All Forum Posts by: P.J. Bremner

@Joe Xie

So my personal opinion as to why they ask what the purpose of the loan is being used for is for sales purposes. If you're taking out a HELOC, it will be a much smaller amount than if you did a full-on cash-out refi (HELOC maybe $100k, but cash out you would refi the whole loan plus the cash, $300k+ so a huge difference in commissions). If they know you are paying something big like student education, then they know that you will draw the money and it will be used for many years. If it's for a huge home remodel, then again you will be pulling large chunks out and using it for a long time. These are good candidates to switch over to cash out refi and get that big paycheck. I jokingly told my lender I was using it to sleep on top of like a baller or to help with cash flow when needed. They don't care what you use the money for, as long as you make your payments on time and in full. They will never audit your HELOC to make sure you're using it for certain purposes. The lender for your new home purchase may take into consideration where the funds are coming from, because it will affect your DTI, but beyond that you shouldn't have any issues whatsoever.

@Joe Xie

Not sure if you meant to tag me in that as I was the only one who mentioned a drive by? No, drive by appraisals do not have any cost. The HELOCs do have costs associated with them, but most banks will pay those costs for you. They will show as costs to you on the settlement statement, but also show a lender credit to cover them, effectively giving you a no-cost loan. Even if the bank does not pay for it, they are pretty cheap (usually around the $1,000 range). All HELOCs that I have ever seen have an annual fee associated with them (any line of credit, actually, not limited to HELOC). They are nominal, usually $50 / year or less.

@Fillipe Silvas

So another option that I forgot to mention, mostly because it seems so ridiculous to even have to consider, is to order another appraisal (which you will have to pay for most likely).  I've had clients that were okay paying for another $500 appraisal and ended up getting a better valuation that the other.

As far as using comps in a different city, it's pretty uncommon for them to do so unless there just are no comps near the subject property.  Common instances are: a multifamily home in an area where very few MFH exist or are sold, huge homes in an area with average sized homes (this is what my issue was - my home is 3,300 sqft and the average home size in the area is 1,400) or just very low sales volume with nothing else to compare it to.  When this happens, they have to "massage" the search range to include other properties that are actually comparable.  This is when the real BS happens (they will tell you it's the "art" of appraising lol what a joke and a racket).  You might want to order another appraisal if you think it's that far off.

@Collette F.

It sounds like you've had quite a rough patch and I'm sorry to hear that.  I can tell you from personal experience, there are tons of trolls (idiots, jerks, rude people) online that get satisfaction from trying to belittle others and make them feel stupid.  There are also others online that just don't have the social skills to communicate their message effectively and so they come across as being very hostile.  The saving grace in all this?  Trolls are miserable people, they hate life and so they are their own punishment lol and the asperger kids that come on here and heckle people like you will never succeed in business because nobody will ever want to work with them if they communicate like that.  There is your vindication :)

At any rate, I'm sorry to hear you were victimized by a salesperson.  I used to work in car sales, so I've seen that story many times (even was the perpetrator from time to time - it really wears your on your soul).  Best you can do it pick yourself up, learn the lesson and don't make that same mistake twice.

As for the fence repair, here is how it would play out most likely if you didn't pay.  Your neighbor would file a small claims suit.  You would meet in court, explain your side and she would explain her side.  Then the judge would ask for itemized receipts for the damage that YOUR DOG did.  It would be pretty stupid of her to try to say the dog ruined the whole fence.  When she cannot produce itemized receipts for the section of the fence that was destroyed, the judge will most likely toss the case and everyone moves on with life.  I'm not a lawyer, take my advice with a grain of salt.  I will also reiterate, having a fence repair done for $100 is actually a very fair price.  I stated in my previous post that my fence repair was in the several hundreds of dollars by my discount handyman that i've used for years.  While I do not condone being the victim of people trying to take advantage of you, I don't think this is the case with your neighbor.  Nothing in real estate is cheap, especially not a fence repair.  I wish you all but the best, you seem like a very sweet lady and you certainly deserve better.  

@Ron Sharp

There are two ways to do this:

1. Do things legitimately and legally - You would have to go to the city and get the plans for the work permitted and have the work done properly with periodic inspections signed off by city inspectors (plus paying whatever fees involved with the city for that).  In order to do that, you would need to know if your property is zoned properly for that.  The zoning for your home will have to be R2, R3, etc. (R1 means residential, single family home only - so if your property is zoned for only R1 then you will have to ask the city for a variance on your lot which will probably be denied, but always worth a try).  Once the work is done correctly, you should be able to rent the other unit out.
2. Do things on the down low - This is probably more common, especially among mom-and-pop (small time landlords) who are just trying to make the best out of their property (with a few shady landlords trying to slum lord it up).  You convert the upstairs to a unit, keeping your workers clean and preferably out of sight from the city street so neighbors don't call the city and/or city inspectors who randomly drive around don't catch you doing work without permits.  Once the unit is finished, you fill it and hope there are no legal issues with the unit in the future.  99% of the time, things are fine.  The problem arises that 1% when someone gets hurt in your UNPERMITTED ILLEGAL unit and they sue you.  Insurance will not cover illegal additions, the court will always side with the tenant for you putting them in an unsafe, unpermitted addition (even though most of the time, the unpermitted work is done just as well as permitted stuff).

I have experience with doing work without permits and getting shut down by the city lol OOPS!  I will only make that mistake once : )  Personally, I save the hassle of going through all of that now and just rent rooms out, no need to separate for units.  Although, if I had children living with me, I would definitely not be comfortable with strangers coming and going around us and would opt for the separate as you suggested.  Check with the city, tell them what you are thinking about doing and see what they say.  Best of luck!

"Appraisals are like a box of chocolates... You never know what you're gonna get".

-Forest Gump

No, seriously, they seem totally random and at the whim of the appraiser.  I had an appraisal done recently on one of my properties that should have brought MINIMUM $550k but more realistically $600k.  They came back with $502k and had absolutely no logical reason behind it, which cost me at least $40k worth of loan that I can no longer access.  

When I was originating mortgage loans, I could count on 2 hands how many of my team's loans PER MONTH would go bad because of appraisals that were off. One particularly egregious one comes to mind: Client had a condo in a complex of many condos of similar (pretty much cookie cutter - the same) size and style. Subject property and comps were LITERALLY the same square footage and layout. Subject property was remodeled within the last 5 years or so and comps were remodeled within the last year or less, so very minor wear and year between the two. Comps were all in the high $650ks and the subject property came back mid $500k. What the hell was that appraiser smoking? And can I get some of it PLEASE? I've seen all kinds, you are not the only one to deal with this and if you continue in REI (or even your personal home) you will continue to see bad appraisals from time to time. Certainly not the majority of appraisals, but I would say maybe 20% - 30% of the time (WAY too much for my comfort). I'm sorry to hear you are having issues, hopefully you can fight it, but in my experience on the lending and investing side, the appraiser won't budge unless they made a trivial mistake (forgot to take into consideration major highway dividing lines, incorrect square footage on records, fat fingering an address, etc.)

*Edit* The only thing you can do is run your own comps, write out all of the supporting reasons why you think your comps and appraised value are more accurate than theirs and wish for the best.  At that point, it's like going to court and arguing why the cop pulled you over: it's your word against his and often times, the cop will be believed more often than you because he is a professional... (hard to call some appraisers professional when they can't do their job right lol).

@Joe Xie

I just finished a HELOC and was able to get own occupied terms (utility bills still in my name, current house-hack so qualified for owner occupied) and there were no fees associated with the loan whatsoever. If I close the loan within 3 years, they will push the closing costs of about $1,000 back onto me as a clawback. If it were straight investment property, I imagine it would be the same thing for closing costs, just lower LTV allowed and higher interest rates.

@Eric G. - would you mind sharing the terms you got? I'm very curious to hear LTV, rate, appraised value relative to what you think it should have been, etc? I'm also curious to see how they qualified you for the HELOC regarding DTI - as in did they primarily base it off of your ability to pay it if you had $0 rental income to offset or could you have gotten the HELOC without any personal income to offset it and base it solely off of the rents on your taxes, or a mix? I appreciate you sharing as I have another couple rentals I would love to pull HELOCs on, but will definitely have to be using investment property guidelines for.

Just for reference, my owner occ was 85% LTV, 4.75% variable rate, drive by appraisal of $502k but should have been closer to $550k - $600k in my opinion (they only did a drive by appraisal).

@James Tebelman

It's pretty hard to beat an instant 25% ROI plus the tax benefits you get with a 401k. That being said, I don't have one because I'm self employed and I can do better on my own with my own investments. For most people though, it's a great investment relative to what they can personally achieve given their skill sets.  If you can do better with real estate, then perhaps you should save the cash and invest it actively?

My personal opinion, if you and your wife both make good money and you're able to save extra cash, then the $5,500 per year each won't make a huge difference.  If you're bad with your personal finances (please don't take offense, this is just a hypothetical) and the $11k per year is probably close to all you'll be able to save, then I think you might need to restructure your budgets and increase your savings (I assume this isn't the case, you're on BP and looking to invest.  My bet is that you're better with money than most).  I've done finance for many years, looked at enough credit apps and income statements to see lots of high income earners that spend as much or more than what they currently make.  If you're able to save a good chunk of cash each year, keep the retirement savings going and take advantage of that compound effect.  Either way, I'm sure you'll be just fine.

@Teresa Hunt

I feel your pain!!  I have a successful real estate rental portfolio and eCommerce business that does well over $1M in sales each year and they chopped my income in 1/4 when I tried to get an owner-occupied mortgage.  Don't count on self employed income for getting a personal mortgage, even if you've had it going for 2 years.  Often times they will take a weighted average of the last couple of years ($50k first year and $150k the second year, they DO NOT give you $150k in income, it will be closer to $75k since they are conservative - not exact numbers but ballpark).

As far as being self employed, there are a couple of other options at your disposal... What kind of business do you own? I ask because while my eCommerce business has nothing to do with real estate, I was able to leverage the cash flow from that business to obtain a business line of credit (BLOC) from wells fargo at $90k with 3.99% interest for 12 months then 6% after that. I can use that line of credit for whatever I want, does not have to be related to eCommerce. I've also been able to open a $110k HELOC at 4.75% on one of my properties, so if you own property you can tap into the equity. The combo of BLOC, HELOC, liquid cash on hand is enough for me to buy homes cash, renovate and do whatever else is necessary, but it certainly didn't come from me using traditional financing methods.

Another option to you would be hard money.  It's much more expensive and should be used as a last resort, but if the deal is good enough then it might make sense to leverage that.

Lastly, if you have great opportunities and cannot get funding for them, then perhaps they aren't that great after all. Or you have not presented them to enough people with the ability to fund the deal. Believe me when I say, if someone came to me with a deal in my area that made perfect sense, I would RUN (not walk) to the bank and pull every penny needed to get it done. Deals are not that easy to come by in this crazy market. They are definitely out there, but if I had one presented to me without me having to do all the marketing necessary to get it in the first place, it's a win win. Get to a local REIA meeting, get a pro account on BP and post on the market place, do whatever you have to do to get in front of the right people at the right time. Best wishes!

@Marc Belisle

I've posted a few times on topics like this before.  As you stated, the best course of action is very much dependent on the person's financial situation, experience, investor savvy, etc.  For you, you obviously know what you're doing already (you can't be a complete idiot and own 2 homes at a young age lol), make good money along with a spouse who makes good money as well and have some experience with a rental property.  You have a plan to acquire a property within the budget you can afford.  It sounds like you have a great plan and I would feel confident it is the best use of your time/money moving forward.

I can attest to this from personal experience as I was in the same boat as you. I left school with only $25k in debt, but went through the same thought process and decided to invest instead. I'm SO glad I did as that $25k bought my first property (3.5% FHA plus a small rehab) which I make about $2k per month net in cash flow and already have well over $200k in appreciation equity since I've purchased it. It also taught me the business of real estate which is arguably worth many times what the house has brought me financially as I've been able to aggressively expand my holdings since then.

A couple side notes: 

• For others who don't have the financial aptitude, income, experience, etc. like Marc, I would take a closer look at the whole situation before jumping into real estate investing and taking on more debt (investment property mortgage is still a debt). For example, because he has high income, he can probably handle a few months of vacancies or major CapEx repairs if they were to pop up early, but someone with a minimum wage job, no savings, student debts, etc. might not be able to handle such situations without going broke and putting yourself further away from real estate investing.
• You have to look at the opportunity cost of paying off the student loans aggressively as opposed to paying them off in 10 years and having some debt forgiveness. Let's use arbitrary numbers here; student loans of $65k @ 5% interest. Can you invest that same $65k into a rental property and earn a return greater than 5%? If so, investing would net you a positive EV (Expectation Value). Even more so, the longer you hold onto that debt, the less it becomes due to inflation. Often times people see this ONLY FROM THE CONSUMER SIDE, but it also works on the debt side and can work in your favor. If you have a loan payment of $1,000 per month for the next 20 years, isn't it safe to assume that $1,000 in today's money is more costly than $1,000 payment 10 years from now? You will probably be making more money by then due to inflation, so if you were to pay this debt off early, you don't allow inflation to effectively lower your debt service payments. And a final note, if you can get any kind of debt forgiveness on this amount, it is added straight to your bottom line ROI by NOT PAYING IT OFF. If you get $10k forgiven, then you just earned yourself a $10k return on your investment. Money that you no longer have to pay is no different than earning $10k in a deal and sending a $10k check to the loan holder to reduce the debt (assuming you don't have to pay taxes on the amount forgiven?).
• I love the fact that you are very realistic about your expectations and plan for moving forward.  You're not some kid fresh out of school with big dreams to make $50k profit on your first flip with $0 in your bank account and no practical experience.  I think a lot of people on here can learn so much from someone like you.  You busted your butt in school, got a great paying job, saved up money to buy a few homes, set forth a realistic and pragmatic goal for moving forward and then asked for advice from others to make sure it's legit.  Kudos!