All Forum Posts by: Andrew Postell

@Rishi Mehra just to answer your question, this is about risk.  So, why do investment properties carry a higher interest rate than primary homes?  Because they foreclose at a higher rate than primary homes.  The higher interest rates help to offset the risk.  So, when the economy gets a little difficult, some of the loan products go away.  It's about risk.

Now, that doesn't mean you can't find them...you just have to find them in the way.

A small, local lender will be your HIGHEST probability of success when trying to find "Line of Credit" lenders on investment properties. It is 100% possible to find but you have to put in the time or at least know someone that ALREADY has the connection. Here's my 2 suggestions:

1. 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. Even facebook will have some. Networking is always a great practice and you never know who you might meet there and what good information they have to share. Would certainly recommend visiting if one is close to you.
2. Calling - and then there's this option. Which is what I had to do. I had to call about 200 lenders (no exaggeration) to learn of 4 lenders who did this and I have some tips. First, when calling banks target the smallest most community based banks you can first. If you have never heard of them, and they have one location - that's a good candidate. No big, national, publicly traded banks will do this loan type. Second, try to ask for "LINES OF CREDIT" instead of "HELOC". I know it sounds like I'm splitting hairs but some banks write HELOCs in their residential department....which won't write Investment Properties. And that residential department will often not speak to the commercial department. So they'll just say "sorry, we don't do it"....not even knowing that they really do! So if you ask for a "line of credit on an investment property" that should get you to the COMMERCIAL division. That's the section of the bank we want. Now, most of these smaller banks may only have 12 employees or so. So don't get frustrated if they don't return your call or aren't in the office. Just call back and be friendly. Maybe play dumb a little "I don't know if I'm in the right place..." "I'm sorry to disturb you, you may not be the right person for this....", etc. Maybe someone can get you to the right person. Again, be prepared to call A LOT.

Hope some of that helps and just in case, we do write these in all states.  Reach out if you have any questions.  Thanks!

@Antuan C. I love house hacking.  That's how I started out my investing career and I probably couldn't be where I am today without doing it.  I would suggest to keep 3 things in mind when thinking of house hacking:

1. Cash Flow - Keep in mind that house hacking REDUCES my cost of home ownership. You will NOT cash flow on any property that you purchase. I'm not sure if anybody has said anything different to you but I need this to be your expectation. Remember, you are occupying one of the units...it would be impossible to cashflow in that scenario. Ok, maybe if you rented out each room and maybe did everything Short Term or something like that. But if it's long term renting, then you won't cashflow. But it will still allow you to afford a SIGNIFICANTLY higher price point than if you did not house hack.

Appreciation - So, if real estate appreciates 5% per year, then a $500,000 property will have $138,000 in additional value after 5 years. A $1million home will have $276,000 in value increase after 5 years (using that same 5% appreciation per year). The higher our value, the higher the equity gain is - even if the % of gain is equal between the properties...the dollar amount is higher on the higher valued home because the property is worth more. That's how house hacking helps us gain wealth. We certainly aren't gaining $276,000 with $200 of cashflow. So, don't sweat the "no cashflow" thing. If you were to give me $50 per month, and after 5 years I would give you $50,000...would you be ok with that?  Of course you would!  That's a great deal!  And that means you would even be ok with having negative cashflow too.  Appreciation and principle buydown provide us WAY more income than cash flow does.

Buying your primary home - when I buy my primary home it has to fit my PERSONAL needs. Maybe I personally need a good commute time. Maybe I personally need a certain school zone. Maybe I want this home because of how safe I feel in the neighborhood. So I'm addressing a primary home with a different perspective. Just focus on purchasing a good home that you feel comfortable with living in. Your commitment is to live in it for 12 months...and then you can do it again and again!

Hope all of that makes sense.  Thanks!

@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.