All Forum Posts by: Mark F.

@Jim Breedlove

Hi Jim, to get around the 4 property limit, you need to work with a community bank that doesn't sell their loans on the secondary market to Fannie Mae. These types of banks, which are often called portfolio lenders, lend their own money so they can set their own lending guidelines, which means the 4 property limitation may not apply. 

Note that some banks may do both Fannie Mae and portfolio lending.

When you're calling around, be really up front that you have more than 4 investment properties and you're looking to do cash out refinances on investment property and you can't qualify under the standard Fannie Mae guidelines. Don't let a loan officer drag you through the application process to just find out later than you won't qualify because they only do Fannie loans. Being really up front will hopefully save you some time. 

Because you have residential properties, you'll be doing residential financing, which means you'll likely have to do the loans in your own name instead of your LLC. If you want to do the loans in the name of the LLC, you're talking about commercial financing, which is a completely different animal - and something I'm not familiar with.

Also, if any of the properties were purchase in the last six months, you may be able to cash out refinance with a Fannie Mae loan under the "Delayed Financing Exception". See page 207 of the Fannie Mae lending guide:

https://www.fanniemae.com/content/guide/sel022415....

Hope this helps!

@Victor Rios

My quick and dirty numbers are as follows:

• $342.22 - Mortgage Principal + Interest (based on 30-year fixed at 5%, 25% down payment)
• $141.67 - Taxes ($1750/year)
• $65.00 - Property insurance (very rough estimate, could be less, could be more)
• $57.00 - 5% Vacancy
• $114.00 - Maintenance and repairs (10% of rents)
• $114.00 - 10% management fees

Based on $1140 rent, you're cash flowing around $300/month with a COC ROI between 15% to 20%. Not bad.

However, what's the condition of the property? If it's old and will need a lot of deferred maintenance in the coming years, your maintenance and repairs could be a lot higher and could eat up your cash flow; replacing a refrigerator could eat two months of cash flow. Replacing a roof could eat up two years of cash flow. Make sure to take the condition of the property into account as well. 

How good are the tenants? Are they paying on time? Are they likely to continue paying on time in the future? Is the property in a location where you can attract good, reliable tenants who will pay on time and take care of the property? Remember, you can change a lot about the property itself and make it more desirable, but you can't change the area. 

This is exactly what our attorney advised us to do to avoid due-on-sale clause issues with our LLC.

@Jon P.  @Bryan N. I've been in the mortgage biz for nine years and though I don't have actual stats, my guess is that most people who opt for FHA financing have little cash for a down payment and/or have somewhat sketchy credit. Most people take advantage of an FHA loan probably because they can do the minimum down payment of 3.5% of the purchase price. People who can put down more probably go with a conventional loan, which has lower mortgage insurance premiums (assuming less than 20% is put down).

With just a 3.5% down payment, values don't need to fall much for the loan to be upside down, which represents some risk to the FHA mortgage insurance fund if the borrowers default. Also, borrowers that don't put down a whole lot of money are more likely to walk away from the home if they run into financial problems than somebody who has invested a sizable down payment.

The bottom line is that FHA loans probably carry more risk of loss than other types of financing because the people that use them often have shakier credit and don't bring large down payments to the table. The MIP premiums reflect that risk, so they're higher. FHA has been taking a lot of losses in the mortgage insurance fund over recent years, so they've been gradually bumping the MIP premiums to compensate.

There's no free lunch out there, so to have the privilege of buying a home with a minimal down payment and somewhat shaky credit (FHA guidelines allow for credit scores as low as 580), you're going to pay up with expensive MIP and UFMIP premiums.

@Brittany FrankenI would break the property taxes, insurance, vacancy (maybe assume 5% to 10% of rents), and management into their separate numbers, then include something for maintenance (maybe in the neighborhood of 10% of monthly rents).  

If it's an older property, you might want to assume more for maintenance to account for having to replace appliances, roof, siding, etc., where applicable. Your maintenance costs are going to be higher on an older property. 

When you're talking with sellers, you want them to do most of the talking, so be sure to ask open-ended questions that can't be answered with a one or two word answer or a yes or no. 

By getting them talking, you want to accomplish two goals: 1) find out their motivation for selling, and 2) find out as much as you can about the house itself (maintenance/upgrades they've done, stuff that needs to be done in the future, etc.).

Build some rapport first. Just get to know the seller with small talk and get them comfortable chatting with you. Explain who you are and what you do, but keep it brief. Again, you want the seller talking, not you. 

The following are a few great questions you can ask as the conversation gets going:

• Why are you selling? 
• What will it mean for you to get this home sold? 
• What repairs and upgrades have you done? 
• What repairs and upgrades would you like to do if you were staying in the home? 
• What are your plans after you sell? Where are you moving to? 
• Why has the home taken so long to sell? 
• What other options do you have in case the home can't sell? 
• What do you think your home is worth? Why do you think it's worth that much?
• Who else have you been working with to sell your home? How has that worked out? 
• What would it mean for your life if you could get your home sold for cash within a few weeks?

Notice that each question is open-ended. Again, the goal is to get the seller talking so that you're doing more listening than talking. By listening you can find out why the seller is selling, which you can then use to make your offer stronger. You're not just offering a certain number of dollars for the house, you're also solving a problem. You can only find out the problem they need solved by asking good questions and listening for the answers. 

Note that this won't necessarily work with every seller. Some people will be guarded and less talkative, but it will work for a lot of people. When asking questions, don't make it sound like an interview, just casually converse with them as if you're having coffee with them.

Hope this helps!

Hi @DJ Cummins, I'd like to add to the great comments from @Micah Copeland and @Griffin F.. I've been in sales for 9 years, and they are spot on. When you're talking wtih sellers over the phone, focus on a few things:

1) Build rapport. Just be a genuinely nice guy and get to know the seller. Don't over do it, but you want to build a good rapport and trust. People do business with people they like. 

2) Ask open-ended questions (those that can't be answered with a yes or no) designed to find out why the seller needs to sell. Questions like "what would it mean to you to sell this home?", or "why hasn't the house sold yet?", or "when would you like to get this house sold?", or "what are your plans once the house is sold?". Note these are all open-ended questions and they can help you find out the motivation behind the sale. 

3) Once you find out the true motivation for selling, present your offer not just as the dollar amount you're going to pay for the house, but as a solution that helps them achieve their true goals you uncovered with your open-ended questions. In other words, don't make your offer just about "Mr. Seller, I'm going to give you x dollars for your house", make it about "Mr. Seller, I'm going give you x dollars for your house and take away the headache of a home that is falling apart around you. No longer will you need to stress out about where you're going to get the money to fix the AC unit that no longer works, or the roof that's leaking."  See the difference? 

Once you've uncovered the true need, paint the picture of how life will be better once the house is sold. That way you make the offer less about price and more about benefit and value to the seller. 

Hi @Sophia McMillion, what loan term is that for? Rates and points vary depending on whether you're looking at a 30-year fixed, 15-year, 20-year, etc. 

@Chris Duzan Hi Chris, if you're borrowing $417K or less, the lending standards from one bank to another are likely to be very similar. Most banks these days follow the standard Fannie Mae lending guidelines in that loan amount range. They may add some of their own additional guidelines on top of the standard Fannie Mae guidelines, but most of the time the qualifying criteria will be very similar from bank to bank. 

@Bradley Smotherman I'd like to add my two cents. I've been in what is essentially phone sales (mortgage financing) for 9 years now, and a critical ingredient for selling your services over the phone is to get the conversation off of price or home value and make it about what motivated the seller to call you. Some people will share more than others, so this won't necessarily work for every caller, but it will definitely make your conversations more effective. Here's a few tips for your conversations with sellers:

1) Be personable and professional. Take a genuine interest in the seller and get to know them on a personal level before you start digging hard core into real estate. Build rapport with them, which helps them trust you and lower their guard. Share about yourself so they can see that you're a real person. Be open about your business as well. Many real estate investors for some reason think they have to be cagey about what they do. Don't be like that! Be up front about what you do.

2) Ask open ended questions (questions that can't be answered with a yes or no) about why they need to sell. You may have to build some rapport and get their guard down first before you can do this, but ask questions like "what would it mean for you to sell in x number of days?", or "why do you need to sell now?", or "why haven't you sold already?". A great question to get the conversation rolling is "tell me about the house. What repairs or upgrades have you done or plan to do?". People love to talk about their home, so this can be a great question to get them talking if the conversation isn't flowing too smoothly (it also helps you uncover important information about the condition of the home). By asking good questions, you can uncover their real motivation for selling.

3) Once you've uncovered the real problem they're trying to solve (maybe the mortgage payment is too much, they lost their job and are having financial difficulties, or the maintenance on the home is too much, etc.), constantly present yourself as the solution to the problem, ie, "sir, I can understand how all the maintenance issues can be overwhelming, so how would it feel to walk away from the home with a big check in hand in a matter of days? Would that ease your mind?". By uncovering the real problem and tying your services to the solution, you've created more value in the transaction then just price. Now the transaction becomes about improving the seller's life, not just the price for the home. 

4) Follow up, follow up, follow up. If the seller doesn't move forward now, be sure to follow up in a few weeks. Moving forward often is simply about timing. A "no" today could really be a "not yet".

By asking open ended questions and digging for the true problem the seller is trying to solve, you set yourself apart from all the other people who are simply trying to buy their house. You also build more value in the transaction than just price - it becomes a lifestyle solution instead of you simply trying to snag a house. Also, by making the transaction about solving a problem in the seller's life, you make price less of an issue. 

There's an old adage in sales that says something like "price is only an issue when you haven't shown the customer enough value". By identifying the real problem, then presenting yourself as the solution, you build more value in the deal that will make price less of an issue. 

Note that this strategy won't work for every seller, but it will definitely make your conversations with sellers more effective.