All Forum Posts by: Phil Goodwin

PNC bank gave me the LTV at 89.9%. 7% is still high, even with the recent hike.

I form LLC's for my partnership and I use Legalzoom, I live in PA. Obviously check the laws in TX to make sure you do not need to do anything special. Get your attorney to draw up the operating agreement and tell your attorney not to "lawyer it up" with language no one understands. Have your partners get their own attorney to review the document...just smart business practice so that no one accuses another of "hiding something" if a problem ever arises down the road.

Commercial lenders do not have seasoning periods, I work for a large bank and do commercial loans.   2% early prepay for 3 years is actually reasonable.  Some lenders do a 5-4-3-2-1 structure: 5% in year 1, 4% in year 2 and so on.  Your lender will most likely not waive the prepay, but ask them for "customary yield protection" instead of the early prepay they mentioned.  If rates go down, you pay the change in the rate x balance x time remaining on the note (it is a very long formula that I can't really explain) but basically if rates drop you will have a penalty, if rates go up then you do not have a penalty.  The bank wants to protect its interest income if rates drop, if rates go up they are happy for the early payoff because they can lend money at a higher rate.

Banks lend on multifamily based on Debt Service Coverage of 1.25x. when building is stabilized. Gross rent less vacancy (5%), less reserve budget (5%) less property management fee (5%) minus all operating expenses = Net Operating Income. Operating expenses are anything it takes to run the property: taxes, insurance, landscaping, utilities, repairs, legal fees, marketing fees, etc. Put NOI in the numerator and divide by Annual Debt Service, must be greater than 1.25x.

Costs for repairs really depend on how much asbestos you have (you might not have any) and cost to replace K&T wiring (depends if the wiring is accessible from a drop ceiling, in an exposed basement, open attic, or behind plaster walls that will require some cutting and patching.  On older buildings, I pop off the electrical plates when I look at a building and look for K&T.  It looks like thick brown string.

Talk to your CPA to confirm but those expenses you mention are all considered Operating Expenses and can be written off,....not sure about the PMI though.

the heloc is certainly an option. Some banks will do a heloc with the option to fix the rate. Search google for Choice Home Equity Line of Credit and the bank I am referring to will pop up. Not sure if they lend in CA. You can do a cash out refi but if you have a good rate I would probably tell you to stay put. HELOC are good because you only pay interest on what you draw and you only pay interest when you make the draw.

I live in Philly and have used home advisor quite a bit for various trades.  I have good experiences overall.  

I had a meeting today with a potential investor.  It is really up to how your team wants to do it.  Some investors are happy getting a preferred return of 9%, 10%, etc.  They get this money before you take a profit.  Other investors are willing to split the equity in the partnership based on the the cash each person injected.  If you are putting the deal together and will act as the manager of the property (collecting rents, screening tenants, coordinating repairs, banking, accounting, etc) then you should deserve something for your time.

It can't hurt to have extra inspections, but your home inspector should be qualified to look at the roof, HVAC, plumbing and electrical.  If he sees issues, you can always hire more inspectors/contractors to investigate further.  I bought a 5 unit building that was built in 1909.  It had asbestos on the heating pipes in the basement, which I saw myself.  And I saw knob and tube wiring as well.  I consider myself a fairly experienced investor so these items did not bother me, rather they got me excited to offer a low price!  If you are getting a loan you can pack in the construction costs to your loan, called a "construction loan".  You will get about 90-180 days interest only and be able to make draws to pay your contractors.  Then at the end of the draw period, your loan will convert to permanent financing at a fixed rate of interest.  By financing the construction, you lower your out of pocket cash outlay.

Your heloc is expensive. I just got a heloc, my rate is 5.25% at I got 89.9% LTV. I would use the HELOC vs having a taxable income issue with selling stock. 401k money is for retirement in my opinion, not for real estate investing (although I know a lot of people like self-directed IRA's).

If you borrow $1,000,000 from the bank and there are 3 partners with a 60/20/20 ownership and each would be responsible for a limited share: maybe $600,000; $200,000; and $200,000.  This has to be negotiated with the bank; if this is your first time borrowing money from "Anybank USA" then they will most likely not negotiate with you.  Unlimited guarantees, also called Non-Recourse, means that the bank can go after each individual for as much as they can get in order to be made whole as quickly as possible.