All Forum Posts by: Riaz Gillani

Agreed on your comments re: inflation. Core CPI (CPI with Food & Energy prices stripped) is still on an uptick.

Also agreed on your mentor's comments re: how to scale. More debt + more liquidity is how to achieve hockey stick-like growth. 

But, that's assuming you have the resources and access to capital to reach economies of sale. A new investor who's using the greater portion of their savings to finance a one-off purchase really shouldn't focus on cash flows. Using the the PP you listed and my familiarity with DSCR's over the last few months, best case scenario is you'll be netting a few hundred dollars a month. Unless you have an investment vehicle that can 2x those dollars, the value Real Estate is unlocking for you is (1) tax benefits and (2) potential price appreciation.

Over time, interest only options and abstaining from escrows will provide you with more liquidity that enables an opportunity you'd otherwise not be able to afford. If you're just starting out, let your money work for you with the amortizing debt.

#1 Be Brave and Worry less --> Don't think that you may be wasting the lender's time. Lending is a two-sided transaction where each party needs the other to achieve their desired result. And this may be hard to believe right now, but the lender also learns from you and will enjoy the conversation more than you think.

#2 - Be Curious and Ask Questions --> This will help with awkward, silent moments and keeps the conversation flowing. And nothing is a bad question. We spend a lot of time perfecting our craft - any opportunity to flex our mortgage-aptitude feels good.

In terms of being more professional, I'd have to default to the age-old adage of practice makes perfect. By hearing the tone and demeanor of others - you'll pick up on what can and cannot be said. 

All in all, focus on your mission. Lenders are there to enable it - not get in your way. 

A credit score is needed to qualify. But, remember that a HELOC is a revolving account so it does not contribute to your debt until you used the funds.

Whether or not it appears on your report will depend on the bank / lender as well as if you are vesting as yourself or as an entity. Try for the latter!

Do you have any cash for the down payment? Without tremendous experience (5+ deals flipped or held in the last 1-3 years) a lender will only lend up to 70% of the ARV. That puts your maximum loan amount at about $455k. Less the budget of $150k - that's $305k in loan dollars available to go towards the acquisition (you bring the rest). IF you can achieve the same ARV with a $100k budget - you can potentially get an additional $50k to go towards the purchase.

A unicorn situation would be reaching out to someone VERY local who can lend to you using their own scrutiny rather than the credit requirements of secondary markets. 

Congrats on securing the contract ... it could be tough getting a loan for the rehab costs from a private lender. Very few (if any) are willing to be in a second position. You should explore raising money from friends or family, finding a partner for the deal, or business credit (a $150k budget is probably too high for this ...). 

A HELOC is a great option also if your primary has some equity. But this deal specifically is pretty tight on return (85% Cost to ARV) so do all you can to keep carrying costs low - maybe even see if its possible to lower the budget.

DSCR! There's plenty of lenders out there so I'll leave that part t you. But, as a primer ... No DTI requirement. No Income Verification, No Employment Requirements - these are for creditworthy borrowers who are self-employed, have lots of assets but limited income or even people with a lot of debt in their name (think full-time RE people).

By barring those initial otherwise qualifying measurements - the cash flows of the property become a primary determinant for qualification. They are generally 30 Yr Loans (Fixed, IO, ARM, etc.) and using an LLC is ok.

Like I mentioned, credit must be checked but can be as low as 640 in most cases. Possibly even lower. Seasoning requirement is at least 90 days. For max cash out without restrictions / conditions - 180 days.

The main drawbacks would be marginally higher rates (50-75 bps higher), always some kind of prepayment penalty, and because the asset is the primary function of the loan - a non-cash flowing property (maybe lux or bad market) may not qualify.

Be careful who you trust in the space and place the most stock in synergy and communication (not rates or 'fast closing.') 

The ROI you offer this Private Lender (really the gap funder - the private lender is who ever decides to fund the remainder of the acquisition) should be at the absolute least 300 bps greater than the 10 Yr Treasury yield. Mind you that treasury bonds and bills are backed by the full faith and credit of the US gov't so there viewed as a safe investment. It's currently around 2.750 - so your first thought should be 6.000% or so. But a more reasonable starting point for someone you haven't delivered for yet would be 8.00%.

You can also entice someone to loan you this money by offering 50% of profits. Which is fair given that its they who bears all the financial risk.

Also worth noting that your private lender for the remainder of the acquisition may require your funds be seasoned. They most certainly won't be willing to be subordinated and are unlikely to allow a second position at all.

DSCR / rental / hybrid / even conventional lenders who have an opinion: Where is DSCR heading?

Context: The DSCR space is largely controlled by 10-12 institutionally backed lenders. There's hundreds of other lenders who are small in size and table fund or maybe even fund into origination and there cash reserves are funded by LPs, Family Offices or High Net Worth Individuals ... but the 10-12 with institutional sponsors have seen tremendous growth since 2016.

If this trend continues, will the DSCR product become more standardized? What if Better or Rocket jump into the space? They have the platform to really wipe some of the small guys out. And not because of their tech (Kiavi really showed us that fintech won't win you every deal) but because of their infrastructure and access to data + cheap capital. Can margins even get thinner than they are right now?

Will GSEs ever step in? Obviously this all assumes no serious uptick in default / delinquencies. 

Books on mortgages? That does not sound fun or enjoyable. That'd be more studying and if that's what you're trying to do - go for it! Just look up those buzz words on google - slowly you'll create a foundation and then the dots will connect themselves.

But, if you're interested in learning REI while deriving some pleasure - here are some books I've enjoyed:

BRRRR - David Greene

The House Hacking Strategy - Craig Curelop

Skip the Flip - Hayden Crabtree

Lend to Live - Beth Pinkley Johnson, Alex Breshears -> Full Disclosure, I haven't finished this yet but it's so far a good sneak peek at taking the lends of a lender

Most lenders I've traded notes with have a MAX of 65%-70% LTV for a foreign national. No credit score isn't a necessarily problem but your rate will be in the 8 to 9's as a result.

If all this is ok so far ... also be sure to note that you'll most likely have to use a US Based Entity and Liquidity must also be shown in a US Bank Account. 

Forming an LLC with a US-based partner would go a long way between required Down Payment and the Rate ... best of luck.