All Forum Posts by: Trey Belmore

Hi Cody- I am a lender located in Dallas and have several options for your scenario. If you want to message me the details with your contact information I can certainly run some options!

It is a new construction single family 1-unit residence. Refinancing to payoff the construction note and also getting cash out. Property valued at ~$2.1M. Just trying to determine if this rate is competitive with the market.

Hi-

I have a DSCR loan at $1.575M with 75% LTV and DSCR ratio is just over 1.0. Credit score is 736. I am being quoted a 8.25% on a 2 YR PPP. Is this competitive?

1) Best first step here is forging a relationship with a good contractor you can trust and rely on. The best way to add equity in your first deal is through sweat equity where you can actually do some of the renovations and you are not paying full cost for the renovation project, but this is highly dependent on the condition of the property you identify. For example, I have several clients who plan to put in sweat equity into their investment but the property itself must be in a certain condition to obtain FHA or Conventional financing, so you could always get a property under contract then perform the appraisal. The appraisal will uncover if any items need addressed prior to meeting property conditions per agency guidelines (FHA or Conv). You could always then utilize the renovation loan to do the minimum repairs to make the property compliant. Once you purchase you can then put in some sweat equity, but this is also dependent on your skill set and other help you have. You could also elect to do a full on renovation loan but just be aware that you will be paying full cost since it requires a bid from a third party contractor. There are several ways to approach this. I would be happy to discuss further.

3) Things I would look for are school districts, proximity to colleges/hospitals/entertainment. I would also look into how challenging certain city codes are with short term rentals, permitting, etc. I'm in the Dallas area and there are definitely cities that are known to be more friendly for these type of things. But also since you will be living in the property you also want to make sure you like it and are okay living there for 12+ months. Real estate is a long game and if you choose wisely and are patient it will likely reap future payoffs.

4) I would just make sure you have a long-term plan for property #2. For example, does your income support carrying two mortgages OR will you need the rental income from property #1 to offset the total debt you're carrying per month. If it is the latter then the easiest way around this is obtaining a 12 month lease on property #1. In this case, you can use 75% of the lease amount to offset that mortgage payment. This makes qualifying for property #2 much easier. I did this with all three residential properties I currently own. Bought #1, lived in it for a year then got a lease on property #1, then purchased property #2 as a primary with minimum down. Did this again with property #3. I would be happy to chat further.

Hopefully, this helps. Sorry for the delay. Best of luck!

Does your partner want equity out of the deal? What interest rate do you have? You could look at refinancing her off the mortgage and part of the deal is she contributes her portion of the equity towards buying the rate down as low as possible. If she wanted cash in addition to refinancing the current loan balance you could also look at getting a HELOC on the property if you have sufficient equity to pay her back her portion of the equity owed. Shoot me a message if you would like to discuss further.

That's a good question. it is technically income to the investor. I would lean towards including this but would maybe consult with a CPA first.

Is this a 1-4 unit property? if you're looking to get a DSCR loan for a residential 1-4 unit property then the primary borrower/guarantor will be on the loan thus the loan will report on their personal credit report. If this is a commercial property then that is a different story. Technically, all commercial loans are DSCR loans. In the commercial world they always look at the NOI compared to the cost to service the debt and those type of loans typically do not report on your personal credit report. Shoot me a message if you would like to discuss further.

Hi Josh- this sounds like a great plan to get started in real estate investing! A couple things to keep in mind that you may have already vetted out but wanted to bring to your attention:

1) Have you already selected a contractor who can help prepare the bids for you when you identify a property? FHA 203K can be pretty involved and it is important to have all your ducks in a row to ensure you're setting yourself up for success. Have you spoken to a trusted lender about the process? FHA 203K loans will typically require a 203K consultant to overview the project as well. your lender should be able to assist with this. There is always an option to go with a Conventional Homestyle renovation loan. This is not as involved as a 203K renovation loan, but it does require 5% down versus 3.5% down. Here is a 203k consultant list: https://entp.hud.gov/idapp/html/f17cnsltdata.cfm

2) Are you prepared to cover the closing costs in addition to the down payment? Closing costs can be another 2-3% of the sales price in addition to the 3.5% down payment. However, there are strategies to get the seller to cover some or all of the closing costs through seller concessions which would reduce your out of pocket expense.

3) I would use your real estate license and MLS access to find comps in the areas you're interested in to estimate the ARV of any prospective homes. This is super valuable information and insight when searching for your first investment property. You have full access to see what similar homes with similar finish outs of your final product are selling for to back into an accurate ARV.

4) Lastly, as someone who has house hacked myself I would make sure you understand how a lender will analyze your second property. Would your intent be to purchase this property and live there for a year then rent it out to purchase another primary residence? If this is the case, it is important to note that a lender will generally need a 12 month lease on the departing residence in order to use 75% of the lease amount to offset that departing mortgage payment. It is a great plan to rent it out now room by room to maximize profit, but this is difficult to source from a lender's perspective when it comes time to purchase a second home. Hopefully, that makes sense. if not, feel free to reach out and I can certainly expand on it.

Have any lenders found that many 4 plexes pass the self-sufficiency test? I'm in the Dallas market where 4-plex are being sold for 650-750K and market rents are like $1500/mo meaning PITI would need to be $4,500/mo...FHA financing with minimum down and with property taxes would require like 25%+ down. If this is the case, the borrower is better off going Conventional.