All Forum Posts by: Ben Stoodley

80% LTV on the HELOCs is fairly common from what I have heard as well, some may do 85%LTV, but, it'll be more expensive. With recent rate hikes, I would expect all HELOCs to jump as well. If you bought new construction, then it is likely at the high end of the market value, so your HELOC cashout amount depends on what your current mortgage LTV is.

In general, more and more lenders will be tightening their credit boxes as rates continue to go up, while they see what market changes will occur. Many lenders I have worked with will require the down payment to be from cash, not HELOC or other debt options. "Skin in the game" will become more important to lenders in uncertain times. For clarification, I am a hard money lender and all lenders I am referring to are hard/private lenders, more conventional/non qm lenders will have even more strict requirements.

BRRRRs in general will become harder for the next little while, so it maybe a good idea to wait a bit before making your next move. Either way, just make sure you really run all your numbers, with prices still high and rates spiking, it will be harder and harder to pencil out a good DSCR/rental loan for the "Refi" part of "BRRRR".

Hope this helps. Good luck!

Hi Andres,

HML typically fund 80-90% of purchase + 100% of rehab. So if a new deal does pop up, you would need 10-20% of the downpayment, plus fees. HML do not typically care if this downpayment comes from cash/checking accounts, IRA/Investment accounts, or HELOC. So as long as there is enough capital to show, you should be fine. This may help you pencil out the exact amounts you are looking for and therefore how much you need that HELOC , or whether you need the HELOC before purchase or after.

The only other financing option I would consider in your shoes would be a capital partner for future deals. Personally, I would create an LLC with a hands off investor, put their capital (and yours if needed) into the new LLC bank account and buy 1 or 2 or however many deals you want to with this investor. You can then create a new LLC (or just amend current LLC to remove investor) when you are ready to go off by yourself.

Good luck!

@Kathryn Click I might recommend a few other strategies here, but it all depends on your goals. You have and want to keep your W2 job - forever? Or do you want to work towards being your own boss? Real estate investing can provide multiple different paths to financial freedom, but everyone’s definition of financial freedom is different. So I would start to consider what you want your life to look like in 10 years. Then set a goal for 5 years and 1 year.

RE license will never hurt. It can provide knowledge and side income even if you want to keep your w2. Or it could provide a much more flexible schedule and good income if you were to pivot into full time RE once you have your license and clientele.

Most importantly, I would recommend finding an experienced local investor and learning from them. RE licensing won’t teach you much about investing. Investors look at the market almost opposite to a retail RE agent. Most successful investors make their most money when the market is down, so it’s the inverse of normal thinking. If you could team up/partner/intern for an experienced investor, you would learn SO SO much. They should also allow you to invest some capital toward the deals they’re working on. This way you get safe/sound investments while learning - and you’re not locked into a long term house hacking type of project on your FIRST deal. Remember the first few are the hardest. A bad deal in the beginning can be devastating where as a bad deal down the road could just be a small road bump .

House hacking is a smart, solid and safe start as well - but it’s very long term/but picture. It’s a good first step - but coming from someone who started in San Diego, it certainly did not make sense for me.

Bottom line - take action. Make a goal and set a date for your first offer, your first interview/partnership/investment/etc. and find some local people that can help!! Good luck!!

I assume you are doing STR/airbnbs with "projected average rents" ranging that much, is that correct?

Are you already approved for the 80% ltv , 20 year loan at 3.125% ?

I thought you were coming to the table with the rest of the money and the $50k was just how short you were, in other words, a $50k loan on the property. However, with the first position conventional loan at 80%LTV, the $50k you are referring to is actually for the gap, so you are basically 100% financing this, correct? If so, I would just look into a couple more things...

1.) loan terms sound conventional - is there a prepayment penalty? If so, you should def plan on holding this project vs selling it immediately like stated initially - or at least work in the PPP Fees into this spreadsheet, if you pay off a 20 year loan in year 1-2 , you will likely have a 2-3% fee, just fyi.

2.) confirm you are allowed to do this type of secondary financing with your first position lender - most conventional and rental lenders do not allow 2nd position liens on title, meaning your friends/family can't attach ("secure") their $50k investment to title in the form a lien on title. If they're close enough to you then maybe they will just deposit the $50k in to your bank account - at which point you want to confirm there are no seasoning requirements with the first position lender. There will likely be sourcing requirements with the $50k deposit, but those can be as easy as an LOE, depending on the lender. 

3.) confirm STR are allowed for this type of loan as many lenders do not like STR or they will offer lower LTV %'s for STR loans

4.) the numbers I was referring to in my first message about being dialed in on were actually the rehab numbers at $20k, maybe it is enough for what you are planning, but as mentioned by others, prices are higher, good GCs are hard to come by, etc.

All in all, sounds like it could be a decent deal, just a few things I would triple check regarding financing so they don't cause roadblocks later. Good luck!

@Lain McCanless you're in a great position, 8% no points is a great starting point. I may only suggest to borrow a little more than you think you'll need, as $20k cosmetic Reno could turn into $30k pretty easy. I'm assuming you have HOA fees too, so just make sure all your numbers are dialed in and don't stretch yourself too thin.

Family / friends is always the way to go financially speaking, they'll always be cheaper. Get a good idea of how much capital you could use of theirs and then start to have HML backups as you scale. Friends/Family are cheaper but run out of capital quicker, HML are a bit more expensive but can scale you larger.

@Stephanie Trevizo if you’re refinancing into a 30 year perm loan, there’s a good chance they WONT allow 2nd position financing, at least that’s what I’ve seen almost exclusively in my experience. Private loans are much more flexible and allow them. I assume the Seller recorded their note and deed of trust? This will show up for all refi banks and likely be a preclose requirement. So I would definitely work towards paying them off and ending that relationship. If your attorney has reviewed the paperwork and agrees there are no prepayment clauses, then I would proceed with “legal action” - at least a letter from your attorney stating the situation. Possibly be open to an extra “fee” for early payoff just to get the deal done.

@Jamal King certainly agree with narrowing the focus to one asset class or investment strategy. Each idea you mentioned is a completely different ballgame and therefore completely different businesses (would need to at least hire many people).

More importantly - does your investor have any experience with REI? Experience is worth more than any lump sum of money, especially at the beginning. I would personally consider partnering up with an experienced investor. Split some profits with them for a few deals. Learn what works and more importantly what doesn't work. One bad deal at the beginning can be devastating, one bad deal after numerous successful exits can be a simple lesson.

Depending on how big the capital stack is, also make sure to diversify…. Good luck!

@Mel Hayes lots of responses here. There are a few things to keep in mind.

1.) Agency loans and more conventional banks should always be cheaper than private loans. However there is more red tape and timing is difficult.

2.) Private DSCR loans across the nation are starting at around 3.75%. I've only heard of one company offering less, somewhere around 3.2%. There are endless companies that can get you 3.75% on a rental loan.

3.) All of the above are referring to 30 year fixed rates , most private lenders also offer ARMs.

4.) Every loan I’ve seen has at least a 3 year prepay and require 6 months of reserves

5.) Points and Discount fees depend on the deal and borrower. As mentioned, asset type/credit/LTV/cash out all incur pricing adjustments. Therefore your starting rate maybe in the mid 4's but then you can buy down your rate to the floor rate of 3.75% , and / or, lower your LTV for a lower starting rate.

Good news is that you have a lot of options! Just find credibility and reputation. Most any lender can match rates for the right deal. Good luck!

@Jonathan Pavkov “gap investing” is a term used frequently describing the financing of your down payment and holding costs (basically everything that your senior debt lender isn’t financing).

Gap investors can be individuals (best) or companies. The key here is to work with individuals that will not require a 2nd trust deed / mortgage behind your senior debt lenders first position loan. MOST will not like to have a second, some may not care but will likely cap the combined 1 and 2 position LTVs.

In summary - I would find a capital partner that will invest enough money into your biz for your next project or two. Create an agreement with them right in your Operating Agreement or By Laws, outlining their investment and returns along with your responsibility (manage the deal). This is the cleanest way. No 2nds. Just an equity partner. Then you can just find good lenders to work with and scale smartly. Too much debt is not a good thing. Capital and experience go a long way.

Good luck!

@Jacob Mistric funding the down payment and holding costs with private money is best done if you can get the private funds deposited into your LLC/Corp biz bank account prior to close. Have a JV agreement and/or bring them into your entity's operating agreement/by laws. This way, their money is protected - assuming you have the right language in the JV/OpAg/bylaws - and they don't NEED a 2nd position lien on title.

These 2nd position liens is what most HMLs frown upon. However most don’t care if you have a large sum of money deposited into your account from a partner.

Talk to your CPA and attorney about the right wording. I personally prefer this method of gap investing better than a second position lien anyways.