All Forum Posts by: Scott Ellis

Hi Mike,  If the numbers make sense for you, go for it?

My wife and I rent specifically to subset of college students—grad students in Physical/Occupational Therapy or the medical fields.  

We haven't done credit checks or income verification, but here's what we do, for what it's worth.  We chose these students because they must go through background checks and drug tests for school since they'll be placed in hospital and clinic settings for their rotations.  So far, all of our students have gotten financial aid, so they budget for rent right up front. Also, they're in an intense academic setting, so they're heads down in books and study sessions ALL THE TIME.  

We use Cozy, an awesome free service for collecting rent through ACH.  In two years, we've never had a missed payment. Also, we manage leases by the room, which typically allows for a higher monthly rent.

The "downside" is that there is turnover, but, for example, we sent a notice to the incoming class last week and already have our six beds filled for September.  Turning over once a year or every other year also lets us deep clean and fix minor things before anything gets too bad.

We've loved it and have no intention of changing strategy any time soon.   Good luck with your duplex

It sounds like you passed on this.  However, did you leave it open ended?  If the seller ever does get his family out of there, you'd be happy to purchase from him?

Or maybe the only reason it was a great deal was that the seller was "paying" to have someone else deal with it. . . 

@Aaron Miley, you'll be surprised how quickly you pick up on a lot of terms/lingo within a short time of listening the BP podcast and reading some blog/forum posts.

I'm currently in the process of purchasing a HUD triplex. The Dept. of Housing and Urban Development ends up with many foreclosed properties. They are list them on the MLS and they're open for offers for a set period of time. Typically, the first week is open to owner occupants only and the winning bidder gets an inspection period. If no owner occupants bid, or the winning bidder backs out; it then becomes open for investors to bid, and I believe HUD reviews bids at the close of each day. However, investors do not get an inspection contingency, so there is a level of risk.  

We're currently in the middle of our inspection period for a HUD triplex. We're tying to do an FHA 203K loan, which is loan for owner occupants who need to renovate the property before moving in. For us, the awesome deal is that we can buy roughly a 100K property, finance 100K in renovations, and because it's FHA, only have to put $7K down to get property with an After Repair Value (ARV) of somewhere between 250-280. This isn't scalable, because we can only have one FHA loan at time, and we have to live in one of the units for 12 months. (though 6 months of that will be during renovation and we won't actually be living there). But, it goes to your point of not needing a huge sum of money saved up to get into Real Estate Investing (REI).

You also asked about auctions. They seem risky to me for just getting into REI. They are cash only with no contingency periods, but you can look up hard money lenders and you'll find that there's a segment of lenders for just this purpose. You can borrow money (at a much higher interest rate) up front to make a cash offer and rehab a property. Then, once it's complete and has tenants, you can refinance into a conventional mortgage and pay off the hard money lender.

@Mike Hanneman, I've used STCU for business accounts and they were great to work with. Lines of credit were another story. At the time I inquired, there was like a 5 month wait time for applications to be processed. I called up Umpqua Bank and in less than a week had a HELOC and an unsecured personal line of credit in place. I was really, really, impressed with them and will be using them for business checking once I get my corporation set up later this month. I wouldn't be surprised if they do some portfolio lending.

@Aaron Miley, Welcome to BP! I think you're going to love it here on the forums.  Sounds like exciting (and maybe a little scary) times for you.  I too am starting to wrap my head about the opportunity and risk of real estate investing.  I would challenge you to take your goals a step further.  When will you flip homes for profit?  Will you flip one home in 2016? By the end of 2017? And what about income stream.  What's a good starter goal?  $500/month that goes toward kids college fund while you are also flipping and acting as an agent?  $4000/month so you're covering all your monthly expenses through passive income?

@Tanya Gruell, Shane Hughes works at the downtown Umpqua Bank and is awesome! He got us set up with a HELOC as well as what's called an Expressline line of credit. The expressline is unsecured and you can qualify for up to $50,000. You can't use borrowed money as a down payment on a conventional mortgage; but you could use it to pay cash for a house to handle all the renovations. Umqua's HELOC's are very attractive as well, but you have to have equity in your house. . .

Kyle Gilliam at First Priority Financial is currently helping me finance my first triplex.  He's been great to work with because I feel like he's on my team thinking creatively about how to get my loan through underwriting.

@Jeffrey Messee, That didn't take long!  Congrats on the potential flip!  Let us know if it works out!

Jeffrey, are you looking for SFR or multi-family?

Mitch Swenson at NAI Black is a mentor of mine and one of the top multi-family agents around. He's got his own portfolio of SFR, MFR, and Mobile home parks, so he definitely understands REI.

I also am currently working with Erik Dordal at Windermere on doing an FHA 203k on a HUD Triplex. Neither HUD nor FHA are fun to deal with and he's been awesome ensuring the mountains of paperwork are accurate and submitted on time.

For Future Flips

General Rehabbing - Paul at Bearhill Contracting - Super laid back, professional, and timely.  My favorite thing about Paul was that when he was on our project, he was ON our project.  No shuttling around to check on other jobs.  No getting bumped a few days or weeks because a more wealthy homeowner is demanding things get done faster. He was also very reasonably priced.

Electrical - Mike at AGK Electric was an awesome electrician on our last big remodel.  Incredibly fast and great work. Also, when it came time for inspection, the inspector said, "Oh, Mike did this? He's one of the best" and signed off before walking through the house.  That was reassuring.

Plumbing - Nathan at Ape's Plumbing is also awesome.  Small business.  Extremely prompt.  

These three guys work together on a lot of jobs, and I wouldn't hesitate one bit recommending all three of them for a flip that you wanted to run smoothly without worrying about missing deadlines or racking up cost overruns. 

Thanks everyone.  

@Chris Mason, We do have leases in place.  We use Cozy to collect rent, so we have a payment history report that matches up with bank statements.  Also, you're correct in that we had not claimed it on previous tax returns.  We had looked at as people chipping in to cover utilities and mortgage, not generating income.  However, after recently realizing our error, we have an amended return in the works.  So we'll see if we get that back in time.

Do you know how much underwriters care about the "personal" side of it?  Such as: My wife's degree is in Spanish so we try to travel to a Spanish-speaking country every year.  This move to a triplex puts us in a better financial position to do that. 

@Max T., thanks.  Good point about not bringing up the desire the become investors.  They are a shady bunch. . . 

Checking if anyone else has gone through this while house hacking.

My wife and I have a triplex under contract near our primary residence. We're currently renting 2 of the 3 rooms in our primary. Our plan is to convert our SFR into a full time rental and move into a unit in this triplex.

We're doing an FHA 203K loan and my mortgage broker's biggest concern is that underwriting won't approve the loan because they won't believe we'd "downgrade" from a home to a multi-family.

In my head, it's pretty cut and dry.  We've been renting rooms, so we're actually moving from a shared living environment to our own private unit.  We'd be shifting from having to pay some of our mortgage to having to pay none of our mortgage, which seems like an upgrade.

We also want to become real estate investors and from an investment point of view, it makes good sense to live in a unit for one year into order to control that asset with such little money down and be able to finance the rehab.

And lastly, we signed several documents stating that we understand it's a crime to not live there for a full year.  So. . . since we're not criminals, we'll be living there for a year (I get that a percentage of people probably lie on this.)

So. . .

Does anyone have any experience with what type of language or reasoning helps win over an underwriter whose "downgrade" red flag has gone up?  

If you're in town this week, it may be helpful to simply pop into the planning department. Around lunchtime, they're usually pretty slow and have always been really helpful.  You could simply tell them what you're goals are and ask what kinds of things you should be aware of or looking for.  If you park in the 2nd floor of RiverPark Square's parking garage, there's a (somewhat hidden) skybridge that goes from the parking garage directly into the planning department.

I'm on the South Hill, so we're closest to GU and the new University District. But I went to Whitworth and had a lot of friends renting SFR's in that neighborhood. My wife was in a house with 6 other girls, each paying $600 plus utilities, that their landlord was doing alright.

Our favorite thing about students is that, so far, they've all had financial aid.  At the beginning of the quarter, they get their check, so we've never had an issue with late rent.