All Forum Posts by: Riaz Gillani

@Dominic Pizzi

Seller financing is a good way to get started. It will quickly help you determine if the risk profile and value proposition is to your liking. Obviously it requires selling a property.

You should otherwise try to immerse yourself with the must know’s of lending and lean on subject matter experts you may have come across in your investor career.

If someone has the answer to whether rates are going up or down please let me know via PM too...

Lock it in if the numbers work for you.

It depends on your definition of 'brrrr.' Conceptually, of course, you can. You buy a property under value, force-feed appreciation with repairs, and then refinance it. The only slight modification to your strategy versus the typical brrrr practitioner is that you'd have to get a conventional/home mortgage at the refinance stage. 

In other words, you cannot 'rent' it to yourself. A lender specializing in such a deal would view the property as an owner-occupied property, not an investment one. So DSCR or hard money lenders would be off the table (until at least the point at which you decide to inhabit it).

Hope that helps.

@Courtney Nguyen A better question would then be what's the lowest interest rate you can charge. Your initial question said 10% over Fed Rate, which I believe we all assumed you meant as being a nominal 10% greater. I now understand you meant 1/10th of the current Fed Rate (4.50%*0.1=0.45%) greater. 

This is a far different question and potentially more complex. Minimum interest rules and the IRS require at least the AFR (especially on loans above $10k). It is generally lower than market rates but the tax consequences can be large if you don't take the necessary precautions. You'll want to look that up and charge at least that based on the type/duration of the loan. 

No, the logic is incorrect. The Fed Rate has little to do with private loans. Rates can be as high as 15-20%+. 25% is generally criminal (Laws governing Credit Cards are different...see below). 

I can't speak to the max interest rate allowed for a loan from a parent LLC to the holding. Especially b/c my guess is you want to charge higher interest to increase the expenses of the holding LLC (or increase the parent's income). You'd like to consult a CPA for this.

But the max interest rate on a private loan is a function of state-by-state usury laws. Usury law sets a limit on the amount of interest that can be charged on different kinds of loans. Personal, Bank, Credit Cards, Education, etc. all have different limits. 

 @Stephanie P. Who have you seen offering the 10 Yr IO w/ a 40 yr term and 40 Yr FRM for DSCR?

Depends on your goals and the opportunity cost of the money you'd have to tie into the property. Do you have enough liquidity to refinance and begin on a new project? If not, I'd probably sell and move on. Underwrite with more scruitny on the next deal. 

When you're first starting out, it often makes the most sense to go into a deal thinking to flip and only BRRRR'ing if the equity is there. Until then, keep building up your cash vault.

You may not need a portfolio loan. You can refinance each property with single-asset loans simultaneously to pay off the existing debt. But you can if you want. It's just a bit tough to get a 2 property portfolio loan. If you do opt for the portfolio, be sure to ask your lender what the partial release provisions are. 

What is the sqft of the ADU turned SFH? Most lenders will be looking for at least 500-700 sqft.

And here are some additional questions you should be ready for: 

(1) Is each property leased? No DSCR lender will cash out a vacant SFH.

(2) What is your credit score? (no need to answer I just posed this b/c you mentioned CC debt)

(3) Do you have AT LEAST 6mo of PITIA reserves? 

Good luck.

It's absolutely still feasible. But you are right to have some uncertainty. Tier 1 Markets are especially tough with the increased cost of money.

But a silver lining of increased rates, no matter the prevailing market conditions, trends, backdrop, etc. is decreased demand. I used to be unable to review an off-market deal let alone underwrite it because someone else had already wired the EMD before I opened up excel. In most areas, this is less so the case. And I'm relieved.

But it is harder to justify a BRRRR than a flip when you're using raised capital for acquisition or Reno (let alone acquisition and Reno). The capital isn't as cheap and the spreads aren't wide enough. And, unlike in the past 2 years, you're far less likely to have the market / an appraiser bail you out for a project that went over budget or beyond the estimated timeline.

I'm approaching all my properties as flips with a more generally appealing design aspect so that if I do choose to BRRRR - I don't end up regretting granite countertops, french tiles etc.

A good BRRRR is always a good flip. But, a good flip is not always a good BRRRR. Be ready to do either.