All Forum Posts by: AJ Wong

 Do you have RE representation? A 50% discount from listing price could seem a little unrealistic..but I would not discourage any offer..As for expenses I would request copies of the sellers formal statements or records. If not prior to offer, typically a review of financials is part of income producing property or commercial transactions. Sellers need to provide certain records, as  requested as part of the contract within a due diligence period. If the buyer doesn't like what they find or seller is unable to deliver, the buyer can terminate. 

You're missing the debt obligation of $875k @ 7.2% interest $5939x12= $71,268. $40,732 mins expenses..At a PP of $1.25M with 30% down ($375k) you'll be short of a 10% COC return..

Also 7.2% seems like a very strong rate on a 10plex. Check in with @Joseph Chiofalo for 5+ unit loan programs. Most small balance multi family complexes will not yield a 8%+ CAP in today's rate environment..unless they will consider seller financing..with 30% down there should be some options for creative finance solution. Good luck!

HI Kurtis and congrats on the investment. You can do a cash out fixed equity line or second home loan towards the down payment of a new investment to keep your current terms intact. If you're purchasing a new primary you can tap an FHA loan for 1-4 units with 3.5% down, if you can secure a seller concession it could limit the amount of equity needed..if not a new multi family primary you'll need a larger downpayment (15-25%) depending on the property type and occupancy. You can also secure a first home loan against the new purchase and a second against the current rental as a simultaneous closing for a higher LTV.

Check in with @Joseph Chiofalo for help with structuring and evaluating several options. He's nationwide and excellent with investors. Good luck! 

Lenders can have limitations on those without a US SS # but others offer specific lending to 'foreign' nationals. Not positive about a co-signor, it's possible to purchase in foreign investors name with you/other on title and deed. Check in with @Joseph Chiofalo he works with many international investors. Good luck. Cheers. 

Hi Kathryn, send me a DM we have a PR mortgage flyer for you to share with PR clients and investors :) 

Hot investment topic alert: Assumable mortgages and purchasing properties with one. 

An assumable mortgage is effectively a 'portable' loan. Instead of applying for a new mortgage the buyer takes over the sellers existing mortgage loan. The buyer must come up with the difference between the seller(s) current mortgage balance and agreed upon sales price, plus closings costs. 

Why would buyer(s) want to take over a seller(s) mortgage? 

- Lower rates. The majority of US homeowners (purchased or owned before 2023) have very low mortgage rates in the 3%+/- range. This has contributed to lower inventory as sellers are hesitant to walk away from their historically mortgage costs, but the start of the pandemic era rates is now four years ago (2020) and life events often eventually force property sales. A major incentive for sellers (and buyers) is an assumable mortgage often at nearly half current mortgage interest rates. 

- Shorter duration and term. Often overlooked as a benefit of assuming a fixed rate mortgage is that most fully amortized loans in the US are front loaded. Meaning the first payments are majority interest and with each subsequent payment the proportion of principal paid increases. So that by the end of the amortization schedule, almost the entirety of the monthly mortgage payment goes directly to pay principal. An assumed mortgage that is 2-3-4 years into the payment schedule, has the additional incentive of a greater percentage of their initial payments paying down a greater principal portion. 

What are the hurdles to assumable loans for buyers?

- Insufficient down payment. Most properties have gained considerable value since their acquisition or refinance. For those homeowners that have been in their properties more than 5-10-20 years, in all likelihood they have a low existing mortgage balance in comparison to the proposed sales price. For example a buyer of a $500k home with an assumable (existing) mortgage balance of $225k would need cash to close of $275k plus closings costs. Seller concessions and other creative capital solutions are generally not available, assuming a loan is effectively transferring the existing loan to the new buyer once the balance (cash portion) has been satisfied at closing. 

- Income deficiency. From my experience it is primarily conventional, FHA or VA loans that can be assumed. I don't believe a DSCR lender would transfer the obligation to a new borrower but please correct me if I am wrong..In general, it will be be a full income verification or full documentation application with the current lender directly and no other mortgage professional would be involved. So expect full DTI (debt to income ratios) to be calculated.

Workarounds:

- Not all assumable mortgages with be at such a low LTV (loan to value) there are examples of properties that require 15-20-30% down. One way to capitalize the down payment could be leveraging another property with a HELOC (home equity line of credit) or fixed second rate mortgage. The blended rate of interest and payments is likely to be significantly lower than financing the entire purchase with a new mortgage balance at current conventional or Non-QM mortgage rates. There are several attractive fixed rate second position cash out options, many with online processes and no appraisal requirements (smaller balances and low LTV's) and fully underwritten options offering up to $500k+ cash out at Prime rate plus 1-2-3% depending on the properties type. Investment property equity lines and second mortgages are out there but generally also require full income verification (including rents.)

- Speaking of HELOC's and second mortgage another option could be a simultaneously closing. If the existing mortgage holder (the note being assumed) will allow subordinate financing or a second lien position, it's possible to borrow part of the down payment difference and close both loans at closing. So in our previous example: $500k purchase, $225k assumable mortgage..the lender might allow the qualified buyer to take over the $225k put $100k down in cash and obtain a second loan for $175k from another lender. If it's a primary residence the total loans of $400k (1st + 2nd) equals 80% CLTV (combined loan to value) of the purchase price. In all likelihood for this to be permissible they might want a bit more down for a lower loan to value (LTV) and the borrower will need to qualify based on both proposed payments.

A prudent step for sellers prior to listing would be to verify with their lender whether the mortgage note is assumable (transferrable) to a new party. For buyers or their brokers with well capitalized investors, inquiring directly for verification of a property whether it has an assumable note is good practice while interest rates remain elevated. 

Also have your rep check private MLS notes as it might not be made public. For Realtors, most MLS's also offer an assumable search (for those that are identified correctly) when noted investors can find this information on additional details at the bottom of real estate sites like Zillow and Realtor.com under 'Terms' usually it will say conventional, cash, assumable...Title companies can be helpful with verifying the original loan balance and original note date which is a good indicator of the sellers note rate and how much principal they've paid down based on an ordinary amortization schedule.

A recent example listing was a northern OR Coast property asking $650kish they have an assumable VA loan with a $400k balance at 2.75%! The seller is willing to abandon their VA eligibility so that a new buyer does not need to be a Veteran, but does need to qualify based off of full income documentation and have $250K+/- plus closings costs.

Have you invested in a property with an assumable mortgage note? How was the process? 

Quick update: Rockaway Beach OR has instituted a CAP on nightly vacation rental permits. Actively licensed rental permits can transfer to new owners but unlicensed properties will be subject to a waitlist currently 100+/- permits over the new maximum. Likely years for an unlicensed property (not commercially zoned) to obtain a permit but typically there are at least a handful of actively licensed listings on market for sale in the area.

Hi Theresa, 25 years means you've been dong something right :) Check in with @Joseph Chiofalo they are NY based and offer creative fix and flip, bridge and constructions loans. There's a specific development program for financing newly constructed properties for buyers and the entire project as well. Good luck! 

Hi Jason. Yes several investors offer fixed second loan and heloc programs including one 100% online with no appraisal required, disbursement in 5-7 days. Texas does have some general HELOC and second loan cash out restrictions with many lenders..Check in with @Joseph Chiofalo for specific guidelines. 

1000 or so. That's about how many overall residential homes are on the market along the entire 400ish mile long rugged and majestic Oregon Coast at any given moment. I had about four times as many people attend my high school. To say Oregon coastal housing inventory is limited would be an accurate assessment. 

As with most areas, the search for a vacation rental is typically dependent on permissibility of usages and the Oregon Coast is no exception when it comes to increasing barriers to entry of areas and properties that will allow nightly rentals. 

An example would be Rockaway Beach Oregon, a consistent contender on many top ten lists for top value vacation rental investment cities. Just recently the city (rightly) instituted a CAP on vacation rentals. Homes with active permits can transfer to the new owner but unlicensed properties will need to wait for a license until the currently active rentals drops by roughly 100 licenses. That could take some time, likely many years. On the positive side, there are actively STR licensed and listed properties that could seamlessly transition to new investors.

There are still a few pocket areas of the Oregon Coast that do not have any restrictions, many where active rental permits transfer to the new owners, several where the allocated number of permits has not been reached or where there are very reasonable waitlists for a new permit (often in the single digits.) 

Fortunately (for now) usually between 5-10% of active homes listed for sale on the Oregon Coast that are either active vacation rentals or are eligible for a new license. We keep a very accurate spreadsheet of STR eligible properties from Brookings through Astoria to help us and our investor clients navigate and focus their search on listings that are both eligible for a permit and forecast lucratively as a AirBnB rental (our current list hosts roughly 100+ on and off market STR's for sale.)

Due to the very limited housing inventory, properties that meet client(s) search criteria and budget can boil down to a handful of active listings along the entire coast. Licensable vacation rentals are obviously in high demand and offers can become quite competitive, I don't have any formal statistics but I'd say a quality active or eligible vacation rental sells at least twice as fast as a non STR property, the majority within days..

My best advice to investors shopping for a hot or high demand asset class is:

- Prepare & Practice: Get your ducks (GO UO!) in a row. Top local RE broker familiar with STR compliance. Pre-qualification in order. Stick to your vision. Often buyers need to make at least one offer and quickly if they want a quality STR. Know how and who is going to manage, speak with local PM companies (if not self managed) do some due diligence on projections, nightly rates and optimally visit (if haven't already) the areas you're exploring investing in. Read the rules for the city or municipality of your future community. Set your Zillow notifications. Stay in constant contact with your RE Pro and be flexible with your specific area but not with your goals.

- Patience & Tenacity: These qualities might seem contradictory but at least here on the coast, there isn't a lot of STR inventory to choose from. So as noted its best to be locked in and loaded for when the dream property presents itself. Of my last three STR related transactions: 1. Under contract in 48 hours 2. Property came back to market, re-pending within 30 days of listing with back up offer in hand. 3. On market 60+ days, was also initially under contract. Pending at 10% below original asking price. If an eligible STR property hasn't sold right away..there is likely a valuation discrepancy. Seller's with listings that are sitting are increasingly more reasonable to negotiation or concession. If the right property is not actively listed, on average I'd say it takes a maximum of 60-180 days from intro for the ideal prospect to present itself.

Six months is along time to keep up the enthusiasm but real estate investment is about longevity and capitalizing on opportunity, so when coastal STR'S knock, successful STR investors are awake to answer.

Six Areas of Focus:

Florence OR - Proposed regulation but nothing formal yet..within city limits properties are eligible for STR usages with a business license to remit local occupancy taxes.

Waldport OR - Investors can obtain a STR license within city limits.

Brookings OR - There is a specific zoning code that investors can reliably obtain a permit with the city. Investors do need to go in front of a board before issuance, my professional opinion is that the window to obtain a permit within the city is narrowing rapidly..

Lincoln City OR - Multiple jurisdictions depending on property location but if you know where to look there are specific STR communities and zoning that allow STR usages.

Arch Cape/Cannon Beach/Manzanita OR - Very limited eligible inventory and most of the areas can obtain a permit but have usage restrictions. For example one occupancy per 7 or 14 days. Generally not optimal for maximum ROI but for offsetting second home costs.

Bandon OR - Home of world famous Bandon Dunes. STR's within city limits are extremely rare due to zoning and density requirements, just outside city limits with the county is feasible but can take six months to process the license application.

Everywhere in between: We've sold STR eligible properties in nearly every coastal OR city & county. Area rules are very nuanced and county properties are often more accommodating or flexible on permissions. If a specific property has been identified, contact the planning department the property is located in and speak with a representative regarding vacation rental usages, when possible obtain the feedback in writing. Many city or county websites have vacation rental sections on their websites but always call to verify accuracy.

How long did it take for you to identify your first STR investment or did you convert an existing rental or unit?