All Forum Posts by: Seth Hochberg

LOL thanks for the replies @Account Closed

The title company agreed with me and negotiated with the lender on my behalf. The compromise was that instead of wiring them all the money back and reclosing, I would wire the title company the money right now to redeem the ground rent ~$1200. I might be able to argue that I don't have to redeem the ground rent, since the lender missed it, but this is a much more reasonable request, so I went ahead with that. Super great of the title company to vouch for me, and really bizarre of the lender to make such a request. All in all, my title company gained a loyal customer, and my lender lost one.

Some great questions! I wouldn't quite yet call myself a seasoned investor, (have done 3 BRRR's to date) but here are my thoughts:

I) I would do exactly what I have done so far. I used the CARES act in 2020 to pull all my money out of my IRA's. I bought my first property in Baltimore in cash and did an awful job managing the renovation. I refinanced and left a ton of money in the deal. I learned a lot. I took notes. I built up my cash reserves, applied for a new job to double my income, and then tried again. The second and third time I left much less in the deal and would call them successes.

II) Don't rush that first property. And set the expectations super low. And only focus on that one property. You don't need to get 10 properties in your first year. You shouldn't even aim for 2 in the first year. Just aim for one! Getting one is infinitely better than getting zero, so you shouldn't be thinking about number two at all, until number one is complete. I know the podcasts talk about really impressive stories. Let the stories of "How I Make $1M per Year within 3 years" be a source of motivation, but not the bar to compare yourself to. 

III) Firstly, your financial house should be in order before going into real estate. You should know exactly how much money you're spending per month (within a few hundred dollars) and how much money is coming in. Secondly, it's really helpful to have a high paying job (duh). If you are only saving $500 a month, that's stressful as hell in the beginning. You need to be able to weather a $10k hit, which can easily happen, and saving $500 a month will take 20 months to pay that off. Not ideal. If you can't weather a $10k hit, or a $30k hit, you should avoid something potentially risky like a BRRRR, and look into House Hacking to start off. Lastly, view your first few properties as education. I ended up leaving an embarrassing amount of money in my first property, but it was ok. I had paid in cash, so I wasn't in trouble, and it slowed me down from getting my second property. But I learned so much, that it was worth it.

Also, you should be reading up as much as you can about Real Estate. When should you actually jump in? When you have a plan, and the stuff you're reading is getting repetitive and boring. That means you've learned as much as you can without actually doing.

IV) Rock Climbing, Ultimate Frisbee, and Baseball!

Hi all, I'm a BRRR investor in Baltimore City and have a surprising situation I've never been in before. I need help knowing what my options are. A few months ago, I purchased a property in Baltimore City in cash, and renovated it. I was working with a lender (whom I've worked with before) to do a cash out refinance. A few days ago, I closed on the cash-out refinance and was wired the money the next day. I still have all the cash in my bank account, but was ready to spend some of it this weekend (pay back debts, down payment on the next property, etc).

The point of contact from the title company just told me that this lender is just realizing that the property is subject to ground rent. Originally (a few months ago), the lender told me I would need to redeem the ground rent, but when looked into it, I learned it would take 4-12 months to redeem because of the gross understaffing in the SDAT office. When I shared that news with the lender, they said "Luckily, according to my guidelines, ground leases are acceptable". I have this in writing via email. There was no other mention of ground rent after that. 

But just now, the point of contact from the title company, just said that because of the ground rent lease, "the lender may want to rescind the loan and reclose. Are you able to send the wire back?"

I absolutely do not want to do this, for obvious reasons. Am I obligated to wire this money back to them? This seems unfair, since it was 100% the lender's fault. I don't mind redeeming the ground rent, I just don't want to wait 4-12 months before I get this money back. What are my options? Thanks in advance.

SECU and Dominion Financial are two good options for Baltimore investors.

I've BRRR'd a few properties in the Baltimore, MD market this year with no plans to stop. All deals were deals I found myself on the MLS. The interest rates have hurt the cash flow, but there's a lot less competition, allowing me to negotiate a better purchase price.

But Baltimore is a hard market to invest in out-of-state. I live in DC, and almost never visit my properties, so I'm operating semi-out-of-state. However, I did live in Baltimore for 8 years and am comfortable with the market. 

 I don't know what any of those things mean. 

The BRRR method can get you money in 4 ways: cash flow, loan payoff, tax benefits, and appreciation. If you sell your house, I don't know what you plan to do with that money, so it's hard to compare A to B.

Hey Victoria! Welcome to Bigger Pockets =)

I think the confusion lies that there are two types of refinances: (1) Cash out refinance and (2) rate and term refinance. 

Rate and Term Refi: You purchase a house worth 200k with a mortgage with Bank A at 5% interest (20% down = 160k mortgage). At some point (years later, typically) let's say you own 30% equity now, but you realize that you could get a lower interest rate. So, you go to another bank and ask for a rate and term refinance. They will pay off the rest of your mortgage to bank A for you (in our example that's 70% or 140k), and now you have a mortgage with Bank B at 3% interest. That's all it is. This strategy is not a real-estate-investor-only strategy. It makes sense for anyone - it's advisable whenever the interest rates drop (like they did during COVID). You do have to pay a closing cost, so you need to do the math to make sure the money saved on the lower interest rate is worth the up front closing costs. This does not seem to apply to you here.

Cash Out Refi: This is only common with BRRRR strategies. You purchase a house at 100k in cash. You own 100% of it. You put in 50k of renovation. So you've spent 150k. You go to the bank and say I own a house outright, and I would like to take as much equity out of it as possible. The bank says, sure, let's just appraise it to make sure we're not giving you too much money. They appraise it, and if you did it right, the house appraises for 200k. They give you 75% of the appraisal value, which equals 150k AS A LOAN. Now you have a normal mortgage with monthly payments (and more importantly, all your cash back)

You purchased a condo with a normal 20% down payment. Let's say you have 30% equity in the property now. And you renovated it too, so you might have even more equity. The issue is that you do not own close to 100% of the property, so a cash-out refinance doesn't make sense. Seasoning period also doesn't apply here since you have purchased the home years ago (seasoning period is prevent someone from buying a house in cash and cash-out refinancing it a few weeks later). Also, you already have a primary residence loan on this property - that's the mortgage you're paying each month right now. 

But the general spirit of what you're trying to do is still an excellent idea, just the terminology is throwing you off. You own 30% equity in your house (let's say). And you've down renovations, so you probably own even more equity because of that. You should get a HELOC (a loan on the equity you have in the house) to use as cash to buy your next property. If you want to do an FHA loan to put 5% down on a multi-family, that's a great idea. Ask for a HELOC to get cash out of our primary residence, and use that to pay for a multi-family down payment. As soon as you move out of your primary residence, put a tenant there and that tenant will pay off your original mortgage. Your new tenants in the multi-family should be paying off your FHA loan/mortgage on this second house that you're living in. The multi-family residence (presumably an FHA loan) requires that you live there for one year (a primary-residence loan). After the year, you can legally move out, and get another primary residence loan on another property. This is an excellent rinse-and-repeat strategy. Hope this helps!

Welcome to BP! Single property with 8 tenants? I hope you mean a MFH, lol! You may have more luck searching on the Maryland/Baltimore Real Estate Investing groups on Facebook than on here. Best of luck!

Unfortunately, as John implied, this is one of the disadvantages of not having capital. You have to pay more to get in the real estate game, since your closing costs for the purchase loan is going to be higher than if you just used cash. You can shop around different title companies, but that shouldn't shave off more than 1k-2k. 

Also, if closing costs are 10-15%, you're probably in a cheaper market (like I am). Eventually, as you buy more expensive properties the closing costs will be roughly consistent, making it a smaller percentage of the purchase price (ie 10k closing costs is 10% of a 100k property, but for a 200k property, the closing costs might only be 12k or 6% or something like that).

Probably not the response you were hoping for. It does seem like you're doing things right. Best of luck! 

That is very standard. My partner purchased a home to live in last year and got 3% interest. I bought an investment property in Baltimore around the same time and managed a 4.25% interest rate. I also believe a cash-out refinance on an investment property will be a slightly higher interest rate than a standard mortgage on an investment property. I think 4.35% is pretty standard for what you're looking for, especially as interest rates are ticking upwards from the rock-bottom rates a year or two ago. Hope that helps! Best of luck =)