All Forum Posts by: Charles Kennedy

@JD Martin

Thanks for taking the time to explain it. That system makes sense. I recently opened a CIT high yield savings that gives 1.3%(and is FDIC insured), it's not a lot, but if you have $20k in security deposits, you could get $260 a year.. better than a few bucks.. I keep about 1/3 of my money here and the other 2/3 in the market.

I would have more in the market, but am planning on purchasing a duplex to house hack around March of 2018, so I don't want to be over exposed since I will be out of the markets by then.

Thanks again!

Hmm, hopefully you didn't get too nice of a property in too "bad" of an area. I remember looking at a beautifully renovated  duplex on Zillow in Atlanta the other day, with backsplash, new appliances, flooring, etc. but the area was iffy!

I don't know the Austin market, but I would make sure you are posting everywhere: Zillow, craigslist (make sure to repost constantly to "bump" the post to the top of the search) and include LOTS of pictures AND a listed price. I remember apartment hunting for a place to live before moving to Atlanta, and nothing would grind my gears more than not seeing lots of pictures and a listed price.

Also, make sure not to falter on your tenant criteria. When people wait for a tenant they get desperate and will take tenants that don't meet income thresholds, have records, etc. It seems it would be wise to take a slight reduction in rent as opposed to taking a worse tenant.

Best of luck!

@JD Martin Thanks for the explanation! I will look into Cozy. Would you mind going into more detail about your how your structure handling bank accounts to account for rent payments, CAPEX, maintenance, etc.?

Do you allocate some certain amount from all your properties into a single account for CAPEX? Separate accounts for each property? Do you have a way that makes it easier for you to track expenses during tax season?

What about security deposits? Do you simply deposit them in a savings account to accumulate some interest?

Thanks in advance!

Zach,

My advice would be (if possible) to fund each rehab out of pocket between the three of you. You'll have a little over $70k in the deal. If you have done proper analysis and the house will appraise at $72k (it really should appraise above, you want to CREATE value) then a 30 year mortgage, 20% down (take out $57,600 in equity), fixed at 4%, the monthly payment should be ~$277 based on a simple payment calculation in excel.

Taxes and insurance should be low on a property that is small and recently renovated (CAPEX shouldn't occur in 5-7 year span if your rehab is done properly).

If your expenses are in the ball park of $300, you could still cash flow a little over $120/month.

The key is eliminating risk for the bank. If you get the loan AFTER you have the rehab done, the bank can determine how much the property is actually worth and give you a conventional loan that they are comfortable with.

Paying down each month is not an option and not what a real estate investor should be doing.

@JD Martin Could you explain those details?

@Wesley W. Isn't giving your tenant the account # and Routing # effectively allowing them access to your account? Couldn't they potentially take money from that account then?

@Darian Richardson

Thanks for the detailed response. I'm attempting to get an off market deal for a duplex, but we'll see how it goes. I plan to meet with at least ~8 or so banks so that I'm clear on the process. I would actually prefer the renovation is baked into the loan amount, so that I can quickly renovate and raise rents. I would perhaps consider doing only one half and then living in the other and renovating as I go and do that out of pocket. 

thanks for the info about what rate you got, that solidifies my belief of getting a low 4% rate. 

Finally, I really like the home warranty idea. It's seems like your essentially building a CAPEX/Maintenance account, but at a lower cost and you'd be able to count that as expense, when traditionally you wouldn't.

@Darian Richardson How long is the seasoning period on an FHA loan? How was your process with it? I plan to do the same thing or utilize the 203(k) loan to make some repairs depending on the condition of the duplex I find.

If you don't mind me asking, what rate did you get and on what terms? What was your credit score?

Finally, how much do you pay for a home warranty and what does it cover?

Thank you in advance.

John,

I'm sure you could get private money as long as the return makes up for the risk. I'm curious where these duplexes are located that you believe they will fetch $1MM a piece!

@Ryan Johnston great insight!

I work in CRE lending so hopefully I can help! I'll tell you one of the things we are really big on at my bank is PEOPLE. We look to track history, relationship with the bank, if you've done what you're about to do before, so unfortunately you're a little behind there.

However, the real estate is also looked at much more closely than a person in comparison to a traditional residential loan. I'll tell you the max loan to cost you'd be able to get would be 75% and the bank I'm personally with won't go that high. Continually, loans are typically 3-5 year loans with extension options that amortize over 25-30 years w/ a balloon payment at the end, so have a plan to refi or sell at the end of that term. We analyze if we project you will be able to refi. Commercial loans are also floating rate usually quoted on a spread over LIBOR, or London Inter-Bank Offer Rate. Typically when we lend to someone on large property like this, real estate should be there core business. I personally would not feel confident in someone who is buying this property, but they have an entirely different business they will be running. I still wish you the best of luck, but I think without the proper knowledge of analyzing a deal this size you may end up over-paying!