First step to Financial Freedom!

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First step to Financial Freedom!

BRIAN CUBERO
New York, NY · Member since 2019 · 10 posts · 5 votes

Hello BP world!

First time investor here and excited to take the first step towards financial freedom! My name is Brian & I’m currently looking to buy my first property.

My deadline for this goal is June 1st of this year. Since last June of 2019 I have been 100% committed to my real estate investing “education”. Obsessed is probably more accurate. I’ve spent what feels like hundreds of hours every evening after work watching/listening to just about every BP podcast episode and reading the books put out by @David Greene & @Branden Turner. I certainly don’t know it all, but feeling like I know enough to jump and figure out the rest as I go.

As a first time investor, I have a ton of questions, as you could imagine. My most pressing questions are about initial financing and the refinancing of the property.

I dont have any potential private lenders at the moment, so I’d either be paying cash for the property (assuming I can be all in for under 55k). I can also use a hard money lender to finance the property.

My first question is will the lender require skin in the game or is the asking price, rehab, closing costs covered by the lender? Not clear on how that works. Do I cover a percentage of everything? Do I cover the rehab & lender covers asking price? Any clarity on this is appreciated!

My second question is, has any one been able to work with a portfolio lender or credit union, put down 20% for initial loan, and then refinance with that very same bank after its rehabbed and appraised at new value?

Thanks for reading this long post!! Appreciate all your feedback in advance

For context, below is my search criteria for the first property

  • Multi Fam (2-4 units)
  • Exit Strategy - Brrrr & Hold for cashflow. Sell after 3-5 yrs and 1031 into larger multi fam
  • All in for 50/55k (including down payment, rehab, closing costs, holding costs)
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Tim SwierczekPro Member
Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
6y

@BRIAN CUBERO I haven't seen a duplex in the twin cities which would include Minneapolis and Saint Paul that would be a light rehab for 100-130K  I would speculate that at even double those prices you are likely to see properties that need more than 10-15K.  I like the MN market but not at that plan with those numbers.  There is a way to make it work but you are likely looking at an acquisition price of $250+ in a C neighborhood with 10-15K in rehab or a B neighborhood with the same price but 40-60K in rehab.

One other thing to consider is that Conventional cash out guidelines require you have 70% loan to value on a multifamily property so if your ARV is $170K your max loan amount is $119K, assuming your refi has at least 5K in costs you would need to be all-in on the property at 115K or less including rehab to make your numbers work.

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  • Anson YoungBusiness Member
    Flipper/Rehabber · Denver, CO · Member since 2009 · 1k+ posts · 726 votes
    6y

    Welcome Brian!

    Sounds like you are ready to get started for sure!

    1. Expect to have skin in the game, with hard money lenders this will likely be 20% down, conventional lenders varies from 5-20%, too.  An experienced investor with a track record with a hard money lender could get a 100% loan, or from a private lender, but as someone with no experience, expect to put some cash down.  MOST hard money lenders cover the rehab, or 80% of the rehab.  It does not hurt to call a half dozen in your area and see what the different programs are, compare and contrast them from there.

    2. This is possible as well, typically portfolio would be for refinancing a package of homes/properties all under one loan.  You might be thinking of a line of credit with the credit union?

    You forgot to add where you are from, so others can help you more specifically! 

    Good luck out there!

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    2Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    Let's sloooow down and talk about your market. Where are you located and what condition are you looking to buy? To be all in for $55K is incredibly low. You can't touch anything in Indianapolis for that amount and my market is cheap compared to other places. 

    I would expect to have skin in the game. If you finance conventional, don't plan to house hack, it's an investment property, be ready with the 20% down payment. Or you could get creative like in 2008 and see how that goes... 

    The odds of working with a portfolio lender on your first deal are really low. It's called a portfolio for a reason. Do you have a range of investments held by a person or organization (more properties)? What's the point? It takes experience and good relationship with a bank to even set one up. 

    You sound really smart. It's time to focus on finding or creating a DEAL. Worry about the financing part after that. 

    2Reply
  • BRIAN CUBERO
    OP
    New York, NY · Member since 2019 · 10 posts · 5 votes
    6y

    @Anson Young

    Thanks for taking the time to read that through and respond Anson! Pretty cool talking to you here, after watching all of your appearances on the BP podcast and other videos you put out on youtube. 

    I figured that would be the case as a new investor. I’m ready to put some skin in! I will aim to get my initial 20 % down payment on the back end of the brrrr, hopefully all of it to fund the next deal. 

    Regarding local community banks, have you ever worked with one that will fund the initial purchase in addition to refinancing? Wondering if it may be cheaper to get a loan from a community bank and then refi with that same bank on the ARV value.

    Thanks again Anson, you’re a legend

    0Reply
  • Anson YoungBusiness Member
    Flipper/Rehabber · Denver, CO · Member since 2009 · 1k+ posts · 726 votes
    6y

    Brian, I dont have a ton of experience with doing that with the same bank, but I do know some hard money programs where they fund the initial purchase/rehab, and you qualify for the refi at time of first closing... pretty cool stuff.

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    1Reply
  • BRIAN CUBERO
    OP
    New York, NY · Member since 2019 · 10 posts · 5 votes
    6y

    @Jaron Walling Thanks for reading & responding

    i’m currently located in nyc, looking to invest out of state. Currently looking at these markets below. Open to any suggestions as well

    Minneapolis, Minnesota

    Ohio (Cleveland and Columbus)

    Florida (Orlando & Palm Bay)

    Indianapolis, Indiana (rents dont seem strong enough for $150-200 per unit)

    I am looking to find a multi fam (duplex or tri) I can do a relatively light rehab on (10-15k) and add some value/build in some equity, then refi for a 2nd property. Ideally the property would be anywhere from 100k-130k, with an ARV of 150-170k after rehab.

    thanks for the tip on the portfolio lenders. Is there another route you’d recommend? Conventional may not be an option if I’m looking for a distressed property. 


    thanks again for your time and feedback Jaron! Really appreciated 

    1Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    Florida is expensive and riskier in my opinion especially if you're new to investing and don't have connections. I'd focus on the midwest states. We have way less price swing on downturns, it's not tourism based economy, and the cost of living is less. You can cash-flow if you find the right property. $100K, rents for $1000 could be your target. Negotiate well enough to make the numbers work or move on.

    0Reply
  • Tyler GibsonBusiness Member
    Real Estate Agent · Orlando, FL · Member since 2017 · 1k+ posts · 2k+ votes
    6y

    @BRIAN CUBERO @Jaron Walling is right about Florida being more expensive. You aren't going to find a small multi family unit in the Orlando area in your price range that will only need 10k in repairs. Duplexes in the Orlando area are mostly selling for above 200k and that is for something that needs 50k in work to get market rents. Trust me I look at these properties every day. 

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  • Account Closed
    Lender · Minneapolis, MN · Member since 2019 · 34 posts · 16 votes
    6y

    Hi Brian,

    If you're looking for something distressed, you can find a few investments in Minneapolis, but then it comes down to what Jaron said - start reaching out to find that deal.  You should be calling your you know what off in the areas you've centered on if you're going to hit that deadline with the deal you want.  

    Best of luck to you sir!

    HHH


    0Reply
  • Evan Kraljic
    Investor · Minneapolis, MN · Member since 2019 · 129 posts · 210 votes
    6y

    @BRIAN CUBERO Hey Brian, I saw you mentioned Minneapolis on your list and thought I'd chime in. While Minneapolis is a great market to invest in from economic and job factors, I don't think it's reasonable based on the ideal property you laid out. You mentioned a duplex/triplex between 100-130k that you could do light rehab on to bring it to 150-170k. I can tell you based on looking at properties for the last 6 months that your goal is a unicorn in the Minneapolis metro area. I'd say 100-130k is a good range for price per unit and even then it's a bit low which means you're probably looking at a C or lower neighborhood. To find a duplex all in under 130k would mean it's probably a full gut rehab job and even then it'd probably be in area like North Minneapolis, which I would say is not a wise first investment for an out of state investor. 

    If you were referring to price per unit in your previous response then I apologize. But I'm just trying to give it to you straight. Mpls/St. Paul has a strong rental market but prices are high so if that's your goal I'd be looking at those Ohio cities, or elsewhere in the rust belt to southeast US. 

    Good luck!

    2Reply
  • Remington LymanBusiness Member
    Real Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
    6y

    @BRIAN CUBERO I also invest in Columbus, Ohio. I like the city because of the increasing jobs and population. This article just came out about a $240,000 campus headquarters opening up right new to a 4 unit I bought for $80,000. It needs a complete rehab and there are no less than 10 meth heads across the street but I believe it will be revitalized pretty quickly.

    https://www.dispatch.com/business/20200110/flashy-covermymeds-campus-rises-on-former-industrial-site

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  • Tim SwierczekPro Member
    Lender · White Bear Township, MN · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @BRIAN CUBERO I haven't seen a duplex in the twin cities which would include Minneapolis and Saint Paul that would be a light rehab for 100-130K  I would speculate that at even double those prices you are likely to see properties that need more than 10-15K.  I like the MN market but not at that plan with those numbers.  There is a way to make it work but you are likely looking at an acquisition price of $250+ in a C neighborhood with 10-15K in rehab or a B neighborhood with the same price but 40-60K in rehab.

    One other thing to consider is that Conventional cash out guidelines require you have 70% loan to value on a multifamily property so if your ARV is $170K your max loan amount is $119K, assuming your refi has at least 5K in costs you would need to be all-in on the property at 115K or less including rehab to make your numbers work.

    7Reply
  • BRIAN CUBERO
    OP
    New York, NY · Member since 2019 · 10 posts · 5 votes
    6y

    @Tyler Gibson @Jaron Walling 

    Fair enough. May not be the best market for me yet considering my current experience level & cash on hand (about 70k but feel comfortable deploying no more than 55k.) 

    Im sure my inexperience is making me think one dimensional leaving out creative opportunities to fund higher priced properties. 

    Would a hard money lender consider wrapping the rehab loan together with the purchase price, and then I can put down 20% of that figure? If so I can afford to get a property at say, 185k, rehab for 30-50k & still be under 50k. (W/o holding/closing costs which surely will put me in the high 50’s - willing to take that on).


    again thank you both for your input & advice! Really appreciate all the help I can get 

    1Reply
  • BRIAN CUBERO
    OP
    New York, NY · Member since 2019 · 10 posts · 5 votes
    6y

    @Account Closed

    Well said my man. Getting after it!!! I appreciate the well wishes and the push my friend

    0Reply
  • BRIAN CUBERO
    OP
    New York, NY · Member since 2019 · 10 posts · 5 votes
    6y

    @Evan Kraljic

    Evan I appreciate the straightforward response & honesty here.

    Would you say 260k for a duplex is a more realistic figure for a c+ or b- neighborhood in Minneapolis? 

    i mentioned in a response to @Jaron Walling that my inexperience is limiting my approach on whats possible regarding funding and how to make it work. Not sure if hard money lenders wrap rehabs into the loan, but if thats an option, certainly makes a duplex with a decent 30-40k rehab possible.

    would love to hear your thoughts on this


    thanks Evan

    0Reply
  • BRIAN CUBERO
    OP
    New York, NY · Member since 2019 · 10 posts · 5 votes
    6y

    @Remington Lyman

    This is huge. Appreciate you sharing. Completion looks like its set for 2021. Crackheads better start looking for a new place ahahaha

    Appreciate you sharing this. I am going to look into the surrounding area and see if there are multi families in the area that fit my criteria


    thanks Remington! 

    1Reply
  • Ryan Schroeder
    Rental Property Investor · Saint Paul, MN · Member since 2016 · 46 posts · 37 votes
    6y

    Brian,

    When looking for investment property folks talk in terms of cost per square foot or cost per door (per door is an acronym for per rental unit).  In the markets I'm in the range per square foot to purchase is from about $135 up to about $180/square foot so a 2000 square foot duplex would range from $270,000 to $360,000.  Same goes for rental rates.  Again, using a square foot analysis our rental rent from about $1/square foot up to about $2.50/square foot/month (larger apartments tend to be on the lower side and efficiencies on the higher side per square foot).  So a 700 square foot one bedroom, depending on the market and amenities renting at about $1.40 would be $900/month.  When looking for a property you need to be aware of both what your market is getting in purchase price AND what you are able to get in rent so you need to do your research AND some math.  Same for any rehab.  You need to be aware of what it costs to "fix up" a place.  Also, whatever you think it will cost add a fairly large contingency because I promise you your initial budget will be too low as you will either forget some things or you will find surprises and likely it will be both.

    Once you get comfortable that you understand the purchase and rental market and have somewhat of a handle on rehab costs and what those costs will do to your ability to increase rents from the pre-rehab numbers and what it will do to your ARV (after rehab value).

    Once you have a handle on all of that go to a bank, any bank, and have a conversation to find out their lending guidelines and how they would view your prospects for meeting those guidelines.  Once you have that in hand, and maybe a level of agreement with the lender you are ready to look for property.  Anything you do without all of this would be called gambling

    1Reply
  • Evan Kraljic
    Investor · Minneapolis, MN · Member since 2019 · 129 posts · 210 votes
    6y

    @BRIAN CUBERO Yeah I would say that is a much more reasonable number. I'll try to give you a very general breakdown of Minneapolis just to get your started. Minneapolis has 4 general quadrants centered around downtown. There's North Mpls, which is west of the river and I94 and generally considered the worst part of Minneapolis in terms of crime and property value. I would stay away, especially as an out of state investor. Northeast Minneapolis is east of the river and generally thought of as a pretty great place to live and own rentals. Property values have really shot up here due to an emerging craft brewery scene and other gentrification. I'm not going to claim I'm knowledgeable enough to grade all the properties but I'd say Northeast is around a B. 260k would be the low end for property values here, but there is a large inventory of duplexes so you could maybe snag one for around that number. I'd say low 300s is the median but that's a guess, I don't have the MLS data to support it.

    Then comes South Mpls which is massive and the main boundary here is Interstate 35W. West of I35W is called Uptown, which like Northeast has really shot up in value and you probably won't sniff a duplex here for 260k. Although there is one up for 280k right now (3336 Stevens Avenue, Minneapolis 55408 if you're curious). The east side of 35W doesn't really have a great name to classify it all. I can tell you that as a general rule of thumb for South Mpls, the further south you go the nicer homes you'll see but those are far above the 260k figure you threw out. There are plenty of duplexes around 260k in South Minneapolis but you've gotta find a really good realtor who you trust because like a lot of places it can change block by block from a B- with a solid rental market to a C- neighborhood with gang activity, heroin junkies, etc. Having just started out I don't know the neighborhoods that well but especially as an out of state investor it's imperative that you build a good team who really knows the area well. 

    Last thing: I know it's difficult to do research on out of state markets so I'll give you a few pointers. The first is to get realistic about what your financing situation/risk tolerance is and what you can afford. Then start looking at the past 6months to a year of multi-family home sales on Zillow, Realtor.com, Redfin etc and you can get an idea of what the pricing is in various areas of the market. Then pin down just a couple markets (2-3 tops) to dive deep in and start reaching out to locals there and building a team. If you had looked at prices of sold duplexes in Minneapolis you would realize that your price change was unrealistic so that's why I'm bringing it up, no disrespect intended though. I know it's a lot of work but that's what it will take. Good luck!

    0Reply
  • Preston Quinn
    Rental Property Investor · Lynchburg, VA · Member since 2018 · 116 posts · 73 votes
    6y

    @BRIAN CUBERO

    I have personally used the same bank on a brrrr. I purchased the house for $35k using a portfolio lender and I had no portfolio. What I did have is flipping experience though. I put 20% down on the initial loan to buy the house. (I used my heloc for the 20% down) then I used my heloc for the rehab on the house. I put roughly $30k in the house. Went back to the same bank and told them I wanted to refinance. She said that it would be better for me to modify the loan. (Fees for the modification was around $1200) the house appraised for $89,000. This bank wouldn’t allow me to pull out more than I put into the house. There’s a loan for $65,000 on this property now. Got all my money back and looking for another deal now.

    Now how did I do this? The key for me was the relationship I built with this bank before I was ready to invest. I built my personal house through this bank with a construction loan. I flipped a few houses with this bank using commercial financing (in a llc). So when I was ready to buy and hold they knew I could perform. I have sent people to this same bank with no experience and they were turned away.

    Moral of my story, is you HAVE to build relationships with people every step of the way. Always try to serve people and what you need/want won’t be far away.

    0Reply
  • Matt Higgins
    Property Manager · Blaine · Member since 2015 · 209 posts · 276 votes
    6y

    Hey Brian, good luck to you!  I know of a light rehab duplex 40 minutes outside of Minneapolis well under 100k that you could buy today!  I say this not to sell you a deal, but to tell you that they exist.  I agree with everyone else that the Mpls/St Paul metro has gotten pricey, and that a category 2 rehab in St. Paul or cleaning up a tish report in Minneapolis is going to cost more than 20k. My rehab prices have been running 30k-40k.  That being said, I purchased a house today for 175k, 35k rehab, and I know it will appraise at 250k when I’m done unless the economy goes sideways.  What I would recommend is buying your investment in your own name, financing for 6 months, and getting that 30 year low interest money.  I also suggest you hookup with a turn Key operator or find a way to make it work in your own back yard.  

    2Reply
  • Alyssea Sago
    Specialist · Cincinnati, OH · Member since 2016 · 12 posts · 5 votes
    6y

    @Jaron Walling Hi, I was planning on house hacking a 2-4 multi unit for my first rental property. I planned on putting 20% down on a conventional loan, is that a bad idea?

    2Reply
  • Alyssea Sago
    Specialist · Cincinnati, OH · Member since 2016 · 12 posts · 5 votes
    6y

    @Jaron Walling *or why would that be a bad idea?

    0Reply
  • Jaron WallingPro Member
    Rental Property Investor · Indianapolis, IN · Member since 2018 · 4k+ posts · 4k+ votes
    6y

    @Alyssea Sago That's a great idea as long as you don't over pay. It's a like the board game chess. 

    The first few moves you make change the direction of the entire game.

    (negotiating a good price) 

    1Reply
  • Alyssea Sago
    Specialist · Cincinnati, OH · Member since 2016 · 12 posts · 5 votes
    6y

    @Jaron Walling ok, thanks for your response!! Definitely appreciate it!

    0Reply
  • Ryan Luthi
    Real Estate Broker · Edina, MN · Member since 2015 · 56 posts · 37 votes
    6y

    @Alyssea Sago Thats a great plan! "House hacking" and buying multi family and living in it is one of the best things you can do. I recommend a smaller down payment though, and then after a year buy another property. Since interest rates are low and rents are high (at least they are in most metros currently) I'd say save your down payment money unless you have tons of cash currently. I helped 37 clients buy or sell multi-family last year and in my experience from these and many other is that those people who want to build wealth and supplemental income through rental properties usually struggle the most with saving the next down payment, which is the true value of these live in loan options at 3.5% (FHA) and 5% (conventional).. Hope this helps, congrats and good luck! #minneapolis

    1Reply
  • Ryan Luthi
    Real Estate Broker · Edina, MN · Member since 2015 · 56 posts · 37 votes
    6y

    @BRIAN CUBERO I agree with much of what you said above but wouldn't rule out North Mpls or East St Paul...  All about finding pockets, and I've helped many (now quite savvy) investors make some serious cash in those areas with few headaches.  :)  Just a thought, let me know if you want to grab coffee sometime.

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