All Forum Posts by: Steven Goldman

Quote from @Hyeseong Park:

I have done 2 flips with my cash only so far and I'm trying to finally go with fix and flip loans to buy multiple houses. Usually these fix and flip lenders do ARC up to 85%~90% & rehab 100%, so I know I have to pay some downpayment for purchasing houses. 

But I recently reached out to one broker and he said once I purchase house with borrowing money, I still have to pay for whole rehab amount at the beginning to handyman and when everything is done, I get money from the lender for whole rehab payment. Is this normal?

Or I dont know if this paying whole rehab price from my pocket first and get paid from lender at last is depending on lenders. 

And if not so, is there any way that I can get paid from lenders for rehab payment at the same time as what I get for purchasing houses?

 Hey HP, I believe you were told that if you purchase the property with cash you can not borrow just the rehab. funds from a rehab lender. You can get a line of credit or find a private lender. The rehab lenders require you to borrow a percentage of the purchase price and the entire rehab budget. In order to be successful at BRRRRing or flipping you need to be willing to accept advice from a knowledgeable source and not look for the answer you want to hear. Many investors make the mistake of starting a rehab cash only and then get stuck trying to finish the rehab with their credit cards and destroying their credit, making it difficult to refinance and repeat. Good luck and keep moving forward.

I have a unique perspective as a broker and flipper. I believe you should not be working in this space without some liquid capital. This makes the entire process easier. I prefer to use lenders who only charge you interest on the amount of the money drawn. On a larger project this saves a substantial amount of money. Requesting and receiving a draw is not rocket science. If you have a good scope of work to begin with than it is a matter of showing the lender that you have completed a facet of the work consistent with the scope of work. A good rehab lender will have the inspection performed and turn the draw request in 72 hours.  

You should work at establishing a relationship with a contractor who can move forward for a day or two without you paying the current invoice. If your contractor is so rigid and broke that he can not or will not carry a few days of work you need a new contractor. Also develop a credit relationship with your material providers. Good luck and keep moving forward. 

In Pennsylvania both parties must consent to a phone recording. I agree with everyone who says you should get a detailed contract which spells out the scope of work and the time frame to completion. If you have a strong written agreement it will allow you to avoid disputes or win them. Due diligence and planning on the front end prevents disputes during construction. Change order should be in writing and have the work and cost spelled out in detail. Good luck.

Quote from @Niall Clancey:

I have been doing research on both areas to try and find my first deal -either a house hack or buy and hold.  

I'm curious to hear from the bigger pockets community - where would you invest?

Is anyone invested in both cities? If so, which do you like more and why? 

I can only share with you our experience as lenders. The majority of our investors in Ohio would choose Cleveland. The main reason is  Cleveland  population 2.06 million Toledo 265K. It always boils down to the property and location. But much better chance in Cleveland than Toledo. Enough said. 

Most STR lenders will give you up to 75percent on a cash out refinance. Keep in mind appraisers have been getting more conservative over the last few months as rate have climbed. The income will have to satisfy the DSCR lenders minimum DSCR requirements. I suggest you contact a trustworthy broker or originator when you are ready to proceed and have them get you a accurate quote. Good luck

Quote from @Katelynn Malivert:

Hi All,

My significant other and I recently bought a duplex with the intention of house hacking back in August of this year. We knew that the unit we were going to occupy needed significant renovations. After interviewing several contractors in our area, we thought we chose the best fit. We were terribly wrong. In the beginning, the contractor was very responsive and attentive to our requests. He said he was going to have our renovations done by the end of October 2023 (he started in Sept). Instead, he has been dragging his feet, dodging our calls and honestly has stopped working on the unit all together. I have already incrementally paid him a total of 36k (w/ credit card)  and I don’t know what to do. At this point, I’m considering disputing some of the payments with my bank as he has not provided the agreed upon services. We want to settle this amicably but at the moment this contractor isn’t picking up our calls. As you can imagine, we are racking up expenses as we have to rent elsewhere because the unit is uninhabitable. I greatly appreciate your advice. Thanks in advance!

 Unfortunately this is a very common problem. I think you can come to the conclusion that the contractor is not going to finish your project. So you must act on two paths. First, as was previously suggested, try to reclaim money form your credit card companies. Also, contact your local law enforcement department or local prosecutors office. Many states have adopted laws specifically for contractor fraud. While one hopes that might mitigate some of your loss, you still need to finish your project.

Please do not consider this piling on just constructive criticism. You should not be rehabbing a property from your credit cards. The interest is too expensive. Also, when you go to refinance your high DTI and credit card balances kill your credit score. I would immediately convert your adjusted credit card balances to a fixed rate personal 5 year loan. That helps your credit and stops the bleeding.

Now you need to take stock of what is required to complete your construction project. Once you have a good estimate of the expenses you should prepare a scope of work and ask contractors to bid on them. Do not take the cheapest take the best price from a well qualified contractor. You may have to get a second personal loan or some other type of loan to complete the job. When you are finished you can try to roll up as much of the loan balances into a new mortgage but you are definitely going to pay the price for your bad contractor decision.  Sorry look at it as a great learning experience and do not repeat the mistake when you do your next project. 

In my opinion avoiding a bad experience with a contractor requires good due diligence, preparation and a carefully written contract. When you find your property and begin your contractor search, you should make sure you get recent references and actually speak with them. If you are doing a full gut rehab. you should have plans drawn with specifications. If I am spending 75k or greater on renovations I want to make sure that I have plans and specifications detailing the quality of the materials and the fixtures. An architect adds an expense to the job but as I have learned is essential to getting the finished product you are expecting. If you are using a good contractor than he should take the architects plans and specifications and give you a quote that is binding unless you change the scope of work or materials.

If you are buying light rehab properties you must be familiar with the cost of replacing a bathroom and kitchen, painting, drywall and flooring. Your contract should specify the grade of the materials and on the important stuff actually designate what you want. All of this takes time but it prevents the inevitable dispute at the end of the job when the contractors view of what was required differs greatly from yours. Make sure your original inspection and scope of work covers all of the renovations. You will always come across unanticipated problems. Make sure you understand what needs to be done and enter into a written change order with the contractor before he does the work.

If you agree to a fixed price quote based based on a detailed scope of work, you should not care how the contractor makes his profit.

On smaller light rehab. my partner who has a full time job and extensive general contracting experience runs the job and he splits the profits. He provide receipts for all of the materials' and we use tradesman at night and on weekends who want to pick up spot work. That is how we control the costs on those jobs. The more you know the less likely you will be scammed by a unscrupulous contractor. Good luck!

I have good and bad news for you. The bad news is Stacy Raskin is correct, the lowest currently available loan program from a D.S.C.R. lender is 75k value 50k minimum. The good news is local banks and credit unions will do small loans. They will shorten the term to 10 or 15 years. Here's the catch, no out of State investors. So you must be local to avail yourself of those programs. Good luck.

No. the voucher could exceed the actual fair market rent in the area. We have various borrowers who are collecting more rent then an appraiser indicates is the fair market rent for the property. the reason for this is that the amount of the voucher can vary depending on the size of the family receiving it. 

Quote from @Michael Hayes:

Question for anyone investing in Memphis and focusing on section 8. I've managed a couple of section 8 rentals before, but I don't believe I was actually maximizing the rent. I'm planning on doing some BRRRR's but with a focus moving forward of accepting housing vouchers. I'm seeing that the HUD fair rental prices are increasing pretty good going into 2024. I never paid attention to this before and only focused on what the rent was for the particular area. When you guys are pricing your rent based on accepting housing vouchers, are you always marketing it based on what the fair market rent is per HUD? And how often is HUD paying 100% of this? Also, does https://www.huduser.gov/portal/datasets/fmr/fmrs/FY2024_code...

From a lending perspective you should use the fair market rent because that is the formula that lending institutions use. Obviously if the HUD voucher is more than your income will be higher. If you are going to borrow against the property the lenders will use Fair market rent as determined by the appraiser or in place lease whichever is lower. Good luck!