All Forum Posts by: Patrick Roberts

These are tough to find, especially above 70% LTV. First Capital Bank was doing these last year, but they were structured a commercial LOCs that termed out every two years and had to be rested 24 hours before resetting. I believe they were priced around 11%-12%.

Is this for a first or second lien?

 Unfortunately

Extend and pretend. Lots of that going around right now. Just look at the posts on this forum. Everyone is always, "you'll be refinancing in 6/12/18 months so dont worry about that stuff because rates are coming down". I was in a small local mastermind last year and one of the attendees was a multifamily CRE guy. He kept talking how rates had to come down because operators cant survive with 7% rates and that everyone would be refinancing to stabilize in the next few years.

Personally, I do not see a base case where the ten year returns to sub 3%. If anything, almost everything points to inflation right now. Additionally, I think things are just fine with rates where they are at the moment. Artificially low rates incentivize bad capital allocations, creating exuberance/frothiness that leads to poor decision-making. The end result of rates that are too low is capital destruction that only becomes recognizable after the damage is done.

@Chris Seveney I dont see a ton of note inventory like you do, but what I'm seeing on the origination side is correlated with your observations on the NPL DSCRs. I'm seeing a lot of deals that just dont pencil, lots of imagination and misplaced optimism on rents and expenses, and a general lack of liquidity. 

On a daily basis, I'm talking with investors who are wanting loans that stretch deals to the absolute max of solvency while having little to no cash or liquidity. Deals are being held together by shoestrings where if anything goes wrong, the investor is going to be in a bind. I'm talking no reserves whatsoever while borrowing at absolute max leverage, all while not having the personal income to absorb any extended vacancies or drop in rents. Its like everyone is in such a hurry that theyre stacking risk on risk in a "make it or bust" race to have X doors or retire at 28 or whatever. 

Same goes for hard money and flips - I'm seeing situations where investors are getting into deals via hard money that theyre only exit path is selling the property and where margins are unreasonably tight. There's no margin of safety and little borrower skin. A lot of investors have been looking for bridge loans and extensions to buy them time because theyve termed out on their HML but cant refi and cant sell unless at a loss.

A trend Ive noticed in the past two months is that appraisals are getting more conservative compared to the past year or two. Appreciation has slowed dramatically and properties under-appraising is becoming more common.

My guess is that we'll see two things happen in the next year or so: 1) DSCR loans are going to get stricter with experience requirements, and 2) DSCR loans are going to require higher DSCR ratios. Generally, LTVs are pretty healthy because everyone has a ton of equity, and FICOs have been really solid for the past few years (I suspect this may be artificially inflated by the covid response, though).

The risk-stacking combo I see most currently is inexperienced investor + little/no cash + DSCR ratio of 1.01x + not great personal financial situation (low income/high personal DTI). These borrowers are one eviction or layoff away from missing several loan payments and getting trapped.

This will depend on whomever is offering the financing. Professional lenders are not going to be happy about this, while a one-off owner financier may not care. Reducing the lender's exposure based on LTV is only half of the purpose of a downpayment; the other half is to make the borrower put skin in the game to tie them emotionally and financially to performing on the loan. I can also tell you that a personal loan for DP will make it more difficult for the note-holder to sell the loan at a later time if it's discovered by the note buyer.

Quote from @Josiah Guyer:

Quote from @Ted V.:

Hi Josiah, I agree — hard to know if $7K is "high" without seeing the Loan Estimate and what exactly those fees are for. Are they showing as origination fees, points, for title/ insurance etc or something else? As others said, origination fees alone could be half of that. Are you buying down your rate? Also curious what your DTI (debt-to-income ratio) looks like — sometimes lenders stack extra fees if the DTI is tight.

FWIW, at Tomo we don’t charge origination fees, so that could shave a couple thousand off right away if you want to compare offers. 

 this is my estimated details sheet

 This is fairly normal. Lender fees might be a couple hundred high, but not bad. Points are normal for an investment loan right now - it's impossible to say if these are high or low because the bond market is so volatile right now. Title insurance seems expensive to me, but this varies by state. Also, the $2,150 in Govt extortion fees (transfer taxes) arent helping. 

True lender costs are around $5k on this, including the points. Everything else is unlikely to change even if you swap lenders. 

Conventional loans allow properties to be transferred to an LLC after the loan has funded if certain requirements are met. The borrower must remain on the note and mortgage, but the Title can be transferred to an LLC, LP, or certain trusts so long as the majority owner/controller of the entity is the borrower. Conventional does not allow entities to be the borrower, so you cannot fund a new loan while the entity holds Title. That being said, I remember this only applying to loans made after 2016 or something like that.

Govt loans (FHA, VA, USDA, loans that are modded/distressed where the govt has an interest) cannot.

Be careful about what youre doing and how youre doing it when it comes to raising capital from others. In a lot cases, if youre promising outside parties a passive return where you invest their money for them, you're creating a security. There are a lot of laws and compliance when it comes to this. 

The reality is that youre not going to be able to raise capital until you have a track record of success and experience. Maybe your parents or a really close friend might trust you, but that's about it. 

As far as downpayments go, lenders are going to source the downpayment funds if they are not seasoned, meaning that you will have to show proof of where the funds came from. Youre not going to be able to borrow the downpayment in most scenarios.

The most common paths to acquiring rentals are 

- buy the property as a primary residence with a low downpayment loan product, live in it for at least a year, then convert it to a rental

- buy distressed and force the required equity through rehab (BRRRR)

- save the downpayment from other sources of income

- partner with someone who takes ownership in the property/company, brings part of the downpayment, and takes on an active participation role 

There is a fair amount of opportunity in Baton Rouge. I would start local and get some experience there first. I've run the back end of a flip from long distance and it was time consuming and difficult. 

If youre dead-set on out of state flips, my preference is the Carolinas and GA. You'll have to get away from the major cities because the competition is intense here, but there are several satellite areas that are relatively easier. Im originally from Baton Rouge and am active in both markets (BR and SC). Flips are much easier in BR right now because acquisition is easier and median prices are lower. 

 Pretty much this, with a little bit of deliberate networking sprinkled on top.