as well (i.e., short-term renting a property you rent from an investor), to build some extra cash flow while saving up for your next purchase. Happy to kick around ideas sometime if you like. Also, we'd love to have you visit one of our upcoming Asheville BP meetups. You'll meet some great people, gather some great ideas and free intel, and get comradery as well. 

Hi @AJ Anderson. If Asheville is still a consideration, we have some of the best appreciation trends you can find, and there seems to be no end in sight for such. It's tough to get an offer accepted of course, but less so if you'll consider a property that's banged up. Personally, I favor the STR route due to the extra cashflow, but it's easier when you're local and can self manage. You can do really well on LTR here as well.

@Kenneth Dahle, I've had a great experience working with Goldsmith, Molis, and Gray here in Asheville. The guy I work with isn't taking new clients, but I've talked some with Karl Dehlow, as he just relocated here and has much background in REI.

Karl Dehlow, CPA | Goldsmith Molis & Gray, PLLC

@Spencer Herrick 

I hear the same quite often, that lenders are requiring 20 or 25% for conventional investment purchases, despite the fact that the minimum is 15%.

Some of the reason relates to how ridiculous the points will be if the lender locks your rate at 85% LTV. Meaning, compliance rules sometimes prevent us from offering as high of a rate as we need to, which creates a scenario where the borrower has to take the highest rate we can offer and then pay points. At least in my world, 15% LTV on an investment purchase means there will be a hefty points cost. And because I know that's likely not going to make sense for the borrower (i.e., pay a few grand so that you don't have to put a little more than a few grand down), I tend to tell them they need to bring 20%, and that the rates improve quite a bit at 25%.

Additionally, I suspect that the 20 or 25% requirement is an “overlay” for some lenders, meaning a situation where they have a higher standard than the investor. Overlays are often pushed down from the lender’s servicer. Meaning, they sell their loans, and Cenlar or whoever they sell to says they won’t buy the servicing if the loan isn’t a little safer (for example: the servicer requires 2 years of returns for self-employed income, despite the fact that the underwriting system says only 1 year is needed). For this reason and others, I would shop for a lender that does not sell off their servicing. They’re uncommon, especially with investment purchases.

@Zach Gulbransen Some thoughts for you:

1. Your partner can be on title without being on the mortgage. And you can still run all the income and expense through an LLC and business accounts.

2. Whether FHA or Conventional, you will not be allowed to change vesting to your LLC after closing. And your loan docs will include a "do on sale" or escalation clause about such.

3. You can refi out of the FHA loan into a Conventional loan, so long as LTV is 85% or lower (2 unit) or 97% (1 unit). And if it's above the %, you can bring cash to closing so that the loan is only for % limit of value.

4. Most of the time, you cannot get a second FHA loan while you have one already open. There is an exception for scenarios where the borrower is moving beyond a reasonable commuting distance, but the lender will likely limit the application of the allowance to relocation required for work purposes. I wouldn't use FHA again if it can be avoided though.

5. Although Conventional requires 15% down for a duplex, unlike FHA's 3.5% requirement, Conventional is superior if you can swing it. With Conventional your mortgage insurance can be cancelled without a refi when you hit 80% LTV (unlike FHA), you don't have any upfront MI to worry about (unlike FHA, where you are charged 1.75% of the loan amount; most people finance this), the underwriting standards are a bit less onerous, etc.

6. Conventional will allow for as many as 10 financed properties at once, and if classified as investment (or primary when it's 2-4 units) the lender can count projected rent to help you qualify. Meaning, once you're tapped out on DTI, you don't necessarily have to turn to hard money. You can count 75% of the projected long-term rent on a new purchase to offset most or all of the projected monthly payment that will be added to your DTI. With FHA you can only do this when your buying a primary that's 2-4 units.

7. If your middle credit score, and I'm speaking of the mortgage lending versions of your scores, is 680-700, the overall monthly cost of FHA will be pretty similar to that of Conventional. The rate might be lower, but the MI might make up the difference. If your score is 700+, Conventional will be cheaper overall.

@Danial Qureshi, our Conventional rates indeed reduced immediately after the announcement, for both second homes and investments. Second home rates are now about the same as those or primaries. And investment rates are running about 1.125 higher for us.