All Forum Posts by: Doug Smith

100% word of mouth and recommendation. You want to know that they do quality work, stay on the job without wandering off to do another job, and are financially stable/pay the subs. With respect to how many bids, I think that depends. Honestly, if someone has done great work and is fair (not dirt cheap, but fair) with their pricing, then we tend to go with them over trying out a cheaper bid that we don't know. If someone is loyal to us, does a good job, stays on task, and can be trusted, I don't really shop them. Loyalty and trust are much more important than price. 

Hey Lucas, Your post is older, but I'm just now seeing it. I've flipped or built scores of properties and we're financed thousands of other ones. One of the most important things that a lender looks at is the experience of the operator, which brings me to your question. Most investors make most of their mistakes in the first handful of deals they do. I certainly did. Contractors are certainy one of the toughest areas. I can't tell you the number of contractors we've had issues with. Here's a few words of advice: 1) Start Small: A couple of days ago a borrower came to us wanting to do their first rental property. It was a 20-unit building for nearly $1 million. They had $20K to their name. If you're planning on doing a massive rehab, that's where you can get into trouble with a contractor if you don't have experience. Instead, consider doing a property with a lighter rehab that might not require permits. That will make it much easier to change horses mid-stream if the contractor doesn't work out. 2) Scope of Work: Make sure you get a very detailed Scope of Work that details everything that will be done including the exact work and finishes you can expect. Instead of "Flooring: $5000", insist on "Flooring: 1000 sf of Mohawk XYZ123 Luxury Vinyl Flooring with Deluxe 123 underlayment installed". Otherwise, you might think you're getting a Calcutta Marble countertop and you get 1980s Formica they pulled out of a previous job. One client just brought us a scope where the contractor intentionally left off the cabinetry quote. You gotta watch 'em. 3) Consider getting an experienced partner for the first couple of deals. That's what I did. You might not hit home runs by splitting profit, but consider it tuition. Mistakes due to inexperience can be even more costly. I know I could go on and on, but hopefully that gave you some food for thought. Good luck to you. 

We're also an NMLS-licensed mortgage company, so we subscribe to a loan operating system called Arive (yes, only 1 r). I am not sure they'll let you use it if you don't have a license, but it's worth a shot. You can actually brand it for $80/mo and customize the on-line application. It's designed for residential lending, but we still use it for the secure portal section. Check it out. You might also want to check out Floify. Here again, you might need a license, but it's worth the inquiry. 

I felt like I had to comment for no other reason that I was up in Blue Ridge recently. I financed three ground-up new construction deals off of Monument Rd in Jasper and we grabbed a STR outside of Blue Ridge while we were there. Very cute town. I just had a very similar conversation today with a client. We have done a ton of DSCRs for a long time and one thing that you didn't mention was when you transferred the deed. Most DSCRs are going to use the lesser of purchase price (or what you have into it if it's a flip/new build) or appraised value for the first six months. After that, you can just use the appraised value. That deed filing date is going to be key. I plan to visit your fair city again when we're up there for some new builds in Big Canoe. There are a couple of spots on Blue Ridge we always have to hit when passing through.

Did a loan for a client on a property in Mrytle Beach. Let me shoot him a quick email. His, however, was a SFR near the beach. Might not be comparable.

I was a banker, much of that time in private client for Wachovia, for a very long time prior to doing this now. I did a ton of securities-backed loans. It might work for a bit, but if there's a major dip in the stock market and the value drops significantly, the might have to liquidate some of them to meet the covenant discussing proper margin. The DSCR is pretty straight forward, but it's a different type of loan that will likely require an extension. I have no idea how much you've got in your securities portfolio, but ask your loan officer if "asset depletion" is an option. Asset Depletion allows them to look at your stocks, bank accounts, etc and apply a formula to those assets to count as your "income"...basically if you couldn't pay, do you have enough financial assets to make the payments. Ask them about "Asset Depletion". If your loan officer doesn't know what that is, find another loan officer. Good luck with this deal. It sounds like you'll be fine if all parties cooperate. You do have options.

You should be able to get the insurance premium back, so I don't think that would be a concern. We've had to seek the "specific performance" remedy in the past to force the seller to go through with the transaction, but if this is a short-sale, the seller is likely going to be behind in their payments and not have any money to pay an attorney. It won't likely go anywhere. Did the closing agent/title company uncover a lien? If not, they are likely pulling your leg on that. They probably have a better offer and are trying to make you go away so they can take it. I think your only option is to point out the specific performance remedy that is likely in your contract (check it first) and remind them that they will also be liable for attorney's fees if you have to force the issue. That's always worked for us, but in the instance of a short sale, you can't get blood from a stone. 

Thanks for posting this. That's a great question (much better than many I've seen on here lately). I flipped my first home in 2008 taking advantage of cheap deals during the last big crash. We did really well at first, but made our mistakes. I had the advantage in that I had been a lender for many years prior to that and my wife's degree was in a construction/design-related field, so we had a lot of things going for us. Over time, we went into new construction of SFRs. My lending company also started financing them, so we've seen it from a lot of other investor/builders' perspectives as well. The cycle for new construction is obviously much much longer. There is more risk and permitting can be a bear. That being said, it's "rarified air" in that fewer people are doing it. I always thought, like you, that affordable housing was where we could make a dent. We found that doing higher-end stuff (not mansions, but $750K - $1.2K) was a sweek spot from a profitability standpoint. At that price, the properties still moved, but there was more margin there. I think a massive key is having the right contractor. Our lending side has 2 investor/borrowers right now that are having to go after their contractors because of scope of work/financial hanky-panky issues. If you ever want to chat and pick my brain, I'm happy to jump on a call some time to discuss the good, bad, and the ugly. I know I wish I had more people to bounce questions off of when we started. Good luck to you. 

I've been a lender/banker in the Tampa Bay community since 1996 and we're a national lender specializing in, among other things, the type of project you mention. I'm very familiar with San Antonio and the development that is happening there. That being said, I don't know of a legitimate lender in the country that will do 100% financing on such a project. A few questions. Do you and your team have experience with development? Particularly at this scale? Were you injecting any capital into the project? Did you already pay for the 47-acre parcel? If so, that counts towards any down payment/cash injection and it's really not 100% financing at that point. Those are major questions that would need to be answered to guide you further. 

I own a mortgage company in Florida and I've been a lender for 34 years. I know you don't want to hear this, but I haven't seen someone be a good loan officer and hold a full-time role in a non-real estate-related field. I've seen realtors bring in a deal or two per month, but contrary to popular belief, being an MLO is not a part-time "I can do it on the weekends" job...not if you want to be successful. I was flipping/building 7-10 homes/month back in the day, but I couldn't run this company, support all of our loan officers, and be a great flipper at the same time. My wife kept up with that business while I focused on lending. I'm sure that's not what you want to hear, but it's the truth. I do hope it helps you.