All Forum Posts by: Tim Sherrod

@Charles Scott You haven’t mentioned the construction costs.   That’s the unknown variable in your post.

Also, can you clarify your strategy with these lots?  It sounds like the lots are already for sale on the open market, which reduces the likelihood that you can flip it quickly....unless you think you’re a better marketer than the current seller, or the # of lots are limited and you think they’ll sell quickly, or you’ve identified a strategy for highest-and-best use beyond the current million dollar homes in the community.  Otherwise, the end-buyer would purchase it directly from the current seller for the current price instead of paying you a premium for the land that you’re trying to flip, right?

You did the right thing by trying to get the rent increase and they pushed back.  Personally, I wouldn’t ruffle their feathers any further in the current environment because tenants have too much leverage.  I’d be happy that they were paying something and deal with the issue once the evictions restrictions are loosened at the beginning of the year (hopefully). 

Your worst-case scenario would be to push too hard and create an enemy that decides to stop paying rent altogether.....especially if the evictions moratorium gets extended another 3 months till the end of March (considering that covid cases are getting worse, not better).  

It’s a delicate balance and I’d never give this type of advice in normal times, but the evictions restrictions have tied our hands and given Tenants the leverage and power.  And some of them are getting smart and learning to game the system.   

Whatever happens, I wish you luck on your journey.  This too shall past. 

I'm preparing to lend on a deal in St. Louis so I'm looking for a real estate attorney that has experience dealing with private lenders.

Thanks in advance.

@Kiran K. Most banks follow Fannie Mae and Freddie Mac guidelines, which allow up to 10 properties in an individual’s name.   However, some banks set their own more stringent limits.   For example, Chase won’t lend to you once you reach 6 mortgaged properties.   

Many credit unions don’t Fannie/Freddie guidelines, however.    They don’t place limits on the total # of mortgaged properties you own.  They place limits on the # of mortgages that THEY WILL FINANCE for you.   

For example, one credit union that I work will finance up to 4 mortgages per person, regardless of how many mortgaged properties you already have.   If a person already has 30 mortgages, that credit union will still give you up to 4 additional mortgages, as long as your debt-to-income and other metrics are satisfied.

*Note:   This guidance is for traditional mortgages, not loans in a business name.  

@David Gamble

It sounds like it could be a decent deal in the current market if the numbers are accurate.   Here are a few considerations:

1.  It’s a decent deal because of the potential equity capture of $40K.  However the cashflow appears minimal.  If you don’t have reserves available to cover unexpected emergencies like replacing HVAC (~ $5K), then it could be a risky deal for you   

2. Ensure that you aren't inflating the ARV or underestimating repairs just to make the deal work.

3.  You’re basically investing $50K ($25K down + $25K repairs) into a $200K property.  Are there better alternatives for investing that $50K?   Example: Would you be better off investing that $50K as a downpayment on a $200K home that’s already rent-ready and get better cashflow, without the rehab risk?  

Good luck. My final advice is to get second and third opinions on the ARV and repairs, plan your exit strategy in advance, and run worst-case scenario analysis (and make sure that you wouldn't be crippled if it occurs).

@David Gamble Sounds interesting but I want to clarify to make sure I understand the numbers.  

If purchase price is $135K and you’re putting $25K down, that leaves a balance of $110K.  

3 years of principal-only payments is only $18K...(36 months x $501= $18K).          

That leaves a balance of:

$135K - $25K - $18K = $92K.   

Am I interpreting this situation correctly?   

If so, would you then “refinance” the $92K with a bank to pay the owner the rest?

Here are a few that I’ve used recently for cash-out refis in NC:  
• Chase 
• Marine fed credit union (15 yr only)
• Coastal federal credit union 

@Levi Bennett

I’m assuming that part of you is asking this question because deep down inside, you know that you should walk away.  If so, I’d agree.  

If your profit margin is so slim that ONE MONTH on the market puts you in the red, then you really don’t have any profit margin.   There’s no cushion for cost-overruns, softening in the market (thus a lower sales price and increased DOM), or any other unexpected hiccups that ALWAYS occur.  

I would label your project as gambling, not investing.  Follow your gut and live to see another day.  The CLT market is super-competitive right now so deals are scarce, but don’t let the itch to get into the action push you into a deal that you already know is high risk/low return.  Again, live to see another day.....

@Michael Clay Yes...all the standard checks/qualifications still apply.  It’s a Fannie/Freddie exception so all their qualifications are applicable.  

@Nasar Elarabi - When you talk to the banks about the immediate cash out refi, it's important that you specify the Delayed Financing Exception below. If you just say "Can i do a cash out refi after 2 months", they'll all say no. Also, it's only applicable if your initial purchase was all-cash and no mortgage financing is shown on the HUD.

A lot of bankers/brokers aren’t familiar with it until I send them links to the guidelines. Shoot me a message if you’d like me to send you some reference info.