Long time investor AMA
Member since 2020 · 16 posts · 10 votes
I've been investing and selling for 16 years. Currently, I own 95 units and my clients have 360 in escrow. I buy and sell. I sell to support my rental habit. I don't know it all but I'm willing to share any knowledge I may or may not have. =-) Ask away. I'll do my best to respond in timely manner.
Hi Brandon, I’m a newbie in Texas. Trying to get started, I need a effective assignable contract to present distressed sellers, also an effective commercial assignable land contract . Any ideas, examples will be appreciated. Thanks
I use a simple FSBO contract provided by my Title company. Any title company will have a FSBO contract you can use. When filling out the buyer name put, 'your company name and/or assigns.' I know some investors use a simple one page contract as it gives them easier exit strategies but I've never been a fan of that approach.
Thank you, I’ll get right on it 🏃♀️
What cash did you use to get started and if you invested 16 years ago, that was right before the crash. Did you buy at the peak of the market?
I did. I had about 12 months of good market when I left college. During that time I bought four rental units before the market crashed. I still own those units. One of the wonderful things about rentals is the crash had little impact on my long-term plan. I wasn't selling. I would say it helped more than it hurt. I had more qualified tenants looking for a place to rent. I actually raised my rents during this time. Where it hurt was my ability to leverage and borrow funds. The bank lending to me was shut down by the FDIC so I was a borrowing free agent. At the time it wasn't easy to find banks looking for young investors with little track record. I went to smaller local banks and asked them each to give me one rental loan so I can prove myself. I was able to convince three smaller banks to lend me one deal at a time. I didn't have the cash so I used future value appraisals and sweat equity to minimize my cash needed for each deal. These loans are the best way imho to leverage funds into more deals.
Hey Brandon, thanks for doing this. My question is in regards to renovations. Did you purchase units that needed work, and if so, how did you learn to accurately estimate rehab costs? I feel as if thats one of the huge sticking points for aspiring investors such as myself. Thanks.
"I went to smaller local banks and asked them each to give me one rental loan so I can prove myself. I was able to convince three smaller banks to lend me one deal at a time. I didn't have the cash so I used future value appraisals and sweat equity to minimize my cash needed for each deal. These loans are the best way imho to leverage funds into more deals."
Would you mind elaborating? Specifically, what you mean by rental loan and future value appraisals.
Great information Dan, thanks for sharing. I’m a newbie and I will reach out to my local community banks with the appraisal value approach
I purchased units that needed work. I use to measure the property and send drawings to vendors for quote. This became an issue if I needed to make a quick decision on the property and offer quickly. So started to use a spreadsheet and use per ft pricing from my vendors. We detail measured the property and I did my best to get per foot prices from every trade. For example, I know my painter charges me $4.5 a foot for int/ext paint. So I put that formula into excel. 1000 sqft house cost me $4,500. Counter tops and flooring are easy to measure and get a per ft price. I would make my best guess on other items and make the offer. During my DD I would have an open house and let the subs through to firm up my budget. I never used one sub or GC to do everything. Let me know if you want me to explain in more depth.
"I went to smaller local banks and asked them each to give me one rental loan so I can prove myself. I was able to convince three smaller banks to lend me one deal at a time. I didn't have the cash so I used future value appraisals and sweat equity to minimize my cash needed for each deal. These loans are the best way imho to leverage funds into more deals."
Would you mind elaborating? Specifically, what you mean by rental loan and future value appraisals.
Dan,
Great question. Sorry for the delay my day got away from me. This loan was extremely important for me while trying to leverage my lack of funds into multiple properties. Typically, banks will lend up to 75-80% loan to value. This is why most investors put down 20%. In the beginning I didn't have 20% so I knew I wouldn't get far going the traditional route. I started using future value appraisals. How this works is fairly simple. First and foremost, when approaching a bank you tell them this is the type of loan you want. Do not offer 20% down. that's not an option. I've found smaller local banks to be much easier to deal with regards to these loans. Local banks are more connected to RE in their area and understand values better. They also often have better appraiser which is the key to this approach. I'll give you a brief example of how this works. Depending on your PFS and financial background will determine the banks comfortably in your LTV. I started getting 70-75% but now I get 80%.
So here is the approach. I'll go to my banker with deal in hand ( I'll use round numbers for this example so its more clear)
I have a contract to purchase a house at $50,000. I tell my banker I want to put 30k into the property and once I do the comps show its worth 100k. I'll give the banker a detailed list of my rehab. They order a future value appraisal based on that rehab. This is why going to local bank makes all the difference. They have local appraisers. I always meet the appraisers and tell them my plan and show them comps of 100k. If it appraises at 100k the bank will lend me 80k. I'm in the house with zero down. I've done this loan probably 500 times throughout my career ( I use to flip a lot) . It's the best way imo of using leverage and not bringing in partners who bring nothing to the table except down monies. Let me know if you have any other questions. Happy to help
I guess I should add the bank also lends me the rehab monies. So the bank will lend me 80k total for the property. An important piece of information. ;-)
Brandon,
This is invaluable, thank you. I’m in a similar position as you were starting out. Recently purchased a Single family home as a buy and hold. It’s going great, but moving forward it will be a long time before I have the 20-25% down required.
I’ve renovated two home and one rental myself. This could be a really great strategy for me.
Curious how this works in competitive and expensive markets, both of which I find myself in. My fear with your approach is that it would take too long between finding a property, discussing with the bank and securing an offer backed by the bank. Thoughts?
I don't necessarily discuss with the banks before entering contract. I do my homework make sure numbers work upfront and move quick to contract. It does take more buying opportunities and makes it more difficult to find deals within these parameters. Even if it didn't fit perfectly the bank will go to 80% on noncommercial loans so if the appraisal came in higher than purchase and rehab it was still less down. That said, I missed plenty of deals in this stage of my investing career although I didn't necessarily look at it that way. I knew I didn't have the 20% and it would take me months if not years to save it. With that in mind I got to work looking specifically for deals that fit this loan. I made more offers with structure. I was told no more but it didn't really matter to me. I was focused on scaling with out multiple investor partners.
Got it.
Any sense of if this type of loan structure is widely common or specific to your locale? You are talking about an 80k loan. In my area it would be more like 350-400k, which I imagine is less palatable to banks.
Curious if you have advise or tips for building a relationship with the bank.
I used those numbers for ease of math. I just bought four duplexes in a package and used this loan. Typically, I've found the higher the price the harder to get the full spread. But again even if you don't get it full you still bring less. They'll require the difference or you can lower the rehab funds.
Curious if you have advise or tips for building a relationship with the bank.
I'd get with a few banks. Interview them. Do you have any banking connections? Check there first. If not call a few in your direct area. Again, more localized banks. Have a well laid out updated personal financial statement. Be prepared. After that sell them on your plan
I'm a first time investor with an 80 hour a week full time job. I live in LA where there are no cash positive properties. There's no time to travel out of state. I'm just looking for passive income on my dead primary residence equity. What's my best option to generate cash flow and appreciation? All the turnkey properties I look at show appreciation at 1-3%/yr. On a $100k house, that's $3000. The stock market averages almost 8%/yr. What's the value in a turnkey if it's not beating that - especially since a house is far less liquid than stocks?
@Brandon Logan wow. Great information. What advice do you have for new investors? This is a hot and competitive market and I have a 8 to 6 job. Unable to work on my property during work hours. Im afraid I won't be getting the deals full time investors get.
Good questions. I have a crazy day today but I'll do my best to answer these this evening.
@Brandon Logan, generally speaking, what kind of terms are you getting on these sorts of future value appraisal loans? Just curious how they typically compare to a conventional loan terms.
Hello,
I Recently purchased my first multi unit, How long typically is the wait to be able to use heloc gains to pull out so I can put down on my next one ?
Thanks
I'm a first time investor with an 80 hour a week full time job. I live in LA where there are no cash positive properties. There's no time to travel out of state. I'm just looking for passive income on my dead primary residence equity. What's my best option to generate cash flow and appreciation? All the turnkey properties I look at show appreciation at 1-3%/yr. On a $100k house, that's $3000. The stock market averages almost 8%/yr. What's the value in a turnkey if it's not beating that - especially since a house is far less liquid than stocks?
Corey, Thank you for the question.
Lot's to discuss here. First and foremost, I don't look at appreciation. I'm playing the long game with my rentals so I'm not selling or do I plan to refi pulling money out. I'm not saying appreciation isn't a great thing and a buying factor; more or less I'm saying it's not a major factor within my plan. There is more to the benefits of rentals than stated above. You're not only getting the appreciation your getting cash flow, debt service and depreciation. When you factor in all the true benefits re blows stocks away. It's not even a close ROI. There is a reason more millionaires have been made through real estate than stocks or any other profession for that matter. There is also a reason reits are often the best producing stocks.The other key factory is the leverage of re. Can't really do that with stocks.
Let's chat about stocks.
Here is my take and this is just my humble opinion. I started right before the big crash and there was a point in my life where I use to think poor me getting into re and 12 months later the bottom fell out. I was wrong. I learned a ton. At that time I was buying and flipping houses. It didn't take me long to realize most of the people I was buying houses from were older retirement aged people. Here is my problem with stocks. When you're young they tell you don't worry about the market fluctuations. Just leave your money in and you'll be fine. I agree when stocks drop don't pull your money out. Market corrections are often 30% or more decline and since 1920 they've happen on average about 7-8 years. Which has consistently been the average retirement cycle of Americans. Crazy coincidence, right? I think not. So right when you're ready to retire the market crashes. Well you need that money and you don't have time for the rebound. I can't tell you how many great people I've met who needed to retire put all their money into stocks and then couldn't retire based on the crash. That's what they teach us, right? Put your money into stocks and pay down your mortgage. I quickly realized putting my money in stocks would make me dependent on the market at the time I wanted to retire. I know I want to retire at 52. I hope I plan it right and the stock market cooperates. Basically, I hope I'm lucky and the market is strong at that time. I knew I didn't want to rely on outside factors planning my retirement so I went towards rentals. If the market crashes when I'm ready I won't care. I'll still be getting my rent checks in the mail every month. Again, I'm not selling so who cares if values fall. Rents went up for me during the last crash. I want residuals. the appreciate just looks good on my PFS and makes the bankers happy. Residuals are the key to everything in my opinion.
Gotta run to my next appointment. Sorry I didn't spell check or review before posting. I'll look at the other questions this evening.
Hello,
I Recently purchased my first multi unit, How long typically is the wait to be able to use heloc gains to pull out so I can put down on my next one ?
Thanks
Most banks like a 6 month seasoning period
@Brandon Logan, generally speaking, what kind of terms are you getting on these sorts of future value appraisal loans? Just curious how they typically compare to a conventional loan terms.
Last I checked we were getting 5% 20yr am 12 months interest only. Some banks will go to 25 yr am on these