All Forum Posts by: Tim Roberts

The theme of this thread is to find and spend time around like minded people.  Other real estate investors, realtors, lenders, mentors who you can ask questions of.  The key is to listen ad follow their directions.  Build a team of people you can run the deal past to quickly verify a yes or no.  You do not need to be alone looking at every deal, wondering if it will work or not.  Bigger Pockets forum is a great way to connect to people all over the country.

Join local investment groups as well for the same reason.  Get to know where you live, your local market, and who is making transactions happen.  Spend time in this arena, build a team of specialists; Realtor, CPA, Lender, Property Manager, consult the people you feel comfortable with and listen to their experience.

But the biggest learning experience is to do a deal.  Consult your team, build a strategy, and then move forward, buy your first deal and learn from it.  Experience is your best teacher.

@Zebiniso Nancy Rashidova, delayed financing works if the money (loans from your friends) is seasoned in your bank for 60 days.  Meaning the deposit has been in the account that long so the underwriter is not asking about large deposits, where the money came from. The underwriter wants to make sure there is no payments associated with the deposits into your account.

Delayed financing also works is you had a Home Equity Line of Credit, or borrowed the funds from your 401k.  As long as the lender can source the money came from your own source you can look at the delayed financing strategy. 

Another option, to expedite your ability to buy a house with cash is to have your friends loan it to you, as a note at the time you close on the property you are buying.  A note would be created against the property you are buying and attached with a warranty deed.  This makes it so the lender can pay off the note/debt on the property once you have the remodel done.  This would be similar to borrowing the money from a hard money lender, but you are using private money (your friends funds at a lower rate).

The key to financing properties to have a experienced lender like @David M. is talking about.  They need to understand Fannie/Freddie's lending guidelines, your goals, and everything about you.  The more a lender knows about you, your finances, your income, your access to cash the better they will be suggesting options like delayed financing or paying off private money.  Helping you build a strategy to reach your goals to own investment properties.

Tim

It is important to build a network of specialists to help you with your real estate investing.  A private lender, traditional banking (fannie/freddie) lender, and a commercial lender are great assets.  It takes time to find the right persons to help you meet and grow your real estate portfolio.

Being intentional, having a strategy you can find a property and look for the best way to finance investment property.

Fannie Mae/Freddie Mac no longer have seasoning requirements. This is important because you can now find a property that you are buying under value because it needs a lot of repairs or a seller is in distress needing a way to not have the home foreclosed. Use your private money lender, remodel the home, rent it, and refinance it... BRRRR

The traditional lender can come in and refinance you out, sometimes including some of the remodel monies depending on how the private money is set up.  This can happen immediately; once the home is remodeled.

Commercial lenders are good because they can do some loans that traditional lenders may not.

Each relationship takes time to find, create, and build to the point you have a team helping you when you are in need.  This lending team is good to run investment property scenarios through to make sure you are keeping on track with your goals and the specific investment is a good buy or the numbers will work.

Tim

@Julie Dillon, I am guessing that one of the SFH's you live in as your primary residence?

Can you borrower a portion of the 401K balance to buy the 4plex?  I don't know that i am a fan of depleting a retire account when you took the time to save/invest into it.  As others of noted, know what the tax penalties and consequences are before you take the money.

If you own a home, you might want to consider a HELOC to get access to more cash allowing you to use your homes equity as your down payment. Generally, there are not any fees to get into a Home Equity Line of Credit. Depending on your overall cash flow you can pay the HELOC down in a short period of time and use it again for another purchase.

As a fannie/freddie lender I would use the 401K as your reserves for when you are buying more properties (doors) unless you have liquid cash somewhere else that you can point to.

Would love to know more about your current situation in order to give you more feedback on how I would tell you to build your strategy to purchase more properties.  Feel free to DM me if you want to connect.

Tim

@Kyleigh Morgan as a lender, I would tell you to get an LLC. Buy the investment property in your primary name and then transfer it to a 100% member LLC or it can be 50/50% with a spouse/partner. A conventional lender's interest rates are not based on the fact the property will be inside a LLC, it's because it is an investment property. Being a duplex or multi unit can affect the interest rate or fees as well.

Be sure to have a strategy, if you do want to get cash out from the property in the future then waiting to put the loan in the LLC may be better. A property will need to season 6 months from point of purchase in order to get a traditional loan if you are considering to get cash out.

There is always a risk that a lender can call the note due in you add it to an LLC but that's a limited risk. A 100% member LLC should not be an issue and if there is a problem quit claim the property back to yourself individually. Sometimes having a junior partner inside the LLC is good for several reasons.

Know the costs of keeping or maintaining the LLC in your state. Each state is different.

If you don't have a lot of personal assets then you don't need the LLC right now. There is not a need to get into the Series LLC's right now if you are a new real estate investor. A Series LLC is very specialized. I would interview several CPA's. Find someone in your area to suggest CPA's that are familiar with Real Estate and get their feedback. Someone that you like and build your strategy towards how you want to build your real estate portfolio and protect your assets.

Tim

@Zachary Yelder if you are going to go learn about OPM be sure to understand the three roles; 1) partner, 2) lender, or 3) investor.  It is best to stay away from looking for passive investors.

Look for 1) partners who have cash to contribute into the deal. Your team can be the finder of the deals, property manager, remodel. Whatever your experience is there are many people out in the world who want to be in real estate investing but they do not know how or where to begin. 2) lenders are people that want to loan their money, make an interest rate, and be paid off at some point of time; whatever you and the private money lender agree to.  You would purchase the property, using a note, secured by the trust deed.  This is a good way to go because you can pay your lender off through traditional lending.

It is best to stay away from looking for passive 3) investors. This is where a lot of people can get into problems because there are specific rules to set up an investor run LLC and if not run correctly and you lose their money there can be legal consequences.

I am not an attorney, only giving my advice through my personal experience.  It is best to talk with a Business Attorney to gain more knowledge in this arena.

There are people out there that will loan money or be a partner to get more involved in real estate.  You just need to look for them.

Tim

@Jeffrey A Hayes you have drawn a lot of lenders to your hard money question...

Start backwards.  Get with your lender (conventional fannie/freddie lender) or have your mentor refer you to someone he/she might be using.  Interview a few lenders to get a feel for their experience in helping real estate investors purchase properties.  You have several lenders here on your post to get to know and ask questions of.  

An experienced lender is a good member to have on your team for many reasons.  Often, if a conventional lender cannot help you they will connect you to people they know to give you other options to consider.  They can also be an accountability partner for you if they understand your investing strategy.

Go through the pre-qualification with them to better understand your buying power, credit, and capacity.  This is key because it gives you a starting point of where and how to begin making decisions when buying a specific property.

Think of hard money as a tool.  Sometimes hard money makes sense when competing in an offer.  Speed often gets the better price or a chance at the new purchase.  A conventional loan is a tool as well, depending on the property and the strategy you are looking when building your real estate portfolio.

Tim

@Kyle Sprague, keep reading and keep asking questions.  Your experience with the hotel industry, being a property manager is a great start.  Feel free to reach out if you have additional questions.  I am looking to read several of Brandon's books to gain a different perspective on buy and hold.  My personal goal is to buy 10 properties with in the next 5 years.

Bigger Pockets gives a lot of insights on being a real estate investor.  Looking forward to connecting with as many other real estate investors as possible to learn from and also be a resource in the lending area.  I am always available to answer questions.

Tim

@Justin Wilson I don't know of any lenders that collect fees up front other than the appraisal. And there are specific rules on how and when a lender can collect the appraisal fee.

It is better for you as an investor to be referred to a lender.  Look for investors in your area that have worked with lenders prior and are giving you their contacts.  You still want to do your due diligence and know how you are talking to. Look for experience in building your team; lender, realtor, title escrow, business attorney, CPA, contractor, handyman, and any other advisors you need in building your real estate business.

Tim

Good advice from @Amanda G. and @Brent Paul

@Kyle Sprague what is your expertise?  What do you do for a living?

Experience is key in becoming a real estate investor and dealing with lenders.  A lender makes loans on many different factors.  Going big is not necessarily a bad thing but there are specific rules to lending on properties (1-4 units).  With the Dodd Frank rules most commercial lenders avoid lending on single properties and would refer you to a residential mortgage lender.  The government wants there to be a line between residential and commercial lending if possible.

You can own up to 10 individual financed properties through a residential lender.  This is Freddie/Fannie guideline.  A residential loan looks at your stability, qualifying income, credit, debt ratio, and loan structure come into play.

Starting in the residential arena is a little easier because if you have stability, good credit, and your debt ratio (45% of income covers your credit debt) then it comes down to the property, appraised value, and down payment (20%-25%).  A residential lender can use a factor of market rents to cover your new purchase.  That means I can qualify you on someone else making the payment on the investment property.  Buying one property is not a bad way to go initially.  Then two and three... Yes, it starts small and feels slow but I have investors that I work with that have their 10 properties in 5-7 years.  We can talk about how if you are interested...

Once you have one or two individual properties, and you can show a commercial lender you have real estate investment experience you could look to "go big" and buy a portfolio.  You still may get push back but what a lender is looking for is if you can qualify for the 10 properties dark.  Dark means can your W2 income cover all of your credit debts plus this investment portfolio you want to buy.  Commercial lenders still look at the rents and coverage but if you are a new borrower they will want more cash down or shorter terms to limit the lenders risk.

Lending terms on commercial lending are different than residential lending.  You usually need 25% down at higher interest rates than residential (maybe 1-1.5% higher) and the amortized payments are cut to 20-25 year terms.  Rates are based on 5 year terms, and most often you will have a 10 year balloon.  You also will not cash flow as well unless you have a lot of equity in the new purchase.

It really comes down to what your experience is, what you do for a living, and what your investment strategy might be.

How did you come to the decision to become a real estate investor?

Your Friend in the Mortgage Business,

Tim