All Forum Posts by: Herndon Davis

It's time to dump conventional wisdom, conservative thinking and the status quo when it comes to real estate investing. In this day and age there are multiple methods to buying and investing in real estate. But what is not discussed often or even taught at all is the concept of continuing to pay rent to someone else while actually buying and owning rental property for yourself.

In other words, instead of buying your first home or a primary home for yourself, instead you buy rental/investment or commercial property where others pay you rent to live or to conduct business in your property while you remain a renter to someone else for years or for the rest of your life.

Typical Frightened Conventional Thinking/Status Quo Response:

Why in the hell would you do that?!! That doesn't make any sense!! Why would you continue to pay rent and not take advantage of home ownership in your own home first and then invest! This isn't prudent! This isn't responsible! This is utter nonsense!! This is total madness!! You can't do that!! You shouldn't do that!! DON'T do that that!!

My Expert Mortgage Advice:

YES, you can do that!! And yes you should do that. And here's why.

If you're young OR you're investing by buying in much cheaper parts of the country than where you currently reside then this may be the power play you've been looking for.

In fact, I highly encourage existing renters to buy rental property while remaining a renter themselves! It may fly in the face of American wisdom and conventionalism, but it makes good business sense especially to younger buyers who are still nimble and do not want to be tied to a house or a city but still have a need and a desire to invest their money. Whether it’s buying a rental single-family home, a 1-4 unit building or a commercial property, renters should seriously look into this unique option.

Young people should be thinking about investing as soon as they can, not just into appreciating assets, but into cash flowing assets as well. Oddly enough, rental property is both. It's an appreciating asset that can also pay for itself while ideally providing you with a profit.

The process of buying a rental or commercial property is no different from buying a primary home that you would live in yourself. The only difference is that you have to do some simple math to figure out if the collected rent (gross revenue) after all operational expenses (i.e. repairs, management fees, maintenance, vacancies etc.) have been deducted will cover the mortgage; have a monthly profit or break even.

These properties also require a higher down payment that can range between 10-20% + closing costs. You will likely have to show some operational cash reserves on hand after closing. But if you're buying in a cheaper part of the country it can actually be quite doable. It may sound daunting at first, but it can be done if one has the fortitude. As in every scenario there are both Pros and Cons so here are both.

Pros:

-You can qualify to purchase a rental property using Conventional, FHA and Portfolio/Non-QM Lenders. With FHA loans you have to live in one of the units, but with Conventional loans (.e. Fannie Mae, Freddie Mac) you do not have to live in any of the units. With both programs you can purchase either a single family or an entire apartment building from 2-4 units.

-With Portfolio/Non-QM Lenders you cannot live in the home as this considered to be a real estate business loan and not a personal mortgage. You are also not restricted by the number of units. You can buy a single house or 10-12 unit apartment building or greater. Qualification is primarily based on the asset being able to pay for itself, so your personal debt ratio, personal income and taxes do NOT count in qualifying you for the loan. You will have to pay at least 20% down payment which can be affordable if you're buying in a small city or in a cheaper state.

-Depending on the lender roughly 75-80% of tax reported rental revenue generated from the prior year can be used to qualify the borrower.

-Remember what you're buying is also an appreciating asset that is building equity over time and can actually be sold in order to help fund your retirement. Alternatively you could live on the profits through your retirement or actually move into the one of the properties during your retirement.

-You can also deduct on your tax returns the mortgage interest, property tax, travel expenses, operating expenses, depreciation, and repairs.

-You can hire a property management team to take care of maintenance, tenant relations, collection of rent and evictions.

-You can also buy rental property in cheaper areas of the country.

Cons

-Your property management team can totally and literally rip you off; screw you over, provide an absolutely awful experience for your tenants and for your brand plus leave you holding the bag legally and financially if they screw things up and they often do. Curious? Just ask around or go to the internet for property management-owner horror stories. They DO exist so perform your due diligence first!!

You cannot simply set it and forget it. You have to keep a watchful eye, question everything and if it doesn't work out with one property management firm, then move on to another one. It’s all part of the learning curve of real estate investing. And watch a ton of YouTube videos and read books first.

- This option will require higher down payment ranging from 10-20% plus closing costs and cash reserves after closing.

Bottom line, if you're young and don't' want to be tied down to one location, city or a job OR perhaps you want to invest in cheaper areas of the country then buying rental/investment or commercial property while you remain a renter is probably your better option for now.

It's time to dump conventional wisdom, conservative thinking and the status quo when it comes to real estate investing. In this day and age there are multiple methods to buying and investing in real estate. But what is not discussed often or even taught at all is the concept of continuing to pay rent to someone else while actually buying and owning rental property for yourself.

In other words, instead of buying your first home or a primary home for yourself, instead you buy rental/investment or commercial property where others pay you rent to live or to conduct business in your property while you remain a renter to someone else for years or for the rest of your life.

Typical Frightened Conventional Thinking/Status Quo Response:

Why in the hell would you do that?!! That doesn't make any sense!! Why would you continue to pay rent and not take advantage of home ownership in your own home first and then invest! This isn't prudent! This isn't responsible! This is utter nonsense!! This is total madness!! You can't do that!! You shouldn't do that!! DON'T do that that!!

My Expert Mortgage Advice:

YES, you can do that!! And yes you should do that. And here's why.

If you're young OR you're investing by buying in much cheaper parts of the country than where you currently reside then this may be the power play you've been looking for.

In fact, I highly encourage existing renters to buy rental property while remaining a renter themselves! It may fly in the face of American wisdom and conventionalism, but it makes good business sense especially to younger buyers who are still nimble and do not want to be tied to a house or a city but still have a need and a desire to invest their money. Whether it’s buying a rental single-family home, a 1-4 unit building or a commercial property, renters should seriously look into this unique option.

Young people should be thinking about investing as soon as they can, not just into appreciating assets, but into cash flowing assets as well. Oddly enough, rental property is both. It's an appreciating asset that can also pay for itself while ideally providing you with a profit.

The process of buying a rental or commercial property is no different from buying a primary home that you would live in yourself. The only difference is that you have to do some simple math to figure out if the collected rent (gross revenue) after all operational expenses (i.e. repairs, management fees, maintenance, vacancies etc.) have been deducted will cover the mortgage; have a monthly profit or break even.

These properties also require a higher down payment that can range between 10-20% + closing costs. You will likely have to show some operational cash reserves on hand after closing. But if you're buying in a cheaper part of the country it can actually be quite doable. It may sound daunting at first, but it can be done if one has the fortitude. As in every scenario there are both Pros and Cons so here are both.

Pros:

-You can qualify to purchase a rental property using Conventional, FHA and Portfolio/Non-QM Lenders. With FHA loans you have to live in one of the units, but with Conventional loans (.e. Fannie Mae, Freddie Mac) you do not have to live in any of the units. With both programs you can purchase either a single family or an entire apartment building from 2-4 units.

-With Portfolio/Non-QM Lenders you cannot live in the home as this considered to be a real estate business loan and not a personal mortgage. You are also not restricted by the number of units. You can buy a single house or 10-12 unit apartment building or greater. Qualification is primarily based on the asset being able to pay for itself, so your personal debt ratio, personal income and taxes do NOT count in qualifying you for the loan. You will have to pay at least 20% down payment which can be affordable if you're buying in a small city or in a cheaper state.

-Depending on the lender roughly 75-80% of tax reported rental revenue generated from the prior year can be used to qualify the borrower.

-Remember what you're buying is also an appreciating asset that is building equity over time and can actually be sold in order to help fund your retirement. Alternatively you could live on the profits through your retirement or actually move into the one of the properties during your retirement.

-You can also deduct on your tax returns the mortgage interest, property tax, travel expenses, operating expenses, depreciation, and repairs.

-You can hire a property management team to take care of maintenance, tenant relations, collection of rent and evictions.

-You can also buy rental property in cheaper areas of the country.

Cons

-Your property management team can totally and literally rip you off; screw you over, provide an absolutely awful experience for your tenants and for your brand plus leave you holding the bag legally and financially if they screw things up and they often do. Curious? Just ask around or go to the internet for property management-owner horror stories. They DO exist so perform your due diligence first!!

You cannot simply set it and forget it. You have to keep a watchful eye, question everything and if it doesn't work out with one property management firm, then move on to another one. It’s all part of the learning curve of real estate investing. And watch a ton of YouTube videos and read books first.

- This option will require higher down payment ranging from 10-20% plus closing costs and cash reserves after closing.

Bottom line, if you're young and don't' want to be tied down to one location, city or a job OR perhaps you want to invest in cheaper areas of the country then buying rental/investment or commercial property while you remain a renter is probably your better option for now.

Don't let your excitement and determination to get a deal funded blind you to the notorious red flags of so called Private Money Lenders. Believe me I know, I've dealt with enough PMLs to see the red flags before they even reach out to say hello. I've written about this before but it bears repeating, don't get taken out of desperation. Unlike traditional lending there are NO rules, regulations, laws, licenses or governing bodies to hold Private Money Lenders accountable to. Every PML literally makes up the rules as they go.

So here's our I engage Private Money Lenders and I suggest that you do similarly.

Nearly all Private Money Lenders will flatly say "hell no" to my requests below. Believe me I've tried LOL. Once you've been burned by one you will vet the rest as if their auditioning for an entry level position at the CIA. But shockingly not all Private Money Lenders are sneaky scam artists. So if you find one whose willing to operate in truth, honesty and integrity then they will not have a problem with the following (13) Rules of Engagement I have created when dealing with PMLs.

1-I require that we transact all business using a local Title Company of my choosing, using their resources (i.e. title search etc), their loan servicing capabilities and an attorney of my choosing to draw up contracts. So avoid anyone who has an aversion to Title Companies or who see them as impediment to getting the money in your hands quickly. Major RED flag. I also require my loan be serviced by the title company versus sending in money directly to the PML. There's a 3rd party entity recording everything. Scam artist PML don't like paper trails.

2- I will NOT send any upfront origination fees or other related loan fees prior to closing. Easiest scam on the planet is that a PML agrees to fund your deal if you send in an origination fee. Ooops can't fund the deal for this reason or that. Or they just stop answering their phone. Private Money Lenders pretend that they need to pay their staff, the underwriter, the attorney to analyze your deal first. So they need you to send in the money now. Well to me that's just the cost of doing business and if you don't have the deep pockets to pay your staff to do this on an ongoing basis then do you really have the funds to close my deal? The answer is a big fat NO. They also may say it shows you're committed and lie they've been burned by folks backing out of deals at the last minute. Really??? Every investor I know is jumping through hoops to get deal done. So don't fall for their lies.

3- I will secure and pay directly for ALL due diligence documents that the PML requires to make their decision (i.e. title search, inspection reports, etc.). PMLs will not charge me for any due diligence documents. Documents will be prepared and sent to the PML via third party hands and I will secure copies for myself. This is done for 3 reasons. It prevents them from overcharging you for these services especially if they order it themselves. You get to keep copies of everything if you order it versus them. This then allows you to put together an even stronger package for the next PML or partner you meet. Finally they could just not order anything at all and just take your money.

4- Once the PML agrees to close the deal, they MUST wire their funds to the table first BEFORE I send in my origination fee. Once we mutually receive signatures, finalize paperwork and the deal is closed, that is when the title company wires my origination fee to them Again nothing will be sent upfront or prior to closing. This is self explanatory. You won't my origination fee?? You fund my deal just that simple!

#6- Don’t be too anxious or hard up to find a Private Money Lender!! These folks smell your desperation, your newness and can easily emotionally manipulate you by dangling an allusion of their wealth in front you. Don’t fall for the “I’m ultra successful” act. Anyone who brags about it too much ain’t it!

#7- Choose a Private Money Lender that’s recommended to you from someone you TRUST. Avoid Private Money Lenders who mysteriously contact you out-of-the-blue without context or explaining how they found you. You may want to network at local real estate events to find local Private Money Lenders but remember just because they’re local doesn’t mean they’re trustworthy! It may take years but don't just choose someone out of frustration.

#8-Avoid any Private Money Lender who balks at being vetted, investigated or who wants you to simply accept their word with a handshake, a smile, a reassuring phone call or a calming email. If they try to make you feel small, silly, too new to the game of real estate investing to be taken seriously, then RUN AWAY LIKE HELL!!

#9- Require that your Private Money Lender disclose their full identity, personal and company contact information that can be verified, skip traced along with proof of the nature of their business, bank and client references etc. Always check client references BUT remember the client references can be in on the con as well, so still you have to investigate further even if you get glowing references. I had the same thing happen to me and my client. It was all a con.

#10- If you happen to be a Loan or a Mortgage Broker working with a Private Money Lender funneling your clients to them, then you should require a Broker Agreement be created that contains the Private Money Lender's verifiable and skip traceable identity that clearly states your broker compensation fee once the loan is closed at ANY time. Some lenders will try and avoid paying you by denying the client at the last minute then picking them back up again at a later date.

#11- Check to see if your Private Money Lender or group of individuals are actually Accredited Investors per the federal government criteria. If not then it isn’t necessarily a major red flag but should definitely give you pause going forward.

#12– Ask around on LinkedIn. Check their website, news sites, google searches, Yelp, 411.com and any other social media platform to investigate your Private Money Lender. Still can't find them, then count your blessings and walk away.

#13 –Require that the Private Money Lender agree to accept recent a tri-merge credit report pulled by YOU that has redacted or blacked out SSN information. This prevents all those new accounts opened in your name days or weeks later.

Always remember to Do YOUR part in vetting Private Money Lenders. Great success to you in your real estate investing endeavors!!

Don't let your excitement and determination to get a deal funded blind you to the notorious red flags of so called Private Money Lenders. Believe me I know, I've dealt with enough PMLs to see the red flags before they even reach out to say hello. I've written about this before but it bears repeating, don't get taken out of desperation. Unlike traditional lending there are NO rules, regulations, laws, licenses or governing bodies to hold Private Money Lenders accountable to. Every PML literally makes up the rules as they go.

So here's our I engage Private Money Lenders and I suggest that you do similarly.

Nearly all Private Money Lenders will flatly say "hell no" to my requests below. Believe me I've tried LOL. Once you've been burned by one you will vet the rest as if their auditioning for an entry level position at the CIA. But shockingly not all Private Money Lenders are sneaky scam artists. So if you find one whose willing to operate in truth, honesty and integrity then they will not have a problem with the following (13) Rules of Engagement I have created when dealing with PMLs.

1-I require that we transact all business using a local Title Company of my choosing, using their resources (i.e. title search etc), their loan servicing capabilities and an attorney of my choosing to draw up contracts. So avoid anyone who has an aversion to Title Companies or who see them as impediment to getting the money in your hands quickly. Major RED flag. I also require my loan be serviced by the title company versus sending in money directly to the PML. There's a 3rd party entity recording everything. Scam artist PML don't like paper trails.

2- I will NOT send any upfront origination fees or other related loan fees prior to closing. Easiest scam on the planet is that a PML agrees to fund your deal if you send in an origination fee. Ooops can't fund the deal for this reason or that. Or they just stop answering their phone. Private Money Lenders pretend that they need to pay their staff, the underwriter, the attorney to analyze your deal first. So they need you to send in the money now. Well to me that's just the cost of doing business and if you don't have the deep pockets to pay your staff to do this on an ongoing basis then do you really have the funds to close my deal? The answer is a big fat NO. They also may say it shows you're committed and lie they've been burned by folks backing out of deals at the last minute. Really??? Every investor I know is jumping through hoops to get deal done. So don't fall for their lies.

3- I will secure and pay directly for ALL due diligence documents that the PML requires to make their decision (i.e. title search, inspection reports, etc.). PMLs will not charge me for any due diligence documents. Documents will be prepared and sent to the PML via third party hands and I will secure copies for myself. This is done for 3 reasons. It prevents them from overcharging you for these services especially if they order it themselves. You get to keep copies of everything if you order it versus them. This then allows you to put together an even stronger package for the next PML or partner you meet. Finally they could just not order anything at all and just take your money.

4- Once the PML agrees to close the deal, they MUST wire their funds to the table first BEFORE I send in my origination fee. Once we mutually receive signatures, finalize paperwork and the deal is closed, that is when the title company wires my origination fee to them Again nothing will be sent upfront or prior to closing. This is self explanatory. You won't my origination fee?? You fund my deal just that simple!

#6- Don’t be too anxious or hard up to find a Private Money Lender!! These folks smell your desperation, your newness and can easily emotionally manipulate you by dangling an allusion of their wealth in front you. Don’t fall for the “I’m ultra successful” act. Anyone who brags about it too much ain’t it!

#7- Choose a Private Money Lender that’s recommended to you from someone you TRUST. Avoid Private Money Lenders who mysteriously contact you out-of-the-blue without context or explaining how they found you. You may want to network at local real estate events to find local Private Money Lenders but remember just because they’re local doesn’t mean they’re trustworthy! It may take years but don't just choose someone out of frustration.

#8-Avoid any Private Money Lender who balks at being vetted, investigated or who wants you to simply accept their word with a handshake, a smile, a reassuring phone call or a calming email. If they try to make you feel small, silly, too new to the game of real estate investing to be taken seriously, then RUN AWAY LIKE HELL!!

#9- Require that your Private Money Lender disclose their full identity, personal and company contact information that can be verified, skip traced along with proof of the nature of their business, bank and client references etc. Always check client references BUT remember the client references can be in on the con as well, so still you have to investigate further even if you get glowing references. I had the same thing happen to me and my client. It was all a con.

#10- If you happen to be a Loan or a Mortgage Broker working with a Private Money Lender funneling your clients to them, then you should require a Broker Agreement be created that contains the Private Money Lender's verifiable and skip traceable identity that clearly states your broker compensation fee once the loan is closed at ANY time. Some lenders will try and avoid paying you by denying the client at the last minute then picking them back up again at a later date.

#11- Check to see if your Private Money Lender or group of individuals are actually Accredited Investors per the federal government criteria. If not then it isn’t necessarily a major red flag but should definitely give you pause going forward.

#12– Ask around on LinkedIn. Check their website, news sites, google searches, Yelp, 411.com and any other social media platform to investigate your Private Money Lender. Still can't find them, then count your blessings and walk away.

#13 –Require that the Private Money Lender agree to accept recent a tri-merge credit report pulled by YOU that has redacted or blacked out SSN information. This prevents all those new accounts opened in your name days or weeks later.

Always remember to Do YOUR part in vetting Private Money Lenders. Great success to you in your real estate investing endeavors!!

Don't let your excitement and determination to get a deal funded blind you to the notorious red flags of so called Private Money Lenders. Believe me I know, I've dealt with enough PMLs to see the red flags before they even reach out to say hello.  I've written about this before but it bears repeating, don't get taken out of desperation. Unlike traditional lending there are NO rules, regulations, laws, licenses or governing bodies to hold Private Money Lenders accountable to. Every PML literally makes up the rules as they go.

So here's our I engage Private Money Lenders and I suggest that you do similarly.

Nearly all Private Money Lenders will flatly say "hell no" to my requests below. Believe me I've tried LOL.  Once you've been burned by one you will vet the rest as if their auditioning for an entry level position at the CIA. But shockingly not all Private Money Lenders are sneaky scam artists. So if you find one whose willing to operate in truth, honesty and integrity then they will not have a problem with the following (13) Rules of Engagement I have created when dealing with PMLs.

1-I require that we transact all business using a local Title Company of my choosing, using their resources (i.e. title search etc), their loan servicing capabilities and an attorney of my choosing to draw up contracts.  So avoid anyone who has an aversion to Title Companies or who see them as impediment to getting the money in your hands quickly.  Major RED flag.  I also require my loan be serviced by the title company versus sending in money directly to the PML.  There's a 3rd party entity recording everything.  Scam artist PML don't like paper trails.

2- I will NOT send any upfront origination fees or other related loan fees prior to closing.  Easiest scam on the planet is that a PML agrees to fund your deal if you send in an origination fee.  Ooops can't fund the deal for this reason or that.  Or they just stop answering their phone.  Private Money Lenders pretend that they need to pay their staff, the underwriter, the attorney to analyze your deal first. So they need you to send in the money now.  Well to me that's just the cost of doing business and if you don't have the deep pockets to pay your staff to do this on an ongoing basis then do you really have the funds to close my deal? The answer is a big fat NO. They also may say it shows you're committed and lie they've been burned by folks backing out of deals at the last minute.  Really??? Every investor I know is jumping through hoops to get deal done.  So don't fall for their lies.

3- I will secure and pay directly for ALL due diligence documents that the PML requires to make their decision (i.e. title search, inspection reports, etc.).  PMLs will not charge me for any due diligence documents. Documents will be prepared and sent to the PML via third party hands and I will secure copies for myself.  This is done for 3 reasons.  It prevents them from overcharging you for these services especially if they order it themselves.  You get to keep copies of everything if you order it versus them. This then allows you to put together an even stronger package for the next PML or partner you meet.  Finally they could just not order anything at all and just take your money.

4- Once the PML agrees to close the deal, they MUST wire their funds to the table first BEFORE I send in my origination fee. Once we mutually receive signatures, finalize paperwork and the deal is closed, that is when the title company wires my origination fee to them  Again nothing will be sent upfront or prior to closing.  This is self explanatory.  You won't my origination fee?? You fund my deal just that simple!

#6- Don’t be too anxious or hard up to find a Private Money Lender!! These folks smell your desperation, your newness and can easily emotionally manipulate you by dangling an allusion of their wealth in front you. Don’t fall for the “I’m ultra successful” act. Anyone who brags about it too much ain’t it!

#7- Choose a Private Money Lender that’s recommended to you from someone you TRUST. Avoid Private Money Lenders who mysteriously contact you out-of-the-blue without context or explaining how they found you. You may want to network at local real estate events to find local Private Money Lenders but remember just because they’re local doesn’t mean they’re trustworthy! It may take years but don't just choose someone out of frustration.

#8-Avoid any Private Money Lender who balks at being vetted, investigated or who wants you to simply accept their word with a handshake, a smile, a reassuring phone call or a calming email. If they try to make you feel small, silly, too new to the game of real estate investing to be taken seriously, then RUN AWAY LIKE HELL!!

#9- Require that your Private Money Lender disclose their full identity, personal and company contact information that can be verified, skip traced along with proof of the nature of their business, bank and client references etc. Always check client references BUT remember the client references can be in on the con as well, so still you have to investigate further even if you get glowing references. I had the same thing happen to me and my client. It was all a con.

#10- If you happen to be a Loan or a Mortgage Broker working with a Private Money Lender funneling your clients to them, then you should require a Broker Agreement be created that contains the Private Money Lender's verifiable and skip traceable identity that clearly states your broker compensation fee once the loan is closed at ANY time. Some lenders will try and avoid paying you by denying the client at the last minute then picking them back up again at a later date.

#11- Check to see if your Private Money Lender or group of individuals are actually Accredited Investors per the federal government criteria. If not then it isn’t necessarily a major red flag but should definitely give you pause going forward.

#12– Ask around on LinkedIn. Check their website, news sites, google searches, Yelp, 411.com and any other social media platform to investigate your Private Money Lender.  Still can't find them, then count your blessings and walk away.

#13 –Require that the Private Money Lender agree to accept recent a tri-merge credit report pulled by YOU that has redacted or blacked out SSN information. This prevents all those new accounts opened in your name days or weeks later.

Always remember to Do YOUR part in vetting Private Money Lenders. Great success to you in your real estate investing endeavors!!

@Derrell Pompey did you find any good referrals? I am looking myself. I've got a mixed bag which is surprising.

Does anyone have any suggestions for Top notch full service Title Companies in Broward County/Ft. Lauderdale that provide an array of services ranging from standard Title Searches to having a legal team that represents clients in basic Real Estate transactions?

Ideally they would be able to do the following:

-Title Search/Closing etc.
-Long term Escrow services (i.e. in Owner financing deals where they disburse PITI)
-Crafting LOIs to purchase real estate
-Crafting standard Lease and Master Lease Agreements with Options
-Crafting standard Owner Financing Agreements
-Crafting and providing guidance on Subject To purchases agreements.

Thanks!