All Forum Posts by: Jake Kucheck

Anyone here flip houses in Santa Cruz or the surrounding area?  I have an opportunity on a duplex that can be converted to condo and want to make sure I'm not getting in over my head, and also want to get a feel for the area.

What's the gap between the loan you would be assuming and the purchase price?  Is the seller willing to cover any of that via carry?  How much equity have you contributed/raised and you could you make up the gap with some additional equity?

Sorry if someone else has said this already but... are you calculating your DSCR on *gross* rents?

The calculation should be done on NOI, which if you have $11K in gross rents on a monthly basis is probably closer to $6,600 in NOI. Yes, that also accounts for your Taxes and Insurance, so your debt service should go down too, but not in lockstep with the decrease between gross rents and NOI.

The correct calculation would be NOI/Debt Service, so $6,600 (or whatever NOI actually is)/(P&I). Also 80% is probably not available to experienced multifamily owners, I'm not sure if you are one of those or not.

I get what you're asking now, maybe a difference in vernacular. In any event, you'll need to consider the rates and accessibility of each. If you know you'll be in and out of the project quickly, the HELOC is probably better. If you are planning to hold the new property without refinancing to replenish the equity you put in for some sustained period, then you may want to consider the fixed rate loan (I would probably call this a second mortgage, but potato/potahto, right?). With the HELOC you'd be able to rinse and repeat with a bunch of different projects, with the 2nd you would need to originate a new loan each time you wanted to draw on it.

What's... the difference?

This seems extremely like spreading yourself too thin, and you'd be better off building up more cash so that you can use actual cash for your down payment as opposed to using the HELOC- this seems very much like a project that will be longer and more expensive than you hope (most are like that, but this one especially so) and so I'd want to finance it an awful lot more conservatively than it sounds like you're considering doing. If the mechanicals (plumbing, electrical, HVAC etc) are older than 15-20 years, you're going to have big ticket replacements. If the roof is older than 30 years, you may have that too. Now you've exhausted what's left of your HELOC and you haven't turned a single unit yet.

Is this still possibly a deal?  Maybe.  Increase your CapX budget by like 75-100% and do the numbers then.  Also extend your turn time (time you will be drawn on your HELOC) by 6-9 months more than you think.  Is this still a deal you want, or could you find something else with less risk and equal reward?

Great!  At a minimum, would need to know how much debt is currently on the property and its current terms, as well as how much debt you'd like to take out on the property.  

LTV means loan to value. How much are you looking to finance against the overall value of the property? T12s means trailing 12 months of income- it gives a potential lender an idea of what sort of income can be expected and is used in concert with expenses to help calculate the property's NOI.

Is this a property that you own currently or are you trying to help someone else with a refinance?

What state is the property in and what LTV are you seeking? Do you have T12s readily available?

Are you planning on substantively improving the property or changing its use/zoning in some way to improve the economics?  If so, it may make sense to work with a private or bridge lender for your acquisition and project, and then refinance into a conventional loan once the property is performing at a higher level.  How much equity (as a % of the purchase price) are you bringing to the project and what is the overall scope of the project (debt + equity + renovation)?