All Forum Posts by: Brendan M.

@Joshua Dorkin @Mindy Jensen This is a great direction to go with increasing BP's effectiveness as a networking resource, but I think there is even more potential to be tapped here.

BP does an excellent job in facilitating rapid, personal growth of your real estate networks by letting you connect with others in your geographic location, market segment or area of interest. While it may be easy to initially form these networks and connections, BP is still lacking in resources to effectively manage your contacts, especially as your networks grow. Bridging this gap from network creation to network management would escalate BP from being a useful investor's tool to a necessary one.

For example, let's say I'm a wholesaler and I find someone on BP interested in my type of deals. Right now, it looks like I can add them to a private list to keep track of them for when I have their type of deal come through in the future - this is a great step in the right direction. However, when a deal actually comes through, most investors are not going to want to individually go through their entire list and message each person the deal one by one. There are more effective tools for that (like email). Every time an investor turns to another networking means to achieve their networking management needs, the limitations of BP as a networking management tool become suddenly apparent.

So sure, you could add batch messaging functionality to solve the above problem. But this would come with it's own complications and potential for abuse. It is also just an example - you would be putting in a lot of time and effort into replicating an existing and well-established means of networking - a rather inside-the-box solution.

I think the true potential BP has as a network management tool is that it has the advantage that none of the other network management tools (google groups, outlook contact lists, the latest network-savvy app du jour, etc.) have. BP is where the investors are at. Hundreds of thousands of investors have come here to learn, network, and make deals happen - there is nowhere else on the web that has such a high density or diversity of real estate investors. They're already here reading posts, scouring the marketplace, and contributing experience. While some investors have already found a way to skyrocket their investments using the networking tools already available on BP, I would argue that the vast majority of users struggle to come up with an effective and consistent means to incorporate BP's functionality into their investing or networking plan.

While private lists can certainly be powerful tools in the right hands, perhaps entirely rethinking the way these lists could be used would make them more accessible to the masses. An example would be establishing public list or group functionality. Let's say as a BP Pro user I could create a public list I titled "Buyers Seeking SFH Deals in Colorado Springs" or "Learning Subject-to Investing" and opened it up to the public so my fellow investors could opt in if they self-identified with the title and description. Even more powerfully, what if I could then search through similar public lists and send a batch invitation to the members in a public list to my private list, where I offered content or deals in line with their interests. The end result of this is that BP would essentially act as an opt-in networking broker for all parties - you opt in to your interests, people with something to offer could then easily identify those who are seeking it, and then there is a final opt in for being recruited into a private list where user-generated content and deals are housed.

While the above idea may or may not prove to be full of holes, I think BP has huge potential to grow into the go-to network management tool for investors. Thanks for adding the list functionality, and I look forward to continuing to grow my own investments with the ever-expanding offerings here.

@Chris Mason - Great idea, and a great way to solve the problem with no impact to the seller. How close to closing would you typically be able to adjust the sales price like that without causing issues/delays with the lender?

@Nick Doria - It allowed me to build up cash much faster for my contingency fund and much more rapidly enable my second acquisition. The best way for the numbers to support this is to find a quality deal where you can wrap the funding fee into the mortgage and still end up with instant equity in the home (due to buying below market value).

I bought my first home just about right at market value and I put myself $5k underwater on it immediately because of that. However, because I was able to wipe out my existing high interest debts and rents in the area have been on the rise, this ended up being a worthwhile tradeoff. But if I had to do it again, I would definitely look for a discounted property to ensure maximum risk mitigation.

@Daria B. - The VA has clear guidance about what is and is not a seller concession and the limits thereof (4%), and also clearly states what fees the borrower can and cannot pay at closing. In a normal scenario, the seller concessions would therefore be applied against the buyer's outstanding balance due at closing, and any remaining difference is still entitled to the buyer which may be applied against outstanding debts (specified in advance of closing, and clearly itemized on the HUD-1).

It is my understanding that if you do not have enough outstanding debts to fully apply this difference against, then the remaining balance will either revert back to the seller or may possibly be allocated to one of the other closing parties (lender, agent, etc) if itemized in advance.

@Daria B. It's really up to personal preference, your strategy, and your level of risk you are comfortable assuming with the property. This strategy isn't a magic way to generate free cash where there was none before. It is, however, a great way to free up cash at closing on your property that you can use to pay down higher interest debt that may be plaguing you.

For example, let's say you have accrued some credit card debt, and you're paying $600/month in high interest debt, to the tune of 8k total owed. This allows you to wipe out that debt by essentially consolidating it into a lower-interest mortgage. A quick calculation shows that 8k amortized over 30 years only results in an extra $38/mo in payments. If you're currently paying $600/mo, you have therefore increased your cash flow by $562/mo for the short term (i.e. however long it would take you to pay off your debt at the old rate), and decreased your annual interest on it (now at mortgage rates vs. credit card rates).

You probably know you can use your VA loan benefits to close on up to 4 units for 0% down. But did you know that the VA allows you to actually walk away from closing with a check in hand to pay down any existing debt you currently have? If you're thinking about investing using your VA loan benefits, read on to learn how you can take advantage of this little-known opportunity.

When I closed on my first deal, I got pretty lucky. Not necessarily in finding the deal – it was actually a pretty mediocre deal, maybe above average at best. But I got lucky in how I structured it. It was a FSBO and the seller had agreed to pay closing costs, so the contract was written to reflect seller concessions for an estimate of what those would be. While you can read about the exact numbers and my lessons learned here, the main takeaway is that the contracted seller concessions were greater than what my actual closing costs were, allowing me to receive the difference between the two to pay off my car loan and my monthly credit card bills.

While I did get fairly lucky at the time, now that I know exactly how the process works I've realized that I could have gotten a whole lot more out of the deal had I planned well from the beginning! So in the spirit of making my own mistakes so others can learn, I've come up with the following process so that anyone with VA loan benefits can use to optimize their deal and receive maximum cash back at closing.

Step 1: Establish Your Network

As with everything else in real estate and life, proper preparation and planning is the key to consistent success. Before you go looking for deals, you need to begin establishing stablish a relationship with as many mortgage brokers and lenders as you can. While having one go-to broker is great in most situations, one of the cornerstones of this strategy is facilitating broker competition, so you will need to build a relationship with at least two. Get prequalified and let them know you plan to have a place under contract in the near future.

Step 2: Maximize Seller Concessions

When you finally find a property you want to put an offer on, first calculate your maximum allowed seller concessions. The VA allows up to 4% of the purchase price in seller concessions, so when you submit your offer to the seller, ensure that you ask for the full 4%. While the VA states that seller concessions do not include "payment of the buyer's closing costs" or "payment of points as appropriate to the market," there are a few important items to note here.

How you word your request for concessions matters. If you only request 4% of the purchase price in seller concessions with no caveats, you can probably count on your buyer closing costs being paid from the seller concessions and you receiving what’s left over (i.e. less than 4%). However, because the buyer closing costs and reasonable discount point payment are not technically included in the 4% limit, you could try to write the contract so that the seller will pay both buyer closing costs and payment of a market-appropriate number of points and provide concessions of up to 4% of the closing cost. In reality the seller will probably be reluctant to provide this much in concessions, and I only point it out to show that it is theoretically possible.

If you want to truly maximize your cash back at closing, the best way to do it is by wrapping your VA funding fee up in the total loan amount. Having the seller agree to pay it for you is possible but it is not considered a closing cost and will come out of your 4% concessions.

If the seller rejects your request for 4% in seller concessions, try increasing your purchase price offer instead of reducing your request for concessions. For example, if the seller is willing to take a 200k offer on a home, instead of offering him 200k with $0 seller concessions, try offering 208k with $8k in seller concessions. In the end it's more or less the same for the seller, but it works out better at the closing table for you.

It's important to note here that the VA will not allow seller concessions to be taken strictly as cash to the buyer. The concession may, however, be applied to pay off any credit balances or judgements on behalf of the buyer, which means that any outstanding debt you have is fair game. So while you might not be able to walk away from closing with a large personal check in hand, being able to pay off your credit cards, car payments, or student loans is just as good.

Also, there’s no need for you to elaborate to the seller why you want to maximize concessions - chances are they aren't going to like the thought of paying off your personal bills with their concessions. They don't need to know your financial specifics and volunteering this information may hurt your chances of them accepting your offer with concessions.

Step 3: Minimize Closing Costs

Once the home is contracted, you'll want to work quickly with your mortgage brokers and lenders to get their fee sheets that approximate their closing costs and rates. Compare them and don't be afraid to ask them if they can do any better. When you get their best offers, take the best one and bring it to the others and ask if they can beat it. Depending on how competitive your brokers are, they may or may not be able to match or beat the other's offer. They may also try to continue to undercut each other by marginal amounts each time – after a certain point there’s no sense string them out too long trying to squeeze blood from a stone. Once you get something that works for you, make up your mind and go for it.

Conclusion

If you follow this process, you should have a property under contract with concessions that are significantly higher than your closing cost estimates, the difference of which will be disbursed against your existing debts at closing.

For other ways to maximize cash back at closing, consider the day of the month you schedule closing. If you are purchasing a small multifamily where some of the units are already rented, try to close at the beginning of the month. This will ensure you receive both prorated rents for the entire month and also give you the longest amount of time before your first mortgage payment, increasing your short term returns considerably.

Lastly, before rushing in trying to maximize your payout at closing, carefully consider the situation to determine if it's the right strategy for you. While it might feel like you're getting something for free, all this process is really doing is offering short term cash at the expense of increasing your mortgage by a proportionate amount. It is very possible to over-lever and put yourself immediately underwater on your property using this strategy, especially if you wrap your funding fee up into your mortgage. By increasing your overall mortgage amount you also will be increasing your monthly payments which will have a negative effect on your cash flow. While none of this is necessarily bad, it's important to understand the risks you are taking on by utilizing your VA loan in this way and weigh them against the value of having any existing debt paid down at closing.

Are you a Veteran investor who has taken advantage of this benefit? Do you practice any other strategies to maximize cash back at closing? Let's hear about it!

I love, love, love the detail you put into your post. Way to go above and beyond to provide a great example of your first experience, and I think there's so much value in being straightforward about all the bad stuff and stress that comes with just getting started. Best wishes to your continued success.

@Jeff S. I think if you watch the market closely for a long enough period of time you'll see plenty of opportunity exists, especially if you look for value-add opportunities. When I was on the lookout for my first 4plex, I had the same concerns, that most of the 4plexes I was seeing looked like they were in sketchy neighborhoods. But that's just the nature of 4plexes - they will correlate strongly with a specific income class.

If you are really interested in house hacking, you'll have to accept that fact that the neighborhood you're most likely to find a 4plex will be a lot different than your standard middle-class SFH cul-de-sac. But once you spend some time in a lot of these neighborhoods, it's easy to see it's not as bad as you thought it was at first either. There are, of course, neighborhoods you should definitely stay out of, so use your best judgment.

As for meet-ups, I love to attend as many as I can when I'm in town but don't expect to be back for another month or two. Feel free to get in touch if you have any questions.

@Erik Gray, below is my loose analysis of the Co Springs market that I posted in another thread a few days ago. By no means an expert, but this is what I have observed:

The rental market here has been going up quite a bit lately. Finding small multifamily properties that perform at a 9-10 Cap is totally doable, especially if you are able to identify solid value-add deals. Denver has seen some pretty meteoric rises in housing and rental prices and that seems like it ripples into the nearby CS market. Not sure how appreciation has impacted the Springs lately, but I'm sure as with anywhere it will vary with your market segment.

Overall it seems to be a pretty strong rental community though due to the very large number of military bases. The Air Force recently announced plans to increase force size for the first time in 6 years, in addition to the recent increase in housing allowance for military members, both of which I expect will also have some positive effects on the market here.

@Brian Serina I'm by no means a Co Springs multifamily expert, but the rental market here has been going up quite a bit lately. Finding properties that perform at a 9-10 Cap is totally doable. Denver has seen some pretty meteoric rises in housing and rental prices and that seems like it ripples into the nearby CS market.

Overall it seems to be a pretty strong rental community though due to the very large number of military bases. The Air Force recently announced plans to increase force size for the first time in 6 years, in addition to the recent increase in housing allowance for military members, both of which I expect will also have some positive effects on the market here.

@Brody Jett Great write-up thanks. I had a similar experience with my first VA purchase in being able to not only put 0% down but actually walk away with my earnest money and then some. Thanks for sharing, sounds like you're well on your way!