All Forum Posts by: Alex Breshears

Hi Jimmy! I just wanted to chime in about the mastermind part of it. There are A LOT out there, so I would get very clear on what you hope to get from a mastermind, and be very specific. Every mastermind is going to be different. Some are built as pay to play, others are very educational in nature, some are business or industry specific, some are just entrepreneurs etc. As a member of several masterminds in the past, I can tell you each of those are going to be a very different experience and a different outcome. Join only what you feel will get your closer to that goal for wanting to be in a mastermind. Some are very pricey, so make sure you are getting the value out of it that you feel you are looking for, versus just hey this looks like a good mastermind to join. It may also be worth noting that it might be better to join a mastermind that is NOT real estate focused, as you can get a lot of that from just local REIA events. Having other people in your network from a mastermind that are in other industries can be very helpful for a different perspective and some connections that have helped their business. To me personally, those have been the most beneficial. I know enough real estate people, I wanted the focus to be something else lol. Good luck in your journey!

Hi Mason:  As a private lender, I will tell you that finding anyone to lend for the downpayment on any sort of property is going to be difficult. If you look at it from the lender's perspective you would understand why this is not commonly found, and why this arrangement may be more of an equity play, than a debt one. 

First, think about what you are asking. You want another person (the lender) to provide most if not all of the capital to the deal. That capital is almost THE FIRST capital that is in trouble should the deal go south and the lender in first lien position needs to foreclose. Let's assume that everything goes according to plan (which is won't) and you manage to stabilize and revitalize this building. If the NOI dips or cap rates increase (which could happen considering we are at all time lows for cap rates), both of those negatively impact your value for the property. But since you have little to no cash into the deal, that doesn't really matter. But to the lender that put down that 20%, ANY loss in value means that the property is overleveraged. The combined amount of the loans is now greater than what the buildings are worth. That is NOT a place any lender wants to be in. Take that with a grain of salt, but just understand the immense amount of risk that 20% takes on. They are essentially betting on you as an individual will not only follow through with your word to execute this business plan, but also that there won't be another pandemic shutting down the economy, a soft landing for a coming recession, real wage growth to grow with increasing rents, no additional restrictions on landlords to remove nonpaying tenants, AND that the real estate market will keep humming along as it has been, increasing in value each year. If any of those factors bobble, they are underwater. That is a lot of faith to put on one person, no matter your experience level.

Now the reason I say an equity position is that you may find a PARTNER for a deal that would provide the 20% downpayment for a certain percentage of equity in the property and may also want a say so in how the property is run, renovated and rented. In that case, since they are also on title as an equity owner in the deal, they can participate in the upside and help influence how the property is operating.

Hi Ling! This can happen frequently that something pops up on a title report, which is why title insurance exists in the first place. If there is an owner's title policy in place and this situation doesn't fall under an exception in the title report, you would need to file a claim with the title company. Title insurance is different from other types of insurance you may be familiar with such as car, or homeowners insurance which has an ongoing monthly payment and covers FUTURE problems. Title insurance for the most part only covers problems that arise related to title before your closing day, not after. So if a mechanic's lien for example pops up after you have closed, the title insurance may not cover that, which is why it is important to read the policy they are offering before you close. Title insurance is also only a one time payment at closing.  I always suggest that owners buying investment property get owner's title because of a problem like this. If there wasn't a clear legal process to exchange title to the property, such as one party doing a quit claim deed to another party, but there is still another owner out there that has an interest in the property, a situation like this can arise.  In addition, there are cases where the county or the city has a backlog of documents to actually record, so this could be the case here as well. If a document such as a lien instrument or a deed were in the process of being recorded when the attorney did the initial search, then it would not show up on a title report at that time.  

Hi Conner:

BiggerPockets has a new book out about private money lending. I highly highly recommend reading this before accepting capital for a real estate transaction, especially if you are borrowing from friends or family. There is just a lot that COULD go wrong, and if the deal goes sideways that could make for some very uncomfortable Thanksgiving day dinners if you know what I mean.  I also wrote an article recently about gap funding from relatives and what the different scenarios look like.

The book can be found here: https://store.biggerpockets.co...

And the article about doing gap funding can be found here: https://www.biggerpockets.com/...

Hi Keegan! I love your enthusiasm for the STR space! As a STR owner and a manager, I want to point out a few things when looking at the numbers. First, the AirDNA numbers have a lot of limitations, so honestly you need to look at them more as guidelines than gospel. Second - that $75,000 a year is likely ALL the income that was paid for that listing, including cleaning fees, occupancy taxes, sales tax, and platform fees. Depending on the property, that $75k might be a net to you as an owner would likely be in the area of $40k after supplies and all these other fees are paid out. That $40k would then be used to pay the mortgage, which on the 1.15M asking price would not cover the mortgage.

The other thing about the underwriting is that you really need to think about your business model for you STR business. For example, my business is very high touch customer service, we have wine and chocolate at check in, higher end amenities, really nice plush and soft towels, linens and beds. We are about providing a ton of value at a premium price. Our occupancy goal is not 100%. If it gets that high, our prices were not high enough. On the other end of the spectrum is what I call "heads in beds" model, where you are trying to get as many warm bodies in house, and maxing out the occupancy for it. Nothing wrong with that, but when looking at comparables, you really need to keep in mind your business model. In my business model our supplies costs are higher, we have higher end amenities and lots of wonderful and thoughtful touches. That affects your underwriting. We spend about $10k per bedroom of the home on furniture, kitchen items, linens and technology. That doesn't include out outside of amenities such as hot tubs, fire pits, decking, pavers etc. With the heads in beds model you may not need these nicer finishes and higher end things, so you could get away with less upfront, but you may pay for it in the long run with heavy wear and tear on the property and furniture.

Also - keep in mind that STR underwriting is the SECOND thing you need to do. You need to evaluate if the regualtions allow an STR and also what regulations may be coming down the line. Many markets are putting a lot of restrictions in place around STR's and some have moved to outright ban them. Get a really good hold of the regulations around STR's in this market before offering on anything. The last thing you want to do is work to put all the pieces together, close and then find out that the property cannot be operated as an STR. It happens and will likely become more common as different markets try to find solutions to affordable housing in a record time of housing shortages.

Hi Porter! You are in luck because just last week BiggerPockets came out with a private lending book that will talk you through the entire process and some action steps to take to do your first loan and be safely guarded. 

You can find the book here:  https://store.biggerpockets.co...

My coauthor and I also have a community online where we share information about private lending, and we happen to have an Open Office Hours coming up this Thursday evening at 7pm EST.  But the book will give you plenty of information to get you going in the right direction. Congrats on the baby girl too!

Hi Mike! I don't know if you have connected with Flynn Family Lending yet, but they also routinely hold get togethers for breakfast or lunch in the Seattle/Renton area.  They are pros at creative financing and put together some really neat creative deals in the area. You can learn more about what they do at their website www.FlynnFamilyLending.com,

Hi Erick! I'm going to be a little more creative and ask what the problem is that you are trying to solve by getting rid of PMI or having 10% down? Instead of trying to open a safe with a blunt force instrument, maybe coming at it from another angle with another tool may crack open the safe. I ask because if you are talking about PMI and wanting to avoid it - as a lender that makes me think that a borrower is potentially looking a thin deal and they want to increase cash flow by avoiding PMI. Most PMI is based off the loan amount, and can range from anywhere from $20 to $200 a month, usually the larger amount being for very high dollar and high LTV loans. If $40 a month in PMI pushes the deal into negative cash flow, this may not be a deal worth taking down.

On the 10% down front, again this is usually a reflection of the need for an investment property requiring so much capital just to purchase the property, or potentially a worry about decreasing cash outlay to increase ROI. Both of these are very different scenarios, but if limitation of capital is a consideration this may be a great opportunity to evaluate the type of real estate investing you are wanting to do, including WHY that type of investing gets you closer to your personal goals and lifestyle you want to attain. There is a lot more to real estate investing other than buying rentals for example. There are people that buy distressed notes, others do wholesaling, still more do property management. So just take a moment to figure out what you want to do, why you want to do it, and how can real estate investing get you there.

If you feel that the current route is what you want to do, there are options to expand your capital to take down a property. A mentor/mentee relationship may be helpful where you can partner with someone who knows the ropes and can help you through a deal and maybe invest alongside you. Another option is including those in your network to come along in your journey with real estate investing. They could bring their capital and you bring experience or some other needed skill for the business model for that property.

Good luck in your journey!

@Ellie Narie - I love how you are thinking creatively about this situation!  I wanted to just clarify a few things to hopefully guide you towards your first investment purchase!  First, the increase in sales price would only work if the property would appraise for that amount, and the reason I bring that up is it can be pretty common with first time home buyers asking for closing costs to be paid by the seller. Usually the offer will be bumped up according to how much of the closing cost burden a buyer is asking the seller to cover, but it is also under the assumption the property will appraise for that contract amount.  There is the possibility to waive an appraisal amount, which means you would be responsible for 100% of the amount between the appraised value and the contract purchase price.  This exemption was waived a lot in the craziness of the past 18 months in the very strong sellers market, so I like to let newer investors know what they are signing up for if they elected to waive that stipulation.  

In all cases, the lender will not count the downpayment as coming from increased equity. In the eyes of a lender they want to see you have "skin in the game", and also that they are not overleveraging themselves or their borrower (you) in the deal.  For example, if you got a 20% downpayment loan, but it was a really high interest rate to purchase an investment property with an 80% 1st mortgage, that could put you in jeopardy as a borrower because the two payments combined might be larger than what you could rent the property for.  This makes the situation a lose-lose for both you and the lender.  By having that 20% down payment in the deal, the lenders feel like you have more to lose if you walked away from the property, but also they know what your monthly burden would be on a mortgage payment for that property.

There are some cases where a lender may accept what is called a seller holdback. That is where the seller is willing to take on the debt of that second mortgage (lenders that allow this are always going to require the lender be in 1st position and the seller in 2nd position). In your example, if the seller was willing to carry a 2nd mortgage for 20% down, then that $58,000 would show up on title as a 2nd mortgage to you with the seller as the lender, and then your 1st mortgage for the other 80% down would be the company you chose for your mortgage. Again, the lenders that allow this are far and few between, and I am not sure any would allow up to 100% combined loan to value in the current economic cycle we are in. But I wanted to showcase a scenario where this could be possible. This is not likely going to be conventional Fannie/Freddie debt, but some smaller regional lender, or a DSCR lender may have these types of programs.

If the 20% downpayment is the sticking point for investing, I can also advocate to look for ways around this. Would buying a rental make sense for you as an investor? Does it fit into your lifestyle and your goals? There are a ton of ways to invest in real estate without buying a rental. I personally will never own another long term rental because it doesn't fit my goals or my lifestyle, and certainly doesn't fit my skill set.  I just advocate taking literal pen to paper, ask yourself WHY you are investing in real estate, and try to come up with something greater than " I want financial freedom". Everyone wants that. But why? Do you want to spend more time with family? Do you want or need geographical freedom? Do you want time freedom? Generally when people dig into their why, they see exactly what they are doing this for. I bring this up now because as a beginner you have a golden opportunity to start your investing journey off on the right foot.  You can explore different options, see what works with your personality and skill set, and then pursue that with passion!  So don't try to fight and put a square peg in a round hole, find a way that works for you. And you don't have to stick to just one way either!  AGain I bring it up now because most people don't consider the time it takes to do the thing they say they want. Owning 20 single family homes as rentals sounds amazing, until you have 20 mortgage payments, 20 families, a few AC's give out within the same month, property managers, payments to track,  taxes to file potentially in different states if your rental property is spread out. I will ask that you consider what you want to spend your time doing, because it is very easy to end up working yourself into another full time job in real estate, and if that's not what you are after, then don't go there in the first place. I personally invest passively so I can live actively, so all the stuff with long term rentals never suited me. 

Hi Juan!  This is a scenario that comes up frequently, so from your dad's perspective and yours as the borrower here are some things to consider:

https://www.biggerpockets.com/...