All Forum Posts by: Alex Breshears

These are going to become more common as lenders want to have deal flow, but investors are unwilling to give up on their 2 and 3% fixed rate first position liens. I will say private lenders may also be a good option if you can educate them on the upside and how they are protected. It may be easier to just get a 2nd loan without the HELOC part as private lenders will want the capital deployed if it is being tied up. A private lender will want to make sure the subject property is an investment property, and the funds are going to be for business purposes (buying another investment property). I also agree with others who suggest contacting local banks just asking about HELOC's on investment properties.

So I'm going to post an alternative you may not have considered. I bought a SFH as a short term rental, then decided to move into it for a period of time. I then got a HELOC on that property because we had done a lot of improvement to it, including adding a bedroom and bathroom. I then used the HELOC for private lending. I borrowed at roughly 4.125% and I lend it out for loans secured against real estate. That loan pays for the entire mortgage on that property. I can now move back and forth between homes and the HELOC's on both pay their mortgages without having the properties rented out in any capacity. I do spend equal amounts of times of each place now, I receive mail at both places, etc. So you could try some private lending with a HELOC for immediate cash flow, without going through the process of having and owning a rental.

Depending on the state you are in, some states do not allow tapping into equity for certain things. Texas is a good example that can be a bit tricky getting a HELOC on a primary residence because they are likely going to want to know what is going into the property. Texas is going to want you to refinance the whole loan into 1 loan and do a cash out refinance that way. So it isn't impossible to get cash out if you happen to be in Texas, but just realize that limitation. Also right now, banks are getting a bit more conservative because of some softening in the market in some places, so be realistic in the amount you think the home is worth and the LTV you are looking to get.

Hi Tim! Welcome to real estate investing! Now DSCR loans are loans that are looking primarily at the asset to pay for the liability of the mortgage. They are termed Debt Service Coverage Ratio. For investment properties, they are looking at the amount of income generated compared to the debt service on the loan. Right now, their interest rates are really high. There is a lot of uncertainty in the market for institutional capital, which funds a lot of these types of loans. For investment property, I would say commonly you are going to have 80% to 75% LTV. They may or may not require underwriting on you as a person, including credit checks, asset levels, etc. On the plus side, if the property cash flows with a DSCR loan, when it comes time to refinance time with a lower rate it will improve on cash flow lol. This is generally going to be a loan product for a long term buy and hold property.

I would say when you are considering a distant market, you need to establish a criteria on WHY you want invest, and does that market actually get you closer to the goal. For example, you mentioned CA which historically is an appreciation / depreciation market, so if your goal is cashflow to quit your W2, then buying in CA might not get you closer to the goal.  Now if you are looking for cashflow, finding a market that is a strong cash flow market would be high on my list.  You also need to figure out that market's demographics, is it growing, what's the employment base, where is the path of progress going, how long do you want your hold time to be, etc.  I think your first move would be to sit down and establish WHAT you want -also owning property in certain states can also open you up to state income taxes in those states, so keep that in mind. 

I will say that STR underwriting is going to be highly variable depending on a lot of factors. Those factors are going to be how well the property is decorated and furnished, any unique aspects of the property to draw people in, how well the property is managed, who your target guests are, and when you hit the market in terms of a seasonality for that market. For example, if you bought a beach house in the month of December, chances are you need to factor in holding costs upfront because you aren't likely to get many bookings to cover the mortgage.

Now for data, I do use AirDNA, and I realize it has limitations and I do the best I can. Underwriting is literally your best guess at something at the time of the assumption.  One thing to keep in mind with AirDNA is that the nightly rate they are sharing including ALL the revenue that the property generated through only Airbnb and VRBO.  The reason this is important is that the nightly rate you see in there includes any occupancy taxes paid through the platform, cleaning fees, pet fees, etc.  So when using AirDNA the underwriting process is really about reducing the income you see in AirDNA to figure out the Net Income to you as the owner.  That's the trick of it. You need to get some estimates for what turnover cleanings will be, look at competition that has similar amenities to your property.  Also, realize that the underwriting might look like you will net X a month, but you need to bake in either numerically or just in your mind that the market may have seasonality, so it could be feast or famine. Summer months might be where a large part of your income comes, and then winter is next to nothing.  So if you can work out a month by month breakdown that may really help get a better picture.  I have an excel spreadsheet that I use where I can drop down each month being peak, middle and off peak occupancy and nightly rate.  That gives me a better picture of the actual cash flow on a monthly, and therefore yearly basis.

Hi Deborah! I am so sorry to hear of your loss. That has to be incredibly hard, I'm really amazed you have the strength and desire to keep moving forward. That is awesome! Hats off to you!

Now to answer your question, I'm going to answer your question with a question. What is your overall goal? For example, if you are wanting to replace the income your spouse brought in then maybe you want to look at investments that would offer cash flow.  I'm sort of partial to private lending.  In my world, it would be easy to get $2,000 a month check coming in doing private lending.  

If on the other hand you don't need the income you could put that into the equities side of the house in real estate.  That would involve either buying something outright or possibly doing a joint venture thing with other investors. 

Hi Matthew! I love your spirit in trying to get this done. Let me clear up a few things from the lending perspective and maybe that will help you out. First, a lender in the traditional mortgage space (so thing FHA, Fannie Freddie debt) is only going to lend on the lesser of either the negotiated purchase price or the value. For example, if you go a home under contract that was 80k, but the appraisal came back in a 75k, then the lender is only going to lend on that 75k amount. The same is true if the reverse were occuring where you had the 70k purchase price but it appraised at 80k. That just means you have 10k in equity, and the bank is still going to want to have the downpayment in hand to pay it. Some lenders will allow the seller to cover the closing costs, so you would negotiate a higher asking price in return for them covering closing costs is traditionally what's done. Now you are correct in wanting some additional capital in case something breaks. In that case you may be able to get a home warranty offered to you through the seller, or sometimes your own real estate agent will purchase one for a new home buyer. That will be coverage for a year and you can choose to renew after that, but at least itwould provide a year for you to save up for any emergencies related to the home. I hope that helps!

Hi Lindsay! That is a very impressive "resume". I love seeing women being involved in real estate. I know a few private lenders that lend in Florida, so if you have buyers that are looking for investment properties let me know and I can make an introduction!

Hi Ann!  I would say one thing I wish I did when I started out was thinking about WHY I wanted to get started investing in real estate, as opposed to just jump in and do whatever "everyone else was doing".  Many new investors think the only way to invest in real estate is landlording or doing fix and flips, when in fact that is quite literally the tip of the iceberg. Think about why you want to do this, what do you hope to accomplish from this endeavor, and when you want to do that by. Also realize that your goals may change as you are on the journey. Talk to people in a variety of real estate areas and don't ask them the technical how to do things parts, ask them what they have learned or what they would have done different in the beginning. THAT information is invaluable.  I now do private lending, and this method of investing really suits my personality AND goals. My personal mantra is that I invest passively so I can live actively because I didn't want to work myself into yet another job. I had to be geographically free because I am a military spouse, so investing in rentals 2000 miles away just wasn't in the cards for us.  Good luck on your journey and feel free to reach out with questions!