All Forum Posts by: Sam Elder

I think I can provide some good perspective on this.  I live in D/FW, where a lot of out-of-state investors purchase.  Also, I am a mortgage loan originator that does a fairly significant amount of volume.  Add to that, I am a real estate investor with 36 doors.  Finally, I spent two years almost exclusively working with investors, providing nearly every type of financing.

My guess would be this: there is a very definable trade-off between local knowledge and access to properties that "check all of the boxes".  I frequently see people from out-of-state (we'll call them "Californians" lol) purchasing properties that meet their criteria but that are properties I wouldn't invest in, personally.  The properties are "better" by various metrics relative to properties in California, but they are in completely random, less than ideal areas, which highlights the lack of insight the investor has in the area.

The most successful investors I work with have partnered with true, local expert Realtor partners that have a very high awareness of the local market but that also understand investing.  They also take time to learn the area in more than just a superficial manner.

No doubt that there are "better" opportunities in areas where the numbers make more sense, but a weekend Wells Fargo "Investor Seminar" held in the Bay Area doesn't give you all the tools you need to successfully operate in a place with which you are totally unfamiliar (personal anecdote).

I'm going to make an educated guess that SFR will appreciate better than multifamily options, simply b/c your pool of buyers is exponentially higher and access to funding for buyers is significantly greater. You are limited in buyers for duplexes (on a relative basis), and you are quite significantly impaired on buyers for quads (relative to both SFR and duplexes) due to both your pool of buyers (mainly investors) and access to financing.

FHA allows gift funds. Additionally, funds that reside in someone's individual bank account do not need to be sourced after 60 days*.

As an explanation, a borrower would need to show two statements with the funds present subsequent to the statement where they were deposited.

@Jeff Couch NW can arrange rehab-to-perm through their lending partner. It's intended to be short-term financing for this exact situation. Close quickly, borrow off ARV and roll in repairs. From there, you complete repairs (as minor or major as you decide to undertake and/or as the property warrants). You can start the refinance into 30-yr fixed rate conventional within the first couple of weeks (as soon as title work makes its way through the system). I know that I have seen permanent financing close within the first 30-45 days after closing on the front end piece. Your appraisal cannot take place until all the work has been completed, but that can be the last step in the refinance. It's a great tool.

Down the road, you might be able to make cash purchases and utilize delayed financing.  It's cash intensive, but it's a great tool to help you close quickly and get the mortgage after the fact (immediately; without seasoning).

Jeff - all great questions, and there's an abundant amount of information that I think would benefit you.  Question #4 is the one most in my wheel house, so I will start there.

The first step on this or any investment property mortgage question is to make sure that you are using a lender with proficiency in investment property finance and the ability to originate mortgages without overlays.

You mentioned "broker", and although your mortgage person may be best in class, you truly need an originator that can go straight off Fannie/Freddie guidelines.  A lot of what creeps in as far as no-nos is perpetuated by lenders with overlays.  Fannie/Freddie are VERY accommodating, and I have a great track record working with investors.

Rehab-to-perm is a GREAT program, and NW should be able to set you down this path.  This mechanism allows you to get in on on investment properties with a much smaller cash position.  On a straight mortgage purchase, you are looking at 15% down (but with a higher rate and MI), 20% down for an okay rate and 25% down to get the best rate, really.  You can work your way into a 25% down position with 10% down through a rehab-to-perm loan.  Again, NW should be able to help you or at least connect you with Sherman Bridge who has good options in that area.

Circling back to mortgages, though, ask your broker friend to detail their expertise in working with investors.  I'm not trying to poo-poo on that relationship.  After all, lending is a relationship business, but you have subject matter expertise or you don't.  I work out of Colleyville, but i have people from as far away as Houston that routinely call me for guidance on structuring, loan options and, of course, origination.

Arm yourself with a team of people that can get you where you want to be.  Yes, Fannie and Freddie are the least expensive path to home ownership, but the path from Point A to Point B can not only look very different depending on the specific situation, but it can also make or break your financial success in this endeavor.

The Realtor is usually going to be the hardest component to find.  Sure, there are thousands of Realtors out there, but very few are qualified with regard to finding good investment properties.  That holds true for flips or retained properties.  Most Realtors are retail-minded.

Some suggestions:

1. go to the Bank of America website: foreclosures.bankofamerica.com and look to see what Realtors names are on the listings.  Contact these Realtors because they (often times) specialize in distressed properties.  As pointed out by @Arlan Potter tell them you are a cash buyer that will close quickly (as long as that's the case).

2. Network with wholesalers.  They are generally more aggressive about finding properties.  For some of them, this is all that they do.  Get your name on as many "lists" as you can.  When an email comes to my Inbox, I can immediately see a property and decide if I am interested or not.

3. Roll up your sleeves and find the properties yourself.  This is a value proposition on time involved versus savings, but the best deals have not been filtered out by a Realtor or a wholesaler if you are finding them on your own.

With regard to the alarm, that is easy to push to her.  In many places, including where I live, the alarm requires a permit.  Additionally, the city requires $50 +/- per year to offset false alarms (False Alarm Program - Seattle, Dallas, St. Louis, everywhere??).  More importantly, the permit holder pays $125 +/- for false alarms.  You cannot subject yourself to that risk, and that's easy to communicate to the Tennant.  This would be like you providing cable TV and allowing them to get PPV movies whenever they wanted - only worse.  Even if you chose to install the alarm yourself, make sure that she procures monitoring.  Again, just like cable.  They can utilize your wiring, but they need to contact ATT/Verizon whatever themselves for cable.

FWIW - I wouldn't replace a working refrigerator.

Added to that, 187 counties now have higher FHA loan limits now, including Dallas County, for example.

A thought I had is that these two changes will help flippers.

1. For flippers, there are more borrowers eligible to purchase at a given price. Lower MI = lower DTI = more qualified borrowers

2. The higher loan limits help those selling properties in the "added" price range. In Dallas for example, FHA now covers a $321,000 purchase (with 3.5% down through FHA) whereas FHA buyers were not eligible previously. I would expect a lot of "inflation" of homes within the $291,000 - $321,000 range.

@Kevin Reynolds 

Hey fellow Irvingite, welcome to BP.  I am not on here nearly enough, nor am I a good resource for commercial real estate, but hello, nonetheless.

Sam

 Thank you for the helpful insight!