All Forum Posts by: Andrew Postell

@Anthony Bratina I read the responses above and just wanted to provide some clarification in case it was helpful.

The actual term "second home" means something specific in lending.  Primary Home, Second Home, and Investment Property are all defined differently.  So, in traditional, conventional lending, meaning Fannie Mae or Freddie Mac (if you recognize those names), a second home is one that you occupy for "part" of the year.  When you occupy a property for "part" of the year, that means you cannot rent it for 12 months of the year...because how could you if you were occupying it for "part" of that year?  However, using a Second Home as a Short Term Rental for when you don't occupy is fine.  They can only be one unit homes, can't be in a time share, and a few other little details.

Now, the benefit to using Fannie/Freddie money to purchase a "Second Home" is that the downpayment is lower and the rate is lower.  However, the mortgage industry is quite different now.  In some certain situations you won't be able to put 10% down and the rate may not be lower.  

So, if you are using this property exclusively to rent out...then it won't officially be a "Second Home" and it would be an investment property. In that scenario, Fannie/Freddie have a 15% down option (but see above about market conditions) but they still won't lend to an LLC.

Now, I feel that transferring your property to your LLC after closing is a non-issue. I wrote an entire post on that topic that you can read HERE including clips of the language in the note and what to be aware of.

*WHEW*  Hope that wasn't too much information but maybe some of it made sense.  Feel free to reach out with any questions.  Thanks!

@Braden Jackson thanks for the kind words.  Greatly appreciated.

And don't be surprised if nothing will show cash flow at these current prices and rates.  I mean, you will increase your rents next year.  And the year after.  And so forth.  But currently, we aren't cashflowing even when putting 20% down.  Eventually you will refinance.  I've never stayed in a mortgage for 30 years...you won't either.  The important thing to understand with the market right now is that there aren't very many people buying - because the rates are so high.  So, if you are selling a property - you may not have that many people even looking at your property!  Right now, nearly all of the purchase contracts we see have some type of seller concession on them to incentivize a buyer to choose that home.  Meaning, the advantage is in the BUYERS hands right now.  Back when rates were 3%...no seller was giving anything.  They didn't need to.  Now is the time to find good deals.  If you wanted $200 in cashflow but can't get it now...then ask the seller to give you $10,000 in concessions.  It would take you 4.5 years to clear $10k with $200 in cashflow.  If the property works, just ask for something to counterbalance something else that might be happening within the market.  We make our money when we buy, and then refinance later.  You can even use that $10k to buy down your interest rate if you want.  With real estate - you marry the property, but you date the rate.  

Just some things to think about.  Thanks!

@Matt Calnan this forum is mostly for residential stuff.  You can try to post this in the commercial forum but Canada is so different from the US that I would suggest just going to some Canadian/Alberta Facebook Real Estate Investor Group pages and ask this question in there.  Some of those facebook groups have thousands of members and now you are networking with people in your country.  

@Kyle Neff this is usually the same issue on ALL commercial properties that we seek to upgrade.  The whole point of a syndication is because no lenders will provide financing on a commercial property that's under rehab.  If this is the right property for you then go fundraise from friends/contacts (or as suggested from the owner) with the promise to refinance out once you have 2 years of rent rolls.  That's the OTHER requirement that most commercial loans will need.  And that's usually why syndication deals require a 4 year commitment from their investors - 2 years to rehab, then 2 years to establish the rent rolls needed to refinance.  

Hope all of that makes sense.

@Tyvon Davis welcome to everyone's dilemma!  None of us have 40% down to put on a property.  Standard financing would require 20%-25% down and that's hard enough!  So, if this is what you really want to do then you need to partner with someone to get it done.  This is assuming you have no asset type to do a cash out loan on.  If that's not the case, then let us know...otherwise, partner up.

@Jesse Leigh if you live in Illinois then I would certainly suggest to try to invest there first. I mean, I know you've got other states right next door too and I think those are good as well.  What I mean here is that investing in your local market, if you can, is significantly easier than investing out of state.  I'm saying being a 15+ year out of state investor. If you do invest from a long distance, you may never see your asset. That's an ENOURMOUS amount of trust/money to put into a stranger's hands. What I mean here is that if you know someone in a different city...but that city may not have as good as numbers as this other city...then stick with the city where you know people. One wrong move, one wrong contractor, one wrong vendor…will erase any "benefit" one city has over another. Your network is the most important piece for any potential returns when you invest out of state.  It's so much easier to build that network locally than from a long distance away as well.  Just some things to think about.

@John Brown this would be next to impossible for us to know.  It is true that a 1031 Exchange will help someone defer long term capital gains tax to a further point in the future...but we don't even know what his cost basis is.  What's his adjusted basis?  How much depreciation recapture will he have?  All of these things would require you to see all of his financials on the property and then be able to calculate it all out.  And all of that can be done by a 1031 Exchange administrator of course...but that's if he wants to defer his long term capital gains taxes.  You aren't avoiding or minimizing your exposure using a 1031 Exchange. I mean, maybe you could rent them from him first...and then buy them next year.  Kind of like a rent-to-own.  You could also try to find out what his capital gains hit would be and then offer him that amount over the purchase price.  You loan would need to be ok with this.  None of these ideas are ideal to me but that's all I can think of here.

@Shai Galapo two methods I would suggest here.  First, if you go to the top of the page there is a section to "Find a Lender".  Go there and you can ask a few to reach out to you.

Secondly, we usually lean on other investors on their recommendations of who they have worked with in the past.  And I know that's what you are posting about here but we just need to do this on a local level. Try some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. Some of those facebook groups have thousands of members. Eventbrite too. But post locally for this. That’s the best bet.

@Richard Escano thanks for the post.  So, the best way for you to network at a local level is to try some local real estate meetup groups. Meetup.com is a good resource for those but some of the groups will also post here on Bigger Pockets Marketplace too. Even facebook might have some good local groups for you. Some of those facebook groups have thousands of members. Eventbrite too. But post locally for this. That’s the best bet.

@Sara Habtom yeah, you will absolutely have loan options. You may not need "2 years of work history" either depending on the details

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

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.  These are the types that need work history...however, depending on your scenario, you may not need exactly "2 years of work history" to qualify.  There might be some allowance here. 

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. 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 since there is a limit to how much money the bank has access to....their rate will be higher...and have some other feature that doesn't look as good as a "conventional" loan.  Here, no work history is needed.  There's no "Debt to Income" ratio stuff here either.  The "income" is based on the income of the property.  Worst case, you can still get this type of loan.

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