All Forum Posts by: Steven Jones

Hello BP,

I'm looking to do a cashout finance for a duplex and single-family home. Both properties are owned through two separate LLCs. I was recently working with a bank that came very close to approving my loan but at the last moment decided to decline my application. (It's still unclear why the loan was declined, but that's a different post.)

The problem: I had already paid about $1,300.00 total for the appraisals, which was non-refundable.

The question: What are some strategies for reducing the risk of wasting the appraisal fees? I'm in the process of restarting the application process with another bank, but they won't allow me to use the old appraisal since: (1) it's been over 60 days since the last appraisals were done and, (2) the company that did the first appraisals is not approved by the current bank?

Some ideas I'm considering:

1. Apply to about 3 or 4 banks simultaneously and get them to all agree to use the same appraiser. I'm not sure if this is realistic.

2. Get each of the 3 or 4 banks to agree to use an appraisal executed by a company that is not on their list of approved appraisers, as long as it's submitted to them within a specified time frame, for example, 45 days.

3. Negotiate with banks to include the cost of the appraisal in the cost of the loan.

4. Ask the bank to pay for the appraisal (wishful thinking maybe, but it should cost much to ask).

Your help. Does anyone have additional ideas? Or maybe, can anyone expound on any of the ideas listed above, in terms of how to increase the likelihood of success?

I deeply appreciate any input.

Hello BP,

I'm looking to do a cashout finance for a duplex and single-family home. Both properties are owned through two separate LLCs. I was recently working with a bank that came very close to approving my loan but at the last moment decided to decline my application. (It's still unclear why the loan was declined, but that's a different post.)

The problem: I had already paid about $1,300.00 total for the appraisals, which was non-refundable.

The question: What are some strategies for reducing the risk of wasting the appraisal fees? I'm in the process of restarting the application process with another bank, but they won't allow me to use the old appraisal since: (1) it's been over 60 days since the last appraisals were done and, (2) the company that did the first appraisals is not approved by the current bank?

Some ideas I'm considering:

1. Apply to about 3 or 4 banks simultaneously and get them to all agree to use the same appraiser. I'm not sure if this is realistic.

2. Get each of the 3 or 4 banks to agree to use an appraisal executed by a company that is not on their list of approved appraisers, as long as it's submitted to them within a specified time frame, for example, 45 days.

3. Negotiate with banks to include the cost of the appraisal in the cost of the loan.

4. Ask the bank to pay for the appraisal (wishful thinking maybe, but it should cost much to ask).

Your help. Does anyone have additional ideas? Or maybe, can anyone expound on any of the ideas listed above, in terms of how to increase the likelihood of success?

I deeply appreciate any input.

1. Find a way to convince your neighbor to team up with you in clarifying the boundaries between the properties. The more adversarial your approach the higher the risk in increasing the cost.
2. To determine the boundaries, check the legal descriptions of the properties in both of the deeds. If the deeds are not sufficient to resolve the issue (not likely), then order a survey. To reduce the cost of the survey, convince your neighbor to split the cost.
3. If the survey ends up in your favor, and your neighbor still has an issue, find a good attorney (via referral). Set up a free consultation with the attorney to work out a strategy in case your neighbor files a civil claim. Be sure to document all communications, transactions, etc. with the neighbor as you may need them later in your counter-claim or for court. Ask the attorney for advice on how to deal with the neighbor in the meantime in case s/he misbehaves.
4.  Think in advance about what you will do if the survey proves the neighbor is right.

@Account Closed That's brilliant! I've never thought of debt and insurance that way.

All the thoughts in this discussion has been very useful.

@Sam Shueh

Our markets are very different, complete opposites. Amazing!

This second solution, the variation, is very creative and I will keep it in mind. Thanks.

My main struggle with the refinancing solution is that the current cash flow serves a critical purpose - to fund monthly expenses while starting full-time flipping/rehabbing. Even still, from a(n) investor/business-owner perspective, the math seems to favor refinancing. 

I didn't really address the "dead equity" issue as much as I wanted to in the post, but indeed this is one of the biggest problems or considerations. More comments on this point will be greatly appreciated.

I enjoy thinking of the many benefits of owning rental properties that are free and clear of debt. However, I recently began considering some of the potential disadvantages of debt-free rental properties, especially for a beginner real estate investor who can use the equity to build the business. I also considered the potential risk associated with debt-free rentals. I reasoned that all investments have risk, and, for a real estate investor, the risk increases as the amount invested increases. Thus, if a rental property is owned debt-free, than 100% of the equity is exposed in terms of lawsuits, for example. This kind of exposure exists even if the property is owned by an LLC. Of course, one way to mitigate the risk is to properly insure the property.

1. Any comments on my thoughts about risk? Is my thinking correct?
2. Can anyone propose other potential risks in owning debt-free rentals?
3. If you agree that there are risks associated with owning debt-free rentals, are the risks offset by the benefit of higher cash-flows? 

@Alex Huang Yes I agree, it highly depends on the contractor. I should mention that I've been working with my two contractors for several years and we have built trustful relationships. With that said, it's good to know some of the worse-case scenarios.

Thanks for all of the helpful recommendations.

The thing I'm now wondering is whether it is best practice (as a full-time flipper) to always get a property professionally inspected as a general rule, regardless of the condition of the property and the quality of contractor? Just to be clear, this question is not because I'm trying to save money or cut corners; instead, I'm trying to build a successful flipping business and incorporate the best practices early on.

Another thing I don't understand is what additional value an inspector adds if your general contractor, who also looks at the property, is very experienced? I'm sure that there must be some value, but I'm not sure what it is.

Any thoughts will be helpful.