All Forum Posts by: Travis Sperr

Sounds like a viable plan - I would encourage you to look at 2-4 unit properties if you do not plan to live there for more than a couple years. Having actual tenants rather than friends or room mates will help you learn a lot (about investing and yourself). Furthermore the gross rents in comparison to the mortgage are typically much stronger and when you exit that property it will make it much easier to obtain financing on another property. I started with a 203k loan on a HUD triplex - got in with 3.5% down, lived there and fixed it up, moved on a couple years later and the property cashflows $1,200 per month.

An expense is an expense and income is income. If you pay your repair company - it is an expense to the property management but income to the repair company - a wash and another tax return. Sometimes simple is just better.

But what I really noticed is you mentioned doing work on your properties. I found early in my rental property investing that it is very difficult to grow your business if you are fixing your rental properties. Your time is too valuable looking for the next deal or improving systems to be changing batteries in a smoke alarm or unclogging a disposal.

@steven_johnson - a few distinct differences between 203k and construction/rehab loans.

203k financing is for owner occupied only. It is a great product when you can use it. I bought my first multi-unit property using a 203k loan on a HUD property. I put about $30,000 of 203k repair funds into the property and lived there for just over a year. It is my best cash flowing property. 203k loans are only too much work for mortgage brokers that do not know how to do them. When working with the right mortgage professional and contractors it can be a breeze. FHA loans have become increasingly more expensive in rate, fees and PMI.

To your question about conventional - you may check out Fannie Mae homepath properties/financing. As owner occupied you can do as little as 5% down and borrow $35,000 in repair money. As an investor you can do as little as 10% down and still borrow $35,000 in repair money. This loan doesn't even require an appraisal, so know your values.

Construction/Rehab financing - Can be either owner occupied or an investor purchase. If owner occupied it will likely be a local bank offering the loan. Sometimes require 20-30% down on costs, depending on the lender.

Hard Money financing- This is what we offer every day, a more expensive product but higher leverage. In some cases no money out of pocket to get the deal closed. As an example our loan is 70% of after repaired value (cover all costs- purchase, repairs and closing) - we charge 4 points and 15% interest but with little money into the deal it can be easy to qualify and/or do multiple deals.

All financing options are a tool for the right deal.

Jason Cotner thank you for the shout out on the Pine Financial Happy Hour.

Ben L. if you can make it be sure to say hello, this will be a great meeting to help you get going.

I am just thinking while typing, here is my thought:

When you refinance the larger property, assuming you would leave the smaller property financed with the same lender, this refi completely changes the collateral, in the lenders favor. But would likely create a new closing as the deeds/mortgages/notes are all going to be changed.

If you didn't bring the difference to pay it off, you could consider getting a small line of credit or bank loan and just pay it off using the cash flow in a matter of months.

Most importantly I wanted to share that the lenders requirement for owning the properties 2 years is a bank overlay. You might look for a Fannie Mae direct lender in your area, the guidelines allow you to use the current leases and include 75% of the rents in your income helping with the debt to income. You just need a lender that will underwrite to the guidelines with no overlays.

Good luck.

You have the right idea on the 1031. Without understanding the type of properties you are investing in and because your questions are around financing, my thought is how much profit would you create in just 5 years to roll into an exchange. You are looking at investing in rental properties, which is crockpot cooking not the microwave, a great way to build wealth slowly not over night. Setting and working toward your goals is awesome, keep up the great work and keep educating yourself.

I don't know that it creates any issues for you as long as you set your expectations accordingly. In today's (and for a long time) lending enviroment you should expect to sign personally on the debt unless to are putting upwards of 40% or more down and working with a local bank who undertakes your business and properties. Loans with local banks are typically not as attractive as conventional loans when it comes to term, cost, ltv, etc. I have bought about 10 properties in the last three years using hard money paired with conventional lending, personally signing for it all.

I like your plan, just do your diligence. As it seems clear you will be using financing your short time frame to move into an apartment building via 1031 exchange seems aggressive Trading in depreciated assets can be a challenging task, I am sure you can find much more information on 1031's within the site.

Important to note that leasing and financing property are two very different transactions.

This doesn't happen in today's lending enviroment. It is not possible to get a "conventional" loan on real estate in the name of an entity, they have to be personally guaranteed. You can take title in the name of an entity at some local banks at a low enough loan to value. Furthermore once a lender has your personal guarantee regardless of the number of payments you have made successfully, they would be less secure in the deal without your personal promise to pay the debt. You are looking for a nonrecouse loan, which is more often used in larger commercial deals. If you are dealing in residential real estate plan on providing a personal guarantee regardless of how you take title.

Good luck.

An llc is plenty until you start getting some deals done on a regular basis. An llc in most states is the easiest and least expensive to create. Being taxed as an s-corp won't be very benificial until you are seeing about $40,000 a year in profit.

Good luck.