All Forum Posts by: Nick Coons

@David M.

I've used CashApp before. It doesn't charge a fee (unless you want the funds instantly, then there's a fee, otherwise it's the speed of ACH).

One thing I like about this is that CashApp notified me that my tenant sent me a payment and then I had to accept it. I don't know how this would work when rejecting payments or partial payments during an eviction process. But hypothetically, not accepting it means I didn't receive it, same as if they had mailed me a partial check that I didn't deposit/cash. I have not validated this with an attorney or seen any case law regarding this, so that's why I say "hypothetically".

For those who the leases and related documentation provided by BP, how many of you use them as-is, and how many of you make changes? For those that make changes, what sort of changes have you found valuable to incorporate?

Quote from @Jay Thomas:

It's worrying to hear that people are looking for ways to commit mortgage fraud.

I would certainly be open to someone explaining how a transaction can be fraudulent when the entire process is transparent to all parties involved (since materially hiding intent is a key component of fraud). I thought I was clear in my initial post that the numbers provided should be "somewhat accurate" (which is about as close as a rehab estimate ever gets). But there are now at least two people in this thread that have mistaken my post as a recommendation to commit fraud.

@Scott E.

"Actual estimated repair budget is $60k. Repair budget reported to HML is $80k."

Correct, and the related explanation of the meaning of this later on in my original post. You're leaning a lot on the phrasing I used here rather than on what is actually happening.

"I'm not trying to be a buzzkill or a Karen here. But I don't care what way you slice it... this is not just misleading, it's downright fraudulent."

No, it isn't. All of this is being fully disclaimed to all parties involved. If it were fraud, then the party being supposedly defrauded would be objecting.

"Also to be clear Nick Coons I'm not even suggesting that you're trying to break the law. You've come up with a creative way to make a rate and term refinance work on what would otherwise be considered cash-out."

Yes, and there is nothing wrong with creative financing.

"But just because your loan officer says it's ok, doesn't mean it's actually ok. Some loan officers will do what they need to do and say what they need to say to get the sale."

Oh I know that, but that's not what I'm saying. The entire process here and my intentions are submitted to underwriting. I couldn't possibly be any more transparent to all parties involved, which is the opposite of fraud.

Quote from @Carlos Ptriawan:

Quote from @Nick Coons:

Quote from @Scott E.:

From Google: Mortgage fraud refers to an intentional misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan secured by real property.

Also from Google: Mortgage fraud may result in a felony charge and up to 12.5 years of prison time according to Arizona law, even for a first offense. For a second offense, you could face 24 years in prison, and up to 35 years for a third offense.

I know what mortgage fraud is. My question was what part of my post fits that definition?

I suspect you inferred from my comment that the rehab budget should be inflated to get cash back. If so, I can see your confusion with regards to my terminology of "estimated repair budget" and "repair budget reported to HML". But I explained that later in the post, that repair estimates are often off, and that padding is necessary to account for unexpected things. I'm up front with my lenders about all of this. There's no misrepresentation going on.

Hi Nick, For the "padding" how do you put it in paper and how to convince the appraisar ? I have one solution from HML but can't share it online. Do you just put a bullet point so the appraisal would take a look at it ?

 

The padding is a line item on my rehab budget that I send to the HML that literally says "20% padding for miscellaneous". The HML wants to see my rehab budget and how I calculated it, so this is on the list of items on the budget I send to them. There is no appraisal involved with my hard money loan.

Quote from @Scott E.:

From Google: Mortgage fraud refers to an intentional misstatement, misrepresentation, or omission of information relied upon by an underwriter or lender to fund, purchase, or insure a loan secured by real property.

Also from Google: Mortgage fraud may result in a felony charge and up to 12.5 years of prison time according to Arizona law, even for a first offense. For a second offense, you could face 24 years in prison, and up to 35 years for a third offense.

I know what mortgage fraud is. My question was what part of my post fits that definition?

I suspect you inferred from my comment that the rehab budget should be inflated to get cash back. If so, I can see your confusion with regards to my terminology of "estimated repair budget" and "repair budget reported to HML". But I explained that later in the post, that repair estimates are often off, and that padding is necessary to account for unexpected things. I'm up front with my lenders about all of this. There's no misrepresentation going on.

Quote from @Scott E.:

I'm not an attorney, but I think you've given us a detailed explanation on how to commit mortgage fraud.

Which part is fraudulent? I've spoken to my lenders (both hard money lender and the lender handling my refinance) and they all approve of this method. The refinance lender would be the one who be "defrauded" in such a case, so it seems reasonable that if that were the case, they'd be the one to raise the red flag, but they're the one that gave me the idea.

TL;DR - Get your investment back without doing a cash-out refinance.

Something occurred to me the other day when talking with my lender. This may be something that everyone knows and I'm just late to the game, but I thought I'd put it out there in case it's helpful to someone.

When refinancing, there are essentially two types of refinances:

- Rate and term.

- Cash out.

A rate and term refinance is where you exchange your old loan for a new one. Basically, you have a $200k loan balance, so you get a new loan for $300k with potentially a different lender and different terms. A cash out refinance is where you do that, but also pull cash out against the equity, thereby increasing your new loan balance.

With BRRRR, the "refinance" portion of this is usually a cash out, with the intention of pulling out some (or, in an ideal situation, all) of your original capital investment back out of the deal.

A rate and term refinance has a better interest rate than a cash out refinance. So ideally, one would do the former. But that defeats one of the main purposes of the BRRRR, getting your initial investment back. Hmm.. how to do a cash out refinance with the benefits of a rate and term...

It should be noted that rate and term only covers a first mortgage. If you have a second loan on the property, or want to refinance and use equity to pay off other debt not related to the first, that is considered cash out, even if you never actually get that cash yourself.

So this strategy works well if you're using a hard money lender. With most such lenders, they'll have guidelines as far as how much they'll lend. For purchasing the property, generally 90% LTC and 75% ARV (whichever is less). But they'll often fund 90-100% of the rehab costs. When they create the loan package, the loan amount recorded to title is the amount they're lending you now to purchase plus rehab budget that they're financing.

As an example, I purchased a SFH last year for $230k. My HML loaned $188k on the project. I had an anticipated repair budget of $50k. So they funded at closing $188k, but they recorded that I have a lien on the property for $238k. The remaining $50k I didn't get (nor do I pay interest on). As I complete the repairs, I can draw against that $50k (i.e. get my rehab budget back). When I refinance, the first loan on the property is $238k. So I can do a rate and term refinance to pay off that $238k. In other words, I'm using a rate and term refinance to pay back more than the original loan value on the purchase, because the $238k is the amount recorded at title.

Thus, the process works like this. Let's assume a scenario where I have a property with a purchase price of $200k and an ARV of $350k:

- Buy the property for $200k with $20k (10%) down. Get a loan for $180k.

- Actual estimated repair budget is $60k. Repair budget reported to HML is $80k.

- Loan of $180k plus reported repair budget of $80k, HML records a lien of $260k against the property as the first.

- Repairs completed.

- Get reimbursed $80k from HML (this is where your "cash out" comes from rather than the refi).

- Rate and term refinance to pay off the $260k first ($260k is ~75% of $350k, so this is a 75% LTV loan).

Now you've got your cash out without doing a cash out refinance (thus, better loan terms). Note the following:

- Ignore how "ludicrous" the numbers in this example might be (i.e. being able to find a $200k property with an ARV of $350k in this market), it's for illustration purposes only. The principle is that the "cash out" comes from the HML and not a cash out refi.

- This only works if you set up your HML to finance the rehab. If you use other sources (like your own cash, or credit cards, or even a second on the property) and aren't reimbursed by the HML, then you'll need a cash out refi to reimburse this.

- The repair estimate has to be somewhat accurate. If your repair estimate is $20k and you submit $100k, it's not likely the HML will believe it or fund it. But 20-25% padding is reasonable. I literally have a line item on my estimates that say "20% padding for miscellaneous" and lenders are fine with this. They know that repairs can go over budget, and they like that you're considering this and being fiscally responsible in your estimates.

@Frankie Renaldi

I see lots of responses here of people managing coins either manually or with Coinstar. But if this is something you're doing at any scale and with regularity, why not utilize something like this?

Cassida C300 Professional USD Coin Counter, Sorter and Wrapper/Roller, 300 coins/min, with Quickload and Printing-Compatible https://a.co/d/3zXXMc3

@Nader Hachem

Let's look at an infinity year loan (I.e. interest only).

400k at 7% is 2,333. The payment will never be lower than that (let's not talk about negative amortization for the moment).

For 15 years it's 3,595, for 30 years it's 2,661, and for 40 years it's 2,485.

As you can see, there's diminishing returns for lengthening the loan term. Someone mentioned 100 years, maybe dropping the payment $50 from 40 years but extending the loan by 60 years.

If you're all about cash flow, and/or don't care about paydown, get an interest only loan (they do exist, even DSCR, which helps in qualifying the ratio because there's no principal in the payment). You can always opt to pay principal at any point if you decide you start caring about paydown.