All Forum Posts by: Chan K.

Hi Everyone for the great discussion.

@Michael SeekerI have to be careful with the unsecured line of credit now if it is affecting my ability to get the mortgage. FYI: TD Bank has a great rate (8.5%) for $25k. I talked to Well Fargo, their limit is up to $100k, but their rate is ridiculously high (14%).

@Michael Siekerka I am really interested in the other option you mentioned where I can down less than 20-25%. I guess I don't mind if it is not 30% fixed rate. I will have to find a property that gives me a good cash flow margin. If you don't mind, would you be able to share a few lenders in your database that would accept less than 20% down?

@Shaun Reilly thank you for sharing the withdraw strategy, where I have to withdraw the line of credit and leave it in my bank for a few cycles.

@Shaun Reilly thank you for pointing out and clarify on the FHA. I have not taken out any FHA before. I will have to call a few banks to find out if I can take out the FHA loan to buy a multi-family once I rented out my single family. I think you just gave me a method to acquire my third house.

@David T I guess the idea of selling never crossed my mind. It comes down to my strategy as I have mentioned that I like to hold. The pyramid concept does not seem to sink well yet. I also see more potential in my current single family. I believe it has more potential to rise more in value in the future. The market just rises up. I bought my single about 6 years ago for $235k, and currently appraised above $250k. I want to wait for awhile I guess. The house is located on a good neighborhood in the town.

@Andy Collins Thank you for mentioning about the 401k credit. I stopped pumping into my 401k about a year ago. Nowaday, I only contribute the minimum to get employer matching.

I am still fairly new to BP. If I want to follow a person or persons post, how would I set it up? How do I also find out the BP members who are located in MA or near by NH?

Hi BP and Friends,

I realized that after acquiring my first 4-Units investment, there is a big setback financially. This is because the conventional bank required that I put down 25%. It is pretty much all I’ve been saving for.

I’ve a bit extra left for emergency fund and about 5% for the next investment.

I have been doing the following steps in trying to get more down payments for the next investment

FYI: Conventional requirement is 25% down or portfolio is 20% for duplex, triplex and quad.

Proactive Approach so far:

a) I applied to local bank for unsecured line of credit. They grant me $25k. I guess one method is to continue to apply for additional unsecured line of credit to get enough money for down payment. Does anyone know other banks that are doing “unsecured line of credit” for a good rate?

b) I called around and asked for “equity line” or “second mortgage”, but I could not pull out much from my houses. Both my primary and investment property only have about 25% in equity. The equity is only doing 89% LTV for primary and 75% LTV for investment property.

c) I find my deal or property through MLS or drive by.

Not comfortable:

a) Get a partnership – not really desire

b) I know people normally use private lender or hard money lender for flipping. My interest is to buy and hold as an investor. I don’t know how people usually would set up private/HML for buy/hold. Usually, even if the private or hard money group lends me the 20%, I don’t how the conventional bank would feel about given me 80%. The bank required that the 20% is my saving money.

c) Seller finance property is hard to come by through MLS. Is there a website that lists all seller finance within MA?

Question and Finance:

1) Is there a bank or banks out there that is doing 20% (from on bank) and 80% (from another bank) or 10% (from one bank), 10% (from buyer) and 80% (from another bank)? I am trying to get in with “out of pocket – OOP” as much as possible, because I have don’t much saving at this point.

2) I guess my primary question is how I can get down payment fund for my next investment beside all the points I have made above. Assuming, I have good credit, good salary and some cash flow from my first investment. I don’t have much equity from my houses.

3) Does anyone know of a good towns/cities in MA or NH that are good for investment (buy/hold – multifamily or flipping – single family)

FYI: At this point I don't think I will qualify for any owner occupied property. I called and asked a bank that if I could rent out my single house, and move into a multi-family and trying to get a government 3.5% or 5% down loan like FHA etc.... I think they kind like laugh at me.

Sorry for the long note.

Thank you for sharing your though and discussion.

-Chan-

@Godess Clemons and @Anthony Vandyke

Do you know how I could setup a 80/20 on a residential property or even 80/10/10?

Currently, I own a single family (primary) and 4-Family (investment property with positive cash flow). Both my primary and investment property have about 25% in equity. So, I could not pull out any home equity.

With this in mind, is there a bank out there that is willing to give me a second mortgage on the properties that I am currently owning?

I found a few multifamily properties that are cash flowing, but I don't have the 20% down. I do have about 10% down.

@Jon Holdman

Sorry for being too precise. Here is the details "cash flow" worksheet

Home Price$225,000.00

Cash Invested $56,250.00

Unit 1 Rent$725.00

Unit 2 Rent$775.00

Unit 3 Rent$750.00

Unit 4 Rent$800.00

Actual Gross Income$3,050.00

Vacancy Rate (%)5.00%

Vacancy Rate Value$152.50

Property Management (%)10.00%

Property Management Value$305.00

Repair (%)10.00%

Repair Value$305.00

Property Tax Value$300.00

Property Tax (%)9.84%

Home Insurance Value$167.00

Home Insurance (%)5.48%

Water Value$270.00

Water (%)8.85%

"GOI (Gross Operating Income) [month]

Actual Gross Income - Vacancy"$2,897.50

Operating Expense Value$1,499.50

Operating Expense (%)49.16%

"NOI (Net Operating Income)

Gross Operating Income or

(Gross Income) - Operating Expense"$1,550.50

Seller Finance$0.00

Mortgage$876.00

Cash Flow$674.50

Annual Cash Flow$8,094.00

@Wayne Brooks

Thank you everyone for sharing your story.

I closed on my house this morning. I did not hold any escrow, but only a contract saying that seller agent's friend who is a contractor will fix the "leaky basement" at seller's expense.

At closing, the seller offered to give me $100 to fix the leaky basement. He stated that he never saw any water in his basement before. Unfortunately, there was water when we first tour the house. My wife did not and was not going to take the $100, and the seller won't pay for anymore than $100. The seller said either he put some code on the wall's foundation or give us $100 dollar. My wife kept saying "NO".

I guess at that point, it was game over.

Suddenly, the seller's agent yelled out, and said that his friend and partner owns a construction company, he will have his friend fix it. To make the contract legit, my mortgage broker asked that the seller pays his agent $100.

We then got a piece of paper saying that the seller will fix it. Yes, I know I am in a disadvantage situation. Either we accept that paper or walk away from closing, then we would loss the appraisal, inspection and credit check fee - around $1500.

I sat back and reflect. I told myself that I will go through with this and learn to see if the people will burn us. I am pretty sure it will.

Overall the house does "cash flow" after accounting for the 5% vacancy, 10% property management, 10% repair and mortgage payment.

The sellers are old school in their mid-60. His wife is a teacher and very nice and pleasant to talk to. The husband is a constructor, and very stiff.

Thanks, Joel and Jon

I am afraid that the seller will refuse to sign the contract.

So, you are saying that I will get only my deposit back, and I won't be responsible for closing because we did not close if I walk away from closing on the closing day.

The seller did not fix everything he supposed to during my walk through as required by the P&S addendum. I am still attending the closing tomorrow, and I have my agent drafted up a contract saying that the seller will fix at his expense after closing.

Hi BiggerPockets,

If seller breaks the P&S contract on the closing day, will the seller be responsible for all the closing fee, inspection fee and appraisal?

I know by law they have to give back the deposits.

Usually, does the buyer or seller hold the deposits and escrow?

Thanks

@Shaun Reilly

The seller will not give me an unsecured loan. It is too risky for him. I would understand why too if it was me.

I will read the disclosure carefully at closing. I hope it will not say something like "no outside closing"

The seller agent told me that he went and got his second mortgage from a big institution, and there is no problem. Note that his house has equity, but my quad does not have equity yet. It is similar to whatever I am doing now - I don't see the different here.

I definitely would not want to put the seller's note on my primary residential, where I have to remove the homestead. My primary residential is under water, and if this lender requests me to pay back in full, I would not be able to refinance this one out. The reason is because I don't have 25% down in my primary.

I called and talked to my mortgage broker (the quad) this morning. I told him that I am planning on doing second mortgage shortly (1 week later) after I closed with him. I also asked that if the method is a mortgage fraud. In response, he told me that he already proved that I have the 25% down payment from my saying. After closing, the house will become mine. Then, I could do whatever with this/mine house.

In the documents I have signed so far with the lender, there is no phrase in there that says fraud. I don't lie in my application, then why it is a fraud.

@Cameron Norfleet

Thanks, Cameron for the example and analysis. By the way, does anyone know of any software tool that can do real estate market analysis? This software allows me to analyze trend, cycle, ....etc

@Joel Owens

Hi Joel, you are right, but please refer to Shaun response for clarification.

@Shaun Reilly

Hi Shaun, you got it.

As part of my negotiation, I managed to get seller to give me 12.5%, in which is the 75/12.5/12.5 set up. This allows me to get in with little money, hence high CoC as confirm by you and Joel. To that note, I do have the 25% down, but I want to maintain the fund back to continue to acquire more properties in the near future.

Remember, I am still new to the game.

I later could not find a bank that is willing to take on the setup given that all the banks I talked to were all residential banks (my knowledge/reference from buying my single house residential).

So, one of the agents recommended that we do this outside of closing. I went with this suggestion.

Later on, my wife found a commercial lender that is willing to take the 75/12.5/12.5 setup, but then it was too close to the closing date. So, we did not take it.

I went to see an attorney to review the second mortgage clause from the seller. He did not mention anything about the "mortgage fraud". He told me that in theory I supposed not to do, because if the first lender found out, they can ask me to pay the 75% balance in full. He also said that in reality, as long as I keep paying both the first and second mortgage in the timely manager, then no body would care. At the same time, I was thinking that if the lender asks me to pay in full (75%), then I can take my reserve money to pay the seller finance (12.5%) back in full and remove to note from my deed. Then, I would refinance my house with another lender, and pay back the first lender (75%) if it is going to go down.

After Shaun mentioned about being a "mortgage fraud", I went back and read the first mortgage lender document that I signed. There is one page that said that "if I sell an interest of the property to another party, the lender has the right to request full payment immediately" - this clause verifies what my attorney told me. This clause does not say anything about being a fraud. The clause is called "due at sale".