All Forum Posts by: Nelson Barss

You should check out Mark Kohler & his group. He's in Cedar City, but works great remotely. He has a national brand and clientele - he has a podcast, books, etc. I attended a presentation he did this weekend and was very impressed. His group will be handling my solo 401k, taxes and attorney needs as well.

Regardless of who the current lender is, I would recommend choosing one loan officer to process and close all 3 Refinances at the same time. A competent lender should be able to manage that, and its 1/3 less hassle for you when it comes to delivering documents, status updates and attending closing.

Hey Caleb - I just read your latest post.  Excellent work.  Thanks also for the auction.com primer...I'm excited to follow your next deals!

Thanks for posting this Caleb- I'm in the middle of my first rehab deal in Ogden as well - I'll send you an invite, maybe we can get together to chat sometime.

Thanks @Joshua D. - I'm totally with you!  I'm one of those guys who probably only has enough funds to do one deal at a time, and I would also like to get my money out and repeat the process at a faster pace than once every 6 months.  It's a bit of a puzzle to me because I live my life within the world of the Fannie Mae guidelines I laid out above...but I do have a few ideas.  I'd love everyone's feedback and/or other suggestions.  Here are the two options I see for speeding this up so I can buy 4-6 properties a year instead of 1-2:

Option 1 - If the refinance is considered a "rate/term" refinance there is no waiting period. I have a hard money lender who has agreed to lend the full purchase price PLUS rehab costs a single loan at closing. (in total we'll be at approx. 75% of ARV). The rehab will take a month or so, and then I would refinance the single lien with no cash-out to me...I've reviewed this with my underwriters and it would be considered a "rate/term" refinance, which has no 6-month waiting period. The underwriter would have to approve an exception to use appraised value instead of purchase price, but I think i can make a strong case with receipts/photos of the rehab. This is my "Plan A" on a deal I currently have under contract & i'm working with a hard money lender who has had success with this scenario...but I haven't closed any like this. "Plan B" is below...

Option 2 -Find a non-conventional (portfolio) lender who plays by their own rules. I've heard people on the podcast say that they have found small banks/credit unions who will approve cash-out refinances up to 75% or even 80% of appraised value without all the seasoning headaches that Fannie Mae creates. The interest rate will probably be higher, but I'm hopeful that it won't take very long working to phones here in Utah to find a couple of these options. I also like this option because I wouldn't have to deal with Fannie's limitations that kick in after I have 4 financed properties.

I want dispel a myth that I hear repeated quite often on BP and elsewhere... this seems especially important for folks looking to use the BRRRR strategy...

Here's the myth:  "Investors must always wait 6 to 12 months to refinance a newly acquired property onto a conventional loan."

In my experience, this is not true.  You can refinance immediately in most cases.  

The rules are different depending on whether you paid cash or used a loan to acquire the subject property.   Without trying to be exhaustive on all the details, here are the basics:

If you paid cash 
(including borrowed cash from HELOCs on other properties, lines of credit.)

• You can "cash-out" up to 75% LTV (70% LTV for 2-4 unit properties) immediately. (This is done using Fannie Mae's "delayed financing" exception. 

If you got a loan
(including hard/private Money, etc. w/a lien on the subject property)

• You can do a "rate/term" refinance (no cash-out) immediately up to 85% LTV. (2-4 unit properties are limited to 75% LTV)
• You can do a "cash-out" refinance after 6 months of ownership seasoning

Keep in mind that during the first 12 months, the LTV is going to be based on the lower of the purchase price or the appraised value.   However, if you can document rehab costs to justify the higher appraised value in the mind of the underwriter, you can use the APPRAISED value to calculate the maximum LTV as soon as the rehab is finished.

Hope this helps a few of you out there!

I'd suggest reading up on the BRRRR strategy and thinking of that $20k as the down payment you'll use over and over again on all of your future investments. The other thing to research is how to find GREAT deals. Ideally you should be finding properties to purchase at a significant discount. This is probably the most important skill you can develop as an investor.

If you use your $20k to purchase this type of house, improve it, then refinance it,  you should be able to get your $20k back and still have a 25% equity position in the newly acquired rental property...not to mention solid cash flow.  You can then move on to purchase the next property with that same $20k.  

In fact, if you accept those as your parameters, you'll force yourself to develop those deal finding skills that will make or break you as in investor. 

The thing I really like about HELOCs is that the funds are available to you quickly with no closing costs. This makes them pretty attractive, especially if you're only looking at this as a temporary funding source for acquiring & rehabbing the properties. I don't really like a HELOC as a long term financing option. The rate is only attractive because it's a variable rate. If you ask for a quote to convert your HELOC to a fixed rate you'll probably be offered a rate somewhere around 5%, which isn't any better than what you can get on a refinance of the newly acquired property with a non-owner occupied loan. Refinancing the debt "onto" the new property could give you enough cash-out to pay off the HELOC, which is a more sustainable plan. Here you have the makings of a nice BRRRR strategy...you're ready to move on and repeat the process with the next house.

I'm also excited about the BRRR strategy. I haven't yet closed my first deal, but I have one under contract. I am a conventional mortgage lender (by the way ARM's are conventional loans, just a different "flavor." I've been researching all the options for a few months now - hopefully I can settle on a strategy that works, and then"repeat" over and over successfully. Here are some thoughts.

In my mind, the interest rate is less important than the closing costs on the initial (short term) loan. ARMs (especially on investment properties) tend to come with some pretty hefty closing costs...so this would be the opposite of what I want on that initial short term loan. I've tried quoting ARM loans to investors over the years and there have been times when I couldn't even offer the loans without 2 or 3 discount points....which can make the closing costs more expensive than some hard money! At least with hard money you're not limited to 75% loan-to-value as you are on Conventional ARM's.

I'm financing my first deal through Hard Money.  The fees are 2 Points due at closing and 12% interest rate.  One of the reasons for this is that I don't think the underwriters on conventional loans will approve the property in it's current "un-rehabbed" state.   Another benefit is that I'm able to borrow 100% of the purchase price (this preserves my funds for the rehab.)  There might be better ways to finance this one, but it's more important to me to get this deal closed - and the hard money is way quicker and easier.  Before I take on property #2 I'll take a step back and see if I can improve on the process.

So that's one option - but an even better option would be to work out a seller-financing deal.  Perhaps you can find a seller who will agree to a deal that give them their "equity" now...but leaves their mortgage in place for a 12 months or so (just until you can bring the house up to conventional lending standards.)  Then you only need to pay one set of closing costs when you pay then off with your permanent loan.

A third option that would be even more ideal would be to arrange private funding from a friend or family member who has money to invest (or multiple people could pool their money).  In my mind I feel like I probably need to get a few deals under my belt before I can even think about this, and I'd want to involve an attorney in setting up the agreements.  This would probably be cheaper than a hard money lender, just as quick to close, and have no points.  If it turns out well for all parties, you could use the same investor or investors to fund all your deals over-and-over again.

I'm a new investor in Utah. I'm working to put together my team - I have my first rental property under contract and will be closing in about 45 days. After that I plan to keep building my portfolio one deal at a time. I've got a good title company, but I need a good accountant, real estate attorney, general contractor who is good at turning around basic rehabs quickly, and possibly a realtor who enjoys working with buy & hold investors and is willing/able to help me find great deals. Is love to get your recommendations. Thanks!