All Forum Posts by: Patrick Roberts

This is highly specific to the loan product and the lender. For a Conventional cashout refi, you will need 12 months of seasoning. For a DSCR cashout refi, the seasoning could be anywhere from none to 6 months. Generally, the ARV will be used so long as the circumstances are reasonable. In some cases, if the ARV is outlandish or the change in value is rapid and extreme (ex: purchasing for $100k last month, appraising for $500k thirty days later), it may need to be supported by a CDA or evidence of repairs/upgrades.

You're unlikely to find any kind of mortgage product for the business purchase. If the property is residential rental real estate and can be separated from the financing of the business acquisition, a DSCR loan might be an option for the RE part if you have the downpayment. I'm not aware of any mortgage products that will cover the acquisition of the business itself. SBA or CRE from a local bank is your best bet.

It sounds like this might have been some sort of "creative financing" scenario where the buyer has $0 but is trying to cobble together 3 liens and 8 JV partners to buy something they cant afford. I wouldn't sweat it. If I was in your shoes, I wouldnt waste my time with an unqualified buyer. If they cant be bothered to provide basic proof that they can close before tying up your time, then they will be a nightmare to deal with once under contract.

This is literally what a pre-approval letter from a lender does - it shows that a lender has taken a solid look at the buyer and confirmed that there is a decent probability that they will get the loan needed to close. If they wanted to send a hard money pre-approval for half of the purchase, then either A) the lender needs to confirm that they verified the borrower possesses the remaining cash to close, or B) the borrower needs to show proof of funds for the remainder. I regularly call sellers on behalf of my buyer clients that I have preapproved and walk the seller through the rigor of my preapproval process to prevent this exact situation. 

I agree. Some of the stuff I've seen and heard in local REI meetups is unbelievable. People funding in 2nd position behind hard money at 75%+ CLTV on flips with aggressive ARV's, people funding EMDs and closing costs for "wholesalers" who have completed 1-2 deals and dont have $5k to their name, etc. At least 2-3 times each week, I get a referral or lead for someone wanting to buy an investment property with 5% down that cashflows $23.00/month with an insurance estimate that is half of what's realistic. It's wild.

I feel like just about every month, I see RE investors with 1-2 year's experience starting a new fund and advertising on Facebook for LP's, as well as the daily "JV deals" that straight-up violate securities laws. While I don't think there's going to be a crash, I do think we'll see a reversion to mean in which a lot of the aggressive investors on the bleeding edge of the risk frontier get smashed.

It's highly unlikely that you'll find something like this, and if you do, the max loan is likely to be no more than the value of the land minus any demo costs. A lender would have to be a fool to lend on collateral that wasn't protected - if the house is lost in a fire or whatever, the loan is unsecured at that point and is basically credit card debt. 

Also, if you currently own a property that is not protected by insurance, I strongly recommend that you reconsider this strategy. Trying to save money by foregoing insurance is playing russian roulette. Most of the time you'll be fine, but when something bad eventually happens (with enough exposure over time, you are virtually guaranteed to have something bad happen), the outcome is likely to be catastrophic. 

Generally speaking (I dont have any details about your situation), househacking is the best way in for people getting started. The reason for this is that existing loan guidelines are set up to favor people buying their primary home. Conventional, FHA, and USDA all have products with very low downpayment options and government-subsidized rates for first time homebuyers who have a normal income. Also, Conventional and FHA allow for buying multifamily properties as your primary home, meaning you can buy a duplex, triplex, or 4-plex, live in one unit, and rent out the others. On the other hand, most true investment property loans are going to require at least 20% down.

I also recommend that you network as much as possible with other investors. You can learn a lot by being around others with a similar mindset or who have more experience than you. Charleston has a very active REI community and several meetup/networking events each month that are pure gold. REI Central is the most prominent event. I strongly recommend you start attending these as often as possible and soak up as much knowledge as you can.

I'm more than happy to help if you have any questions about loans or networking. Shoot me a DM if you want to chat about it. 

The fees are high, and the rate might be a little high. Most HELOCs are WSJ Prime + a spread, and prime is at 8% right now. If you dont have great credit, 9.5% is probably about right. Also, Helocs are typically variable rate, so I would check on this detail. Usually, there is a draw period at the beginning where you pay interest only, and then the line converts to an amortizing loan for the remainder of the term. 

Overall, I'd say this is a fairly normal deal. This is definitely a nice tool to have if you want to use it to buy a new property in all cash, but keep in mind that you'll need some type of takeout loan after the purchase to payoff the Heloc. This would not be suitable for long term financing. 

There a quite a few options here, and the details will determine what's available to you. There are two main pathways for this - Delayed Financing and cashout refi's. 

With delayed financing, you can get a mortgage that's treated as purchase money financing after closing so long as no lien was put on the property during the purchase. In other words, if you buy with true cash (meaning not hard money, no lien was put on the property at purchase, etc), then you can get a mortgage for up to six months after closing based on the purchase scenario (basically a cashout refi). You cannot finance more than what wouldve been available in the initial purchase or use any improved value or new appraisal to increase the loan amount. 

With a Conventional cashout refi, you will need 12 months of seasoning from purchase; however, the LTV will be based on the new appraisal amount, not the original purchase.

Additionally, there are several DSCR lenders who have various products for this, but most have something similar to Delayed Financing as well as cashout refi's with seasoning typically around 6 months.

I generally don't recommend holding real estate with all cash unless there are extenuating circumstances. If you want to be conservative, stay around 50%-60% LTV, especially if your cost of debt is lower than your cap rate, as this will lever your ROE. Generally you get top tier loan pricing at or below 65% LTV. Ultimately, a lot of your decision will hinge on your strategy and goals.

As far as whether rates will be lower in a year, that's anyone's guess. It's just as possible (and just as likely, in my opinion), that rates are the same or higher a year from now. The future is unknowable. 

Generally, decisions around buydowns come down to three things: 1) the breakeven period on the buydown, 2) how long you expect to keep the property and loan, and 3) your personal risk tolerances. The breakeven period is simply the recapture period - how long (in months) does it take to recover the cost of the buydown with how much you save per month. This goes hand in hand with how long you expect to keep the loan - if you know you will be selling/refinancing/whatever in short order, a buydown probably doesnt make sense. 

The third thing is the most overlooked - buying down the rate is a form of hedging interest rate risk. It's like an insurance policy. When you buy down the rate, you prepay interest in return for a permanently lower rate. You're inherently making a tradeoff - you're accepting a known cost now for lower expected total costs down the road. Despite what everyone in the market is saying about rates coming down next year (just like they were going to come down at the end of 2023 and in 2024), there is no guarantee that rates are lower in the future than they are right now. If you can get into a rate that works for you for a buydown with a reasonable cost, it may make sense for your situation. This goes back to the breakeven period and your planning. 

Generally, my advice to my clients is that if the breakeven period is under two years, it's worth considering, and if the breakeven period is under 15 months, it's probably the right move if you plan to keep the property for several years. At a breakeven of 12-15 months, you're hedging rate risk for next to free. If the market turns against you and rates continue to climb, you save in the long run. If not and rates come down in the next year or two, the cost is minimal. 

Tons of lenders will stand in line to tell you that buydowns when "rates are going to drop next year" are a waste of money. The reality is that this is like saying that buying an insurance policy for your house is a waste of money because "you know it wont burn down in the next year." It's a conscious decision about the trade-off between cost and risk. 

If you're planning to go that route, I would consider buying a new primary rather than renting. The new property would be a primary residence, so you would get the best mortgage terms available for your particular situation, including relatively low downpayment options. You could even househack a duplex or multifamily property. Also, if you have significant equity in your current home, consider getting a HELOC or 2nd mortgage to pull cash out of the home for the new downpayment. Obviously you'll want to check the math on all of this before pulling the trigger.

If you decide to buy, please talk with a competent mortgage professional before putting any of this in motion. There are a lot of rules around using rental income to qualify for the purchase of the new property which may limit or change your options. I'm happy to help with this is you'd like. 

As someone else mentioned, if you decide to rent a new property for yourself, you'll want to watch the net change in cashflow or you may be wasting your time and money. The increase in property taxes, insurance, and maintenance/wear and tear may erase all of your gains and more.