All Forum Posts by: Patrick Roberts

It sounds like the math checks out, but the underwriting doesnt. Since you'll be bearing the credit risk on this, do you think that the deal would be sound for your borrower and that they would be financially solvent to pay you without defaulting? I personally prefer carrying notes to owning rentals, but the credit risk has to be solid, too. I would underwrite it just like any other lender would. If they dont have the capacity to repay because theyre overleveraged, then theyre promise to repay may not mean much. 

People have been predicting that rates will drop since the end of 2022. The ten yr yield hit 4.1 earlier this week - a 3 month low - and shot right back up to 4.3 in two days. It could be 6 weeks or 6 years before rates are significantly lower - it's impossible to know. 

For the rental at 9%, I would absolutely price out a R/T refi on it right now. Unless the balance is low, you'll likely recover the refi costs in a year or so. Get some actual figures and make your decision from there. 

You're buying a primary residence, so most of the typical investment loan/creative financing tricks go out the window. You cant really directly use another property as collateral or cross-collateralize in this case. If your FICO was higher, you could possibly cashout refi or heloc the condo, but you would still get better terms on the purchase loan so that wouldnt make a ton of sense. 

Look into an FHA loan for a duplex. Just watch the 100 mile run with your income - it's probably going to wreak havoc on your DTI. If you get into an FHA 3 or 4 unit, you will have to deal with the self-sufficiency test, and I dont know how many multifamily properties in FL will pass this.

Couple ways to potentially tackle this. For Conventional, if he previously worked in the same industry, makes approximately the same (net) as he made while working as an employee, and has at least 12 months of SE history on his 2024 tax return, he may be able to squeak by. 

There are also bank statements loans as long as he has at least 10% down (20% is much better) and good credit. These will use the cashflow in his bank statements rather than his tax returns to determine qualifying income. Typically, between 1 and 2 years of SE history is doable with these, but less than 12 months is not. 

Last option is to seller finance and then sell some or all of the note(s). There are a lot of nuances to how this is set up, and you will take some amount of a discount on the value of your note(s) when selling, but you could sell some or all of the note(s) within 6 months to a year to convert them to cash. The value of a note is determined by a lot of factors, so you'll want to partner with someone with expertise to set it to bring the most value. This is not something to DIY.

Ok now I'm confused - youre buying a property thats in need of rehab with a DSCR loan, but yet only needs a light rehab to pick up almost $100k in value? A lot of stuff seems off here. I'd double check that your lender/broker knows what theyre doing.

 Are they asking for more details, or are they saying that the situation is not acceptable? I feel like this might be a communication issue. 

If they have a guideline that requires you to own/lease your own place, then it sounds like they are declining your loan because you dont own/lease and they are not willing to make an exception. If theyre literally just asking for a detailed explanation, then this is a communication issue. More detail is needed.

Is the issue that they wont lend unless you own a primary residence? This is a common requirement with DSCR lenders. Also, I'm surprised you found a DSCR loan under $75k, especially over 75% LTV.

REI Central is an excellent in-person meetup to meet other RE investors. It's this Thursday (3/6/25) at Palmetto Brewing on Huger St at 6p. Turnout is usually pretty solid.

MTP in on the last Thursday of the month might be another good meetup for you. Usually a few RE people there, as well as some other B2B businesses. 

 Promissory note, recorded mortgage or deed of trust (depending on the state), personal guarantee from the sponsor if the borrower is an entity, a review and copies of articles of organization/incorporation and operating agreement if the borrower is an entity, lenders title policy and title search with chain of title, proof of identity for the borrower(s), proof of the correct insurance coverage and mortgagee clause, the list goes on. 

If youre not in a position to underwrite this deal properly, use a service like Call the Underwriter or an attorney/consultant. The lender's attorney should be who drafts any documents for the loan, not the borrower's attorney and not the Title company. You want to make sure the attorney is representing your interests - lawyers at Title companies that are a party to the transaction typically wont do this.

Have you had any issues with evictions on these? A few of the investors I network with use similar strategies and have said that some courts are loathe to evict people in some scenarios because they treat them as having some kind of equitable interest in the property. One reported that he had to go through a foreclosure process rather than an eviction when the tenant defaulted. 

Ive been actively working to learn more about the nitty gritty legal details on lease options, rent to own, etc., for the past few months. Overall, the math seems to be decent and it seems like a plausible strategy.