All Forum Posts by: Chris Mason

Fe fi fo fum, I smell me someone wanting credit for a kick-back of rum.

You can do a cash out refinance using a traditional mortgage on an investment property that you own in the clear. 

> Also, my second question is if it is possible, is it true that the banks not allow you to purchase the property anyways if its in need of repair

Depends on what 'in need of repair' means. The house can have a grimy gross disgusting oven, so long as it's got an oven. Same with toilets, etc. 

The house needs to be complete and not have any health/safety hazards (that an appraiser will notice... ahem). If you find a scrappy lender, she or he will tell you what needs to be cheaply/quickly patched/fixed prior to the appraiser showing up. Tear the window security bars out if they don't have a fire release, throw some cheap co/smoke detectors up, double strap the water heater and no duct tape isn't going to cut it (CA earthquake thing), cut the 3 foot weeds back away from touching the exterior wall, get rid of that goddamn chicken seriously a "pet" chicken is not part of a vacant duplex wtf (true story), you know... that sort of thing.

> Also, my second question is if it is possible, is it true that the banks not allow you to purchase the property anyways [...] if the offer we make is way below the fair market value?

As long as it is an arms length transaction, this makes the loan LESS risky so we do not care.

> Can I use some money from a line of credit?

If it's secured by a property either than this one you're fixing up, it'll be calculated as a monthly debt obligation like any other.

Hi Gloria,

> 1.) What about "one time" maintenance expenses that I list on my tax returns?

If you kept the receipts and can prove it was 'one time' in such a way that it passes a cursory "BS Test." Paint will not pass the BS test, a new roof will.

> 2.) What about things like a new roof or a fridge that need to be depreciated over multiple years?

Write off depreciation all you want. Can add it back to your income.

> 3.) What about points paid upfront on a loan that need to be depreciated over 25 years?

Like, discount points? We don't factor that in at all. So ya buying the rate down a bunch on all your loans will help your DTI, but will not be very good bang for your buck if that's the only goal.

> What about transportation expenses for visiting rental properties.

On paper, miles driven is almost always in the 'depreciation' category if you look at the fine print. Can add it back.

> I'm just not sure how Fannie Mae calculates DTI. Are you saying that expenses are not considered when calculating DTI?

We're going to do per-property math (as if each property were a separate business or self employed job, almost). If a property ("job") cash flows positive the way we do our math, boom we have qualifying income (no debt). If the property ("job") cash flows negative the way we do our math, boom we have a monthly debt obligation (no income). 

EDIT: Also, don't write off meals and entertainment you dang realtor! We have to hit you with that DOUBLE what you write off. Just focus on writing off every mile you drive to make up for it. :)

EDIT 2: Let me tell you the tale of my house call veternarian who grossed $250k, whose taxes say he netted like $75k, and who I said makes $175k... miles driven and depreciation and one time expenses all day long baby.

I have a pair of investors (a conventional first lender via correspondent lending, and HELOC 2nd lender via mortgage brokering) that together will do 80/10/10 on owner occupied duplexes. I can count on one hand the number of times I've done it, it's a VERY niche combination that I stumbled upon.

But nothing that I'm aware of for n/o/o or 3-4 unit.

If anyone finds that combination of 1st lender and 2nd for multi-unit other than o/o duplex, please immediately PM me the details of who and under what terms so I can get a new relationship going. :)

Hi Lisa,

Do the math. :)

Once you're in contract and able to actually lock a rate based on that day's pricing:

* Figure out the cost of the amount of discount points you are considering, in dollars. Call this X.

* Figure out the P&I payment difference between the 'no points' rate and what you are considering, in dollars monthly. Call this Y.

X / Y = break even point, in months.

If you intend to own the home for longer than that period of time, do it. If not, don't.

Paying $5k extra now to save $40/month only makes sense if you intend to own the place for 125 months, which is about 10.4 years.

So for flippers, they should actually jack that rate up as high as possible and do the same math in inverse. $5k saved now for $40 extra out of pocket each month moving forward is a great deal if the "each month" is only going to last 8 months. The lender was offering that $5k to you with a break even point FOR THE LENDER of 125 months, and you will only be in the property for eight months! Evil genius score here is... probably about 7/10. Not great, but also certainly not bad either.

Hi Kunal,

Some combination of your realtor and the other realtor probably picked the settlement services provider(s), which back when you were in CA were called title and escrow (varies by state, no idea what language is used in Chicago).

That's who you should yell at if you don't like the amount of the fees.

Please note that the lender's title insurance is also often discounted if paired with an owner's title policy. So someone else's claimed lender's title insurance might appear cheaper only because they jack up the owner's policy cost. 

The number you want to look at is the sum total of all fees paid to title/escrow, including the "optional" owner's title insurance policy.

• Get added as an authorized user on someone's credit card that knows, loves, and trusts you, that has had the credit card for a while. You will often inherit that card's history.
• With your baby starter card, buy your wife something modest but nice once a month, pay the full balance of the CC off once it comes. She is also to buy you something nice once a month on her card.

Welcome.

> The real question is now what niche and location.

Multi-unit in modest income areas of the Bay seem to be the most consistent winners, from the financials, tax returns, operating income portions of appraisals, and so on, that cross my desk.

There are of course exceptions to every rule - there are winner SFRs out there, and poorly performing multi-units that are a nightmare to maintain (100 year old Victorians that have been converted to multi unit in Oakland and Alameda LOOK gorgeous, but as an investment... hmmm). So do your due diligence and make sure you have a home inspector you are confident about.

I'm also a fan of realtors for investors that themselves either have rental properties, or that do property management on the side, or similar, but again there are exceptions.

Hi, welcome.

> Also have been using Redfin as my realtor right now but not sure if I want to switch to a conventional realtor to find a home as the market is so hot I feel I may be missing out on pocket listings. Does anyone have any experience using Redfin?

What's in it for agents who work for Redfin is that they don't have to prospect (eg, less work) in exchange for the famous commission cut. This is a great match for many realtors, as well as FTHBs, and there are certainly talented realtors that work for Redfin. A lot of agents (esp those who enjoy prospecting) hate on Redfin, but I think it's overblown. There is talent at Redfin, in spite of the stereotype. I know because I've worked with some of that talent. 

However: you're an investor. 

If your everyone is doing it right, you will take 5x more work per closed transaction for her or him. I do not know that a realtor attracted to the Redfin business model ("a little less work for a little less pay") will on average be a good fit for an investor (that requires 5x more work). Your realtor, if she or he is doing it right, will work significantly harder for you as an investor. If you have that expectation (them doing MORE work for you), it might not also be reasonable to expect the pay cut at the same time (which is implicit in Redfin).

That being said, there are gems in the rough and exceptions to every rule. If you've got a specific Redfin agent that you love, by all means go for it. On average, however, I don't believe the random Redfin employee they will hook you up with will be a good fit for an investor. Expecting more work out of someone for less pay isn't necessarily a recipe for success.

That being said: redfin's probably the best website of it's kind that serves the bay area. By all means use it, and feel free to send links to properties that interest you on Redfin to your realtor.

That's just my $0.02.