All Forum Posts by: Andrew Postell

@Patrick Martin and @Mike Terry you might get some responses here...but you'll likely get a lot more responses in the Commercial forum. Post this in that forum as this forum is for the BRRRR Method (which is residential stuff). Thanks!

@Sean Spagnola as mentioned above, no seasoning absolutely exists.  Even 90 day seasoning is pretty good in most cases too but there's a pretty big issue for your strategy.

For most residential, cash out loans, the limit of the cash out loan is 75% of the ARV. So, if you purchase a home, and hope to get back your 20% downpayment...that would mean you would need to buy AND rehab the loan for like 55% of the ARV. You need to do both the REHAB and PURCHASE for that amount because you can only get 75% of the ARV back on the cash out step. In other words, this would be impossible. Or pretty close to impossible.

A classic BRRRR Method transaction usually doesn't have us doing a cash out loan. It also normally comes from off market transactions. Now, I see the same youtube videos and the same ticky tok videos you do...but this is the reality of it. Buy offmarket, Rehab, still refinance, but we use a different loan type to acquire the property that doesn't need a downpayment. If you come out of pocket 0% (which is possible) or pretty close to it...but don't have a cash out loan...are you ok with that? Of course! And that's what we normally do.

Hope all of that makes sense but feel free to reach out with any questions.

@Shem Varhaftik you can certainly leave this post here if you wish but there is an entire seperate wholesaling forum.  This might be better for that forum.  This is more for the financing that you need to take down a property.  To wholesale, you don't need financing.  So, you might get some responses here...but you'll probably get a whole lot more over there.

Hope that makes sense.

@Kwanza P. Sometimes in a forum it can be hard to talk about specific scenarios - it takes a long time to type (but also, we don't really want to talk about personal information in a public forum either) so I'm going to try to read between some lines here.  I think you are asking if you can pull equity out of a property you have currently?  If it's different, let me know and I can clarify further.  

In order to pull equity out of a property it usually takes a while with most "institutional" lenders.  Sometimes 30 days.  Sometimes longer depending on the lender.  So, hard money is a fast loan that can be used to acquire a property...but their loan is against the subject property.  Meaning, the property you are acquiring.  They usually don't put their loans on an existing property.  Usually.

Now, depending on what you are hoping to accomplish there might already be a loan product out there that can help. If you feel comfortable with it just let us know what you are hoping to do (as in, what you need that fast loan for) and we might be able to give better guidance.

If you just want to call me I would certainly be available to speak privately about these details if you feel more comfortable that way.

Thanks for posting!

@Anna Catron your lender should be able to tell you these answers. I'm encouraging you to go to your lender because in Texas, getting a HELOC on a duplex is pretty difficult. The question isn't stupid at all...we just need to make sure your lender can answer it. Reach out if you have any questions on this.

@Ogie Cortes it would be strange for a hard money loan to be used on a new build...but maybe it's possible.  Usually they want to see your new construction experience...but again, I'm speaking for your lender.  The best advice I would tell you here is that you should be asking your lender these questions.  A good lender will be able to show you these details so you can compare them to each other.  Hopefully your lender can do this.

@Ty Soule I'm going to give a little comparison to try to explain some differences - and then I'll address the limited cash thing further down.

Generally speaking there are 2 main types of loans for investors: “Conventional” mortgages and “Portfolio” mortgages.

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. Sometimes referred to as "bank statement" loans. And sometimes called "DSCR" loans. Whatever they want to call them, I want you to think of these as loans that come from the lenders themselves. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But there's usually some type of catch. Over the past 5 years or so, having a "prepayment penalty" is the most common drawback. But there's no "debt to income" ratio here. Your income is of no consequence (usually). These loans are easier to get but the terms are different.

A DSCR loan specifically uses the income of the property to qualify - not your income. That's a benefit to people who show no income (like many real estate investors). However, if you do have a W2 type of job...then maybe the Conventional loan might be worth looking into. I would encourage you to work with 30 year, fixed rate mortgages with DSCR loans. When speaking with lenders about them ask about prepayment penalties. Ask what it would mean to have a shorter penalty. What it would mean to have a longer penalty. As you can see above, some lenders will have loan minimums too. So, it's not always about the "rate" in this space. Other factors are important as well.

Now, about the "having a smaller amount of money" issue.  We ALL have this issue.  Everyone's money is limited.  Maybe someone's money has a higher limit...but it's still a limit.

I have been using the BRRRR Method for 20+ years (before we even had a fancy acronym for it). It solves the issue of not having a lot of money to start. There are other "advanced" techniques as well but that one still works.

You might hear a lot of different opinions on this stuff but here's one of the more popular podcasts I was on if you want to hear my story: Best Side Hustle Ever!

Reach out any time!

@Dario Alvarado thanks for the post. My suggestion here is to get connected locally for this. Meaning, what works for me in my market...may not work for you in your market. Visit your local REI groups. There are many groups that meet across the country. Some post here on the Bigger Pockets Marketplace. Many post on meetup.com. Eventbrite is another resource. Even facebook will have some. Networking is always a great practice and local people will be able to share with you what's working in your market.

Hope all of that makes sense.

@Brad Kremer just wanted to confirm some information here.

As mentioned just above, there is no law against a HELOC on an investment property. I can also show you a 2nd lien mortgage on a 2-4 unit investment property here in Texas. So, now you know 2 lenders that can write something for you here.

You are absolutely doing the right thing by reaching out to see if other investor have options - and there are even more resources for you on a local level.  Several real estate investor groups meet in Austin on the regular.  There might be some investors that know some local places that write these as well.   Meetup or Eventbrite are two resources to know about.  Not everyone can meet though.  Sometimes we have family obligations or work in the way...but just wanted you to know that those do exist close to you.

Hope all of that makes sense but feel free to reach out with any questions.  Thanks!

@Lawrence Cargnoni as mentioned above lenders are ok with this but I would encourage you to think about some things here.

HELOCs/Line of Credit are NOT designed to be a permanent financing solution. Two of the common areas of concern for HELOCs I see out there is the 10 year maturity date and the adjustable rate. Since HELOCs have adjustable rates they will often catch people off guard when they adjust. What will rates be in 5 years? Who knows? That's called risk. Unknown = risk. The 10 year maturity date is where the HELOC will modify into a different product all together. Meaning after opening the HELOC, 10 years later it will cease to be a HELOC. It will "mature" into a 20 year fixed rate mortgage that you can no longer draw on. And when it matures the rate will increase. I've seen typical numbers of 1%-2% higher than your current rate.

What HELOCs are designed for is to be a giant credit card. And just like any credit card, you need a plan to pay it back. So if you use it to say....buy another property. Then flip that property...thus paying back your Line of Credit. Then that's perfect! Because you will never get surprised by an adjusting rate or keeping a balance on it. Lines of Credit are PERFECT for people who have a plan to pay it back.

On the other hand, if you were going to use that Line of Credit for the downpayment on a property that you were looking to buy and hold for 30 years....this would be very counterproductive. You are essentially borrowing 100% of the property value.  We don't even do that with our own primary homes.  You would be bleeding money each month on a property that is leveraged 100% of the value.

So, while you can do it...maybe just think about how the math in this scenario works.  Hope all of that makes sense. Feel free to reach out about this.  Certainly here to help.  Thanks!