All Forum Posts by: P.J. Bremner

@Jen R.

Nice work!  I noticed in some places, they do not allow you to convert the upstairs attic into "legal bedrooms".  I guess you're allowed to finish the area, but sometimes it will not be allowed in the total square footage calculation?  Can you elaborate on when you're actually able to convert an attic into a bedroom and when the city says "nu-uh"?

Also, for your refi did you end up using a Fannie/Freddie loan or a portfolio loan?  I would be curious to hear about the financing side as I am currently closing on 2 duplexes in Lakewood and would like to have a few more options for the refi at my disposal.

Final note, how the heck did you get the taxes so low?!  One of my duplexes is closing for around $80k and the taxes are over $4k LOL.

@Stephanie P.

That's a great point to make, portfolio lenders will have their own guidelines and can often circumvent the issue.  My plan was to go conventional until I am Fannie/Freddie'd out and then switch over to portfolio lenders.  I have a couple companies lined up for portfolio loans, so I have that covered for the most part.  The trick is to find someone who lends Fannie/Freddie and knows these special loan programs.  Most loan officers, unless they specifically work with investors, have never heard of these specialized loan programs.

@Keong Kam

Yeah it really sucks being in CA because of the high costs. It's very unreasonable to have a separate LLC for each property when the cost is $800+ each month (you also have to pay monthly for someone to represent you in the state you are doing business, usually a lawyer or a company so that if you get served, they keep it all within the same state).

There are some states that allow Series LLCs, which would be AWESOME if they allowed it in CA, but last I checked they did not. : (

http://www.dummies.com/business/start-a-business/t...

I'm sure it's important to have an LLC to protect yourself against the "Ultimate One-Off Lawsuits" that can bankrupt you, but my opinion is that if the cost of the LLC will also likely bankrupt you because high operating costs, I'll take my chances until I get to the point of being able to absorb it.

Looking forward to hearing what your consultations come up with!

@Keong Kam

I heard the exact same thing from my CPA, so I decided to go the Umbrella Insurance Policy route rather than LLC route. It may make sense to go the LLC when you start to get assets in the several millions, then the $800 is a negligible expense.

For now, I make sure all of the homeowner insurance on these properties have good coverage (I like minimum $500k liability) plus a couple million on the umbrella.  My personal umbrella covers about 5 properties, my cars, etc. and the premium is like $400 per year If i recall.  

My personal opinion is that I would rather a lawsuit take my insurance premium a little higher rather than losing everything in the LLC. I've also heard from some that out of state LLCs MAY not protect you in some instances. I'm not a lawyer, I heard this from other lawyers, so take it with a grain of salt. I would love to get some lawyers perspectives on this though.

@Chad B.

Best way to guarantee you get the house is to put the highest offer and have a strong case for being able to close the deal.  Make sure you have a good pre-approval from a LOCAL LENDER (If agents see stuff from Quicken Loans, Loan Depot, etc. they will often take a pass as these huge volume mortgage brokers are known for 60-day closings).  

Another strategy that you can employ when you offer is to use an "escalator clause".  What this means is your offer will go $X higher than their highest bid (with a maximum cap to make sure you don't pay over what you can reasonably afford).  

And example of this is: House being offered for sale at $200k.  You offer $205k (to let them know you're serious) and include a $5k escalator for any offer above yours with a cap at $225k.  If someone comes in $206k, your offer will automatically bump up to $211k.  Most people will take the extra $5k for 2 weeks of wait time.  $1k - $2k probably not gonna cut it, I would rather have the cash deal.

However, if you're trying to purchase a home as an investment, then all of this is absolute rubbish.  I had been trying to purchase a flip property for over a year in SoCal, even did my own marketing pieces and failed to purchase a single home.  I definitely messed up on 2 that could have been bought had I offered a little more (I was too conservative - learning curve).  But at the end of the day, I just couldn't make it happen here.  Fast forward a few months, I decided to go out of state and started to offer on duplexes in Cleveland area and already have two properties in escrow.  I targeted properties that needed a bit of work and had sat on the market for a while.  Maybe you can start looking at the turds in your area, particularly ones that have been sitting for awhile?  Best of luck, I hope you're able to find the right deal!

@Brandy Phillip

I'm not sure I am understand you correctly, but let's assume I am: The cash flow is the same between both scenarios BUT you have to pay money to get the extra unit?  The only benefit you are saying is that the extra unit would provide some stability for the rent because if someone moves out, you'll have some rent from the other unit.  To me, this is a no-brainer: I wouldn't do it.

You would have to spend your hard earned money with nearly 0% chance of getting a return on it because the rent will stay flat.  The only time you gain is if you have a vacant unit in which you are basically hedging your losses.  On top of that, you now have 2 tenants and 2 leases to deal with.  They will be living in very close proximity to one another, what if one tenant pisses off the other and they both stop paying rent until you resolve the issue?  You just never know what crazy tenants will come up with.  I think a single family home by itself would be the way to go.

If you said the extra unit would provide an extra $300 - $400 per month, then without a doubt it's worth the risk because you'll have the investment paid for within a year and a half or so and every rent check collected beyond that is gravy. No increase in rent, no ROI to be had, no deal for me.

I had a similar dilemma a few years back... I wanted to convert an attached garage into an extra bedroom and laundry room in order get a little more cash flow going.  The city wouldn't permit it, so I had to do it on the DL.  The cost was about $5,000 and it looked REALLY nice (better than the main house).  I was able to get an extra $750 per month so the project paid for itself in less than a year, plus I had extra savings to tear the conversion back down if I ever needed to sell the property.  It was a good investment and everything was done up to code (even though the city wouldn't certify it - I made sure it was safe).  The only reason I decided for it was the extra cash flow.  Without that, it would have been a no go.

@Chris Mason

So in the DFE guidelines at the very bottom, it states that the loan cannot exceed the purchase amount.  I assume this means that if I use DFE, I am not able to pull the money spent on the rehab?  My goal would be to recoup ALL of the cash invested in the property.

Assuming I am not able to pull all of the cash out, would it be a good alternative to take a temporary DFE loan for the purchase price (take a slightly higher rate, use the lender refund to avoid paying closing costs and just pay higher interest for 5 - 6 months) and then refinance again later when the 6 months seasoning period is up?  I'm thinking it might just be better to wait the full 6 months if i'm not able to refi all of my costs back out.  I don't intend to take any cash above and beyond what I spent, just the money I put into the rehab, utility costs, etc.

@Chris Mason

LOL "Dial for dollars until you find a lender local to the real estate that can spell "Delayed Financing Exception" without the use of google or a spell checker." (That's great)

There is a reason you are "The Man" when it comes to lending lol great advice.  I am purchasing these properties cash out of my personal checking account.  I assume I can fund the rehabs from whatever source I want?  I'll be calling lenders next week to see who does it.  

@Chris Mason

Great advice, problem is I have not really spoken with many people that lend in that area.  I'm sure I could find a good reference or two on here.  Also, can you confirm the 6-month wait period from cash purchase to cash out refi?  Is there any workaround for that?

@Craig Miller - I will definitely keep you in mind, thanks!  How do you like Lakewood?  Any specific areas I should be aware of?

@Kevin Romines - I've heard of that before, so I assume that isn't a lender overlay? It's an actual Fannie guideline used in every state? Good news on the 75%, i was doing all of my math at 70% so i have a little cushion :) I thought I had read somewhere that SFR was 75% and 2 - 4 units max cash out was 75%, glad to have erred on the conservative side. I don't expect to get 100% of my equity out on every deal, but as long as my numbers are good going in, I'll take a few lumps here and there.

@Chris Mason - Always good to hear from you brotha! Sucks you don't lend in Ohio (although you probably don't want to deal with $100k loans lol). Good info on the broker/direct lender, any opinion on dealing with a credit union for Fannie products? I actually used a CU for my HELOC and had a really good experience. I went to Wells first and they screwed up my income calculation from the start so when it went to underwriting, the deal died and wasted 3 weeks of my time. The CU approved it and closed in like 3.5 weeks... But I'm not sure how they would stack up to the big boys/girls (Lenders/brokers) for Fannie products.