Milwaukee, WI · Member since 2015 · 30 posts · 5 votes
Hi all!
New to the BP site and excited to network with like-minded individuals about investing in real estate.
A little about myself: born, raised and have lived my entire life in Wisconsin. Married with no human children but with two cats. Currently working in Information Systems at a prominent life insurance company but will need to become my own boss. Why? I'm just built that way.
On to my topic. I am reading "The Book on Investing in Real Estate with No (and low) Money Down". Excellent read, so far.
I was wondering if anybody has any experience with the scenario described on page 83 where the author describes a situation where a hard money loan was obtained, then refinanced.
I have very little capital and zero experience in investing and was wondering if I were to obtain a hard money loan, how long do I have to wait to refinance. For a LTV mortgage, do I need to have a down payment? Does anybody else have a success story for this type of scenario?
Any help you could provide is greatly appreciated!
Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
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Hi @Steven Scheer
Welcome to BP! I am a Milwaukee investor as well. There are quite a few investors from Milwaukee on the site.
In regards to your question, while I have no experience using hard money, I'm fairly certain you can refinance into a conventional loan whenever you want to repay the hard money lender (assuming there are no prepayment penalties). The biggest concern will be that you will need to buy at a large enough of a discount in order to be able to refinance. Most conventional lenders are not going to lend at more than 75% or 80% LTV. Therefore, when the hard money loan is due, you will have a big problem if you don't have enough equity or if you cannot come up with enough cash. Most hard money loans are short term--a few months to maybe up to 12 months for a ballpark average. You can read some threads on BP on how people successfully use the strategy that you are considering.
Also, just make sure you know what you are getting into if you start investing in the lower income areas of Milwaukee. You will need to be very hands on and will have to do a great job of screening tenants among other things.
Milwaukee, WI · Member since 2015 · 30 posts · 5 votes
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Hi, Adam! Good to meet you. I'll probably start investing in lower income areas of Milwaukee. Being new to all of this and having so little startup cash, I think that's the best approach.
Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
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Hi @Steven Scheer
Welcome to BP! I am a Milwaukee investor as well. There are quite a few investors from Milwaukee on the site.
In regards to your question, while I have no experience using hard money, I'm fairly certain you can refinance into a conventional loan whenever you want to repay the hard money lender (assuming there are no prepayment penalties). The biggest concern will be that you will need to buy at a large enough of a discount in order to be able to refinance. Most conventional lenders are not going to lend at more than 75% or 80% LTV. Therefore, when the hard money loan is due, you will have a big problem if you don't have enough equity or if you cannot come up with enough cash. Most hard money loans are short term--a few months to maybe up to 12 months for a ballpark average. You can read some threads on BP on how people successfully use the strategy that you are considering.
Also, just make sure you know what you are getting into if you start investing in the lower income areas of Milwaukee. You will need to be very hands on and will have to do a great job of screening tenants among other things.
Milwaukee, WI · Member since 2015 · 30 posts · 5 votes
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Hi @Darren Budahn, thanks for the info! When you say hands on, do you mean I will have to be handy around the properties because vendors will not visit, or will I have to break up incidents and other problems?
No I was not referring that you need to be personally handy. By "hands on" I simply meant that dealing with tenants in C or D class areas will simply take up more of your time than if you invest in better areas. With that being said, you can get a terrible tenant in an A class property and a great tenant in a D class area. I'm just saying, on average, if you want to invest in lower class areas, you are going to have to put more time into it. It won't be as passive as you might want it to be. If you want to try and achieve the high returns that you see on paper, be prepared to work for it. Also, properties in these areas tend to be older housing stock which will mean more maintenance issues and the tenants in general will be harder on the property in lower income areas.
Investor · Madison, WI · Member since 2015 · 51 posts · 13 votes
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Hey welcome from BP, I'm from PR but have lived in Madison for ~5 years. I'm very interested in the topic, my husband and I are in the same situation. We bought our first house 3 years ago, a foreclosure that we have updated everything from ceiling to floors. We are interested in a duplex since my husband is a contractor but we don't have much liquid money. One of the options we are considering is buying a duplex as a owner occupant and move there for some time while renting our updated SFH.
If you really want to start learning about being a buy and hold investor we have a great group. 90% of the people that attend are building their buy and hold portfolio and you can network and gather much information from them. Also majority of our subjects are about building your portfolio.
As for a HML as @Darren Budahn has mentioned they are short term and high interest. With a HML you will need 10% down, plus they will analyze the property to make sure it is a strong investment. Also you will want to make sure you qualify for a refi before purchasing a rental with a HML.
A few questions: • Do you have an area you are focused on(farm area) • What is your budget? • Have you researched the market for comps and rentals? • Do you have a good understanding of CAP rate and ROI? • Do you know how to research potential tenants and do background checks?
I know you are just starting out, but the questions above are the things that you need to become knowledgable about in order to be a successful buy and hold investor.
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
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There are D-class areas in Milwaukee. I definitely advise against anyone who's not an experienced landlord investing in them. That being said, even though I have experience under my belt, I personally would not touch the D-class properties. Too much drama, too much headache.
Residential Real Estate Agent · Santa Barbara, CA · Member since 2012 · 233 posts · 45 votes
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Hey Steven, welcome to BP and I must say... whoever wrote that book is a genius @Brandon Turner
With that being said I started investing in Milwaukee in 2013 from California. It has not been easy and ALOT more work, stress, effort than I ever expected. I buy with cash then rehab, tenant placement, then refi out and so far things have gone OK. There is something to be said for taking action and kicking some ***, but you have to kick calculated ***. No risk is worth taking if it puts you at risk. I won't tell you what to do because everyone has an opinion or idea but at the end of the day its whatever you are comfortable with. Everyday you need to study and everyday you need to network.. those two things will do the most for you in the long term. Smile, stay positive and PERSISTENT !
Thank you for your response. Hopefully, I will be able to attend the monthly meetup.
To answer some of your questions:
The area I want to focus on (for now) is the North side of Milwaukee. I am researching properties that are fully rented with long-term tenants. Might not be ideal, but I figure it's about the only play I have right now.
I currently have $5,000 in liquid cash. That's all I have to play with.
I'm not familiar with the term comps. I have researched potential properties and have looked up area rents on rentometer.com.
I have no familiarity with CAP rate but am quite familiar with ROI, I run a small ticket broker business on the side, so I calculate ROI on a regular basis.
I have an idea on how to research potential tenants. I know this site offers a product, but I do not recall its name right now. Personally, if I were to assume ownership of a rental property tomorrow, I would do a criminal background check, employment verification and determine whether or not the potential tenant(s) have ever been evicted. That's where I'd be inclined to start.
Could you go more in-depth into what you mean when you wrote "too much drama"? Is that more typical of lower income tenants. I know it's not always ideal to invest in these neighborhoods, but I'm from what you would probably define as a neighborhood with D-class properties.
The area I want to focus on (for now) is the North side of Milwaukee. I am researching properties that are fully rented with long-term tenants. Might not be ideal, but I figure it's about the only play I have right now.
I currently have $5,000 in liquid cash. That's all I have to play with.
Could you go more in-depth into what you mean when you wrote "too much drama"? Is that more typical of lower income tenants. I know it's not always ideal to invest in these neighborhoods, but I'm from what you would probably define as a neighborhood with D-class properties.
First of all, instead of limiting your thought process to "that's all I can do" how about switch it around and say "how can I do X?" if you really want to do something different?
When I say "too much drama" I mean the classic "drugs, thugs, and bugs" type of tenants.
Lower income doesn't necessarily mean lower-class. Lower class people are those who allow bad elements to control their life. Lower income just means someone doesn't have a lot of money. Someone can be a high-class person with little income, just as someone can be a low-class person and have millions of dollars.
Comps refers to comparable sales. 1-4 unit properties are mainly valued in real estate by how much other "comparable" properties have sold for recently. This would be similarly sized properties in the same neighborhood.
Cap rate is a little more complex and you can search the site for some good discussion on cap rates.
Nevertheless, I think it may be difficult to start investing with only 5k in liquid cash, unless you have access to a home equity line of credit or some other source of funds. You need to make sure you have enough cash to cover expenses for the property. (Maintenance, Cap Ex, Insurance, Vacancy, etc.) In D class areas, non-payment and evictions are a real concern as well. I'm not saying you can't or shouldn't do it, but make sure you go in knowing all the hazards.
Your thoughts on screening tenants are very valid. Conducting a background check, doing employment verification, and checking for past evictions will put you ahead of many landlords who do none of these things. Just be aware that almost every tenant in a D class area is going to have some blemishes on their record.
Also, you said you want to invest in the "North Side." Do you have any specific areas in mind?
Also, I"m just curious what neighborhood you grew up around in Milwaukee as people may have differing opinions on what is considered a B or C or D class neighborhood?
Property Manager · Milton WI · Member since 2015 · 88 posts · 14 votes
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Hey Steven and welcome. I'm from Beloit WI which isn't all that far from you. Just over an hour abouts. I would have to agree strongly with Dawn on getting yourself into a D class area. Personally I have 1 house in what I would consider a close to D class area. It was my first and has been a lot of problems in comparison to my others that aren't in that area. I'd stick with B to C starting. Otherwise your more likely to be dealing with rent excuses, more destruction to the property and just over all more time and effort as others are stating. As far as money goes if you have good equity in your house it's a great tool. I'd be careful starting out with a hard money loan and trying to refi later. It's a little riskier if your unable to refi as stated above or other unforeseen issues. If you can utilize a bank loan off the bat. They are pretty easy for the first 4 loans depending on your debt to income and credit. Also a lot safer and lower interest. That being said sometimes you do what you have to in order to succeed.
One great way to get started would be to buy a duplex and rent one side while living in the other side. That's a method many use. I haven't personally but it seems popular and makes sense. Many different techniques which makes investing so great. I will say listen to the BP podcasts and look at the resources like the tenant screening guide. Also that meet-up is a great idea. Learn and connect but don't sit around doing only that. At some point you need to just jump in.
Hartford, WI · Member since 2015 · 4 posts · 2 votes
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Hi Steven and welcome. I'm new myself, I just found this site a few days ago. I am reading The Insider's Guide to Making Money in Real Estate: Smart Steps to Building Your Wealth Through Property by Dolf de Roos and Diane Kennedy. I was actually looking into a completely different business and came across Diane's book Loopholes of the Rich when this whole world opened up to me. I mention this because I want to have a clear vision of what I want to get out of it when I start. I believe that will fuel my choices, actions, relationships, and motivation. I think it will also make things possible that otherwise might not have been.
I have found a lot of great information on this site and love the podcasts. Like you, I'm anxious to start but I want to do it in a a calculated way. I want to know what I'm walking into and that I'm prepared. I'm having a hard time fighting off the "do it now" voice in my head, but I believe it will be well worth it. As Dawn mentioned, set your sights on where you want to go, not what you think you can do.
I'm also in Wisconsin, up in Hartford, not too far from you. Good luck!
Milwaukee, WI · Member since 2015 · 30 posts · 5 votes
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Hi @Tony Cavalli, thanks for your words of encouragement! Do you feel that managing your properties from such a long distance creates additional stress or is it more or less the same stressors and you can't always deal with them face-to-face with your tenants, vendors, etc.?
@Dawn Anastasi, thank you for the additional context. "How can I do X?" That is the way I need to realign my thought process. Maybe I should read "Rich Dad, Poor Dad".
@Darren Budahn I grew up on the north side of Milwaukee. Near the intersection of N 35th and Capitol Drive. I don't know if the properties in this area are considered D-class. Here are a few that I have been considering:
Are these what you would consider D-class properties?
@Shawn West Thanks for the advice! My wife and I don't own any property, so there's no home equity to speak of. We will purchase a home in the next 6-12 months. I really like your suggestion of moving into a duplex and have considered this move for many years. It's just a matter of convincing the wife that it's a good idea!
@Suzette Boltz, thanks for the reading suggestions! I agree. The "do it now" voice in your head is hard to fight off. Eventually, we're going to have to jump in with both feet, but I agree. Being prepared and minimizing the risk as much as possible is the way to go. Best of luck to you as well!
Investor · Milwaukee, WI · Member since 2014 · 811 posts · 420 votes
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@stevenscheer
I would consider the property on 44th and North to be C- and the other two right around 15th and 24th & Burleigh to both be class D. That's my opinion only. However, if you can buy a place that has stable long term tenants, you may be able to get some good cash flow without having to spend much, at least initially.
Also, for what it's worth, I've driven past that house on 44th and it does need a new roof.
Good luck to you though. Let us know what you decide to do
Thanks for the info! I was thinking that with stable tenants, the investments may be worthwhile. Obviously I'd have to inspect the properties before any moves are made to determine what repairs/enhancements would be required in the short and long term. My boss' husband does house inspections for a living, so I know a guy.
Real Estate Agent · Madison, WI · Member since 2015 · 328 posts · 88 votes
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@Steven Scheer I was talking to a banker the other day about a play you can try. This bank was offering 15% down investor loans. On a turnkey rental in Milwaukee say you buy a 53k rehabbed house your down payment is $8000. you have 5k so you borrow $3000 from a private lender and secure it with something other than the house like a car or boat. You should also have a maintenance reserve, but you get the point. Has anyone tried this?
Orlando, FL · Member since 2014 · 152 posts · 54 votes
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Hard money is best if you're an experienced, big league investor. Try to partner with a knowledgeable, honest local investor. If you do some dirty work for them , it'll be great experience and through your work, other locals may take notice and help you along your journey
Lender · Sunnyvale, CA · Member since 2015 · 11 posts · 3 votes
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Hi!
I also just joined BP and jumped right to the forums.
A quick introduction of myself. With over 15 years of strategic, Global management experience, I have developed a track record of success and leadership in operational excellence prior to becoming the co-founder and CEO of Nest Egg Assets, LLC. After more than a decade at Google Inc. and as a mother of twin girls, I am focused on helping others build wealth for themselves and for their families through trust deed investing. As CEO for Nest Egg Assets LLC, I have raised money for over $5M of various real estate finance and development projects in the last 3 years.
In my spare time, I am Vice President of the board of Gemini Cricket of Silicon Valley, a non-profit organization, focused on bettering the lives of parents of multiples. I am a member of several professional women’s associations, such as National Association of Professional Women and American Business Women Association. I am a graduate of St. Lawrence University and reside in the Bay Area with my husband and twin daughters.
In terms of Hard Money Brokers and their requirements. First, you should know this varies by state. In fact, some states require a license to be a broker while others do not. Be sure to check in with your professionals (and lawyers) before partaking in any deal, so that you know the risk of investing!
Second, Hard Money Brokers will likely require a 25% to 30% down payment on a given property. They primary fund non-owner occupied, residential (1 - 4 units) with a Loan-to-Value on Purchase Price of <65% (hence, the downpayment requirement). I know very few HMB's who will allow no money down without cross-collateral. That said, you can use cross-collateralization for " no money down". For example, if you have a free-and-clear property that is worth $500,000, then a HMB would likely lend based on 50% of that value (or $250,000) towards the loan requested.
Third, on top of Hard Money Brokers, there are Private Lenders, which is what my company does. A Private Lender will lend on a deal whereby the criteria from the HMB may not be able to be met. As an example, some Private Lenders in the Bay Area will lend up to 75% on After-Repair Value (ARV) with "skin in the game" (10% cash-in or cross-collateralization). The specifics around what types of terms are offered are specific to the Private Lender, but should always stay within Usury (http://www.investopedia.com/terms/u/usury-laws.asp). Private Lenders raise money from private investors to invest in real estate deals.
I could write a lot more, but hope that small amount of info helps in some way!
Milwaukee, WI · Member since 2013 · 384 posts · 109 votes
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@Steven Scheer - Welcome to BP. There are a lot of SE WI investors on this site. I first became a landlord by buying the duplex I was renting - I still think this is a great way to start REI.
@Steven Scheer I was talking to a banker the other day about a play you can try. This bank was offering 15% down investor loans. On a turnkey rental in Milwaukee say you buy a 53k rehabbed house your down payment is $8000. you have 5k so you borrow $3000 from a private lender and secure it with something other than the house like a car or boat. You should also have a maintenance reserve, but you get the point. Has anyone tried this?
That sounds like an awesome play. That would be perfect to find in Milwaukee. Currently searching..
Pleased to meet you as well and thank you for sharing your experience with me. I'm starting to lean more toward that approach. Seems like it'd be a good way to learn the ropes!