All Forum Posts by: Dan Gengler

@Tom S. We actually were able to find a seller financed deal in the same area.  It was a pretty good coincidence that we were able to find it but it worked out perfectly for both us and the seller.  We closed on that that Duplex in March, 2017.  It required a large rehab but that property is fully rented and is performing extremely well.

In regards to our primary residence, we were able to close on our refinance in Oct. 2017. Our main motivation was to get rid of PMI and lock in the rate long term while they are still low. We were even able to knock 7.5 years off of the loan for just a small increase in monthly payment while keeping our cash flow strong.

We're now looking for our third property and want to keep going.

Hi All! A lot has changed since my original was post. We were eventually able to get the refinance that we were looking for, but it did take a bit longer. In October of 2017 (about 2.5 years after original purchase) we were able to close our refinance. We went from a 30 year fixed FHA mortgage to a 20 year fixed. All in, we didn't have to bring any money to refi closing and even left with a $450 check. The difference in the monthly payments is ~$80. This was the first time attempting the refinance again since we were rejected the first time.

The main motivation for us was to lock in the long term mortgage rates while they are still low and while we are still using it as our primary residence as well as getting rid of our PMI at the same time. Knocking 7.5 years off of our loan was an added bonus. Our projected cash flow once we rent the unit that we live in is still pretty solid, despite the added monthly payments. All in all, we were very happy with the outcome. Ultimately, the thing that we were most happy with was the appreciation we've seen since our purchase which made the refinance possible.

Since the last post, we were able to purchase our second property in the same area.  That one was a similar duplex but required much more considerable rehab, which was not unknown.  The previous owner was very interested in a seller finance which is what we ended up doing and what made this doable for us. That property is currently stabilized following our rehab, fully rented and cash flowing extremely well.  We are now looking for a third property!

We are certainly a testament to staying the course despite a setback.  Can't wait to go for more!

Hi All,

I'm in need of some advice on how to finance my second property.

About 1.5 years ago, my wife and I closed on a duplex in a suburb of Milwaukee, WI using FHA, 30 year fixed financing. I am currently living in half and am renting out the other half. We currently owe $249K and the appraisal that we received when we bought the house was for $268K. When we moved in, we put about $30K into the house in upgrades and renovations. We currently receive $1250/month on the side that is rented and are expecting to get about $1500 for the side we currently occupy when its rented.

We now want to look at purchasing our second property that we also plan to owner occupy.  We'll will have about $40K in cash to use when it comes time to purchase the second property (in about 6 months) and would be looking at another property in the $250K-$275K price range.

My question is, how should we go about financing this property as well as our first property so that its the most advantageous to us and our cash flow:

1. Should I just go for a traditional loan on property #2?

2. Should I try to refinance property #1 out of FHA prior to purchasing property #2?

3. Is there a way that I can bundle them into one loan so I can get rid of the PMI on loan #1?

For additional background, my wife and I both have W-2 jobs with a combined income of about $150K annually and near perfect credit.

Thanks,

Dan

Thanks for the response guys

@Damir Kamber:

1/2. The average $/ft are from sold comps within the last year and within 5-6 blocks of my address.  These comps were from this past summer.

3. The current balance is right at $250K. If I were to get the 310/315K appraisal like I'd expect based on comps, it would be right at 20% ARV. Like I said in my post, I wouldn't be opposed to putting up some extra money to get it across that threshold if necessary. One large problem I'm having is the 1 mile radius. At about 1 mile from my property, the values do drop quite a bit and the neighborhood changes a lot. Because the appraiser didn't know the neighborhood intimately, all of the "comps" she included were right at the boundary of that mile radius which is what really dragged down my valuation. This is a problem I may just have to deal with but is there some that use less than a 1 mile radius (1/2 mile, 1/4 mile) if enough comps are available?

4. Ultimately, my goal is to refi into a 30 yr conventional mortgage to forego the PMI payment and be able to lock into that interest rate now before rates begin to rise into the near future. We'll be purchasing a new one 1 year from now and with this one on a conventional mortgage, it would leave us more possibilities for the next purchase when the time comes, whether it be FHA again, conventional or other types. I'm more interested in the asset value and longer term cash flow than the near term cash flow though that is a consideration too.

I will definitely look into the portfolio lending once I'm looking for the second property.  Thanks for the tip on that one!

HI All,

First post on BP!  I am a relatively new RE investor in the greater Milwaukee area.  Just over 1 year ago, my wife and I bought a Duplex on the border of Shorewood and Whitefish Bay.  For those outside of the area, this is one of the most or thee most A+ neighborhood in the metro and has a mix of single family houses and small multi family properties. Typical renters are families or young professional couples making well over the median income (on average). 

At that time we purchased the house, the previous owner had just put on a new roof, two new furnaces and repainted the exterior to ready the house for sale. We paid $260,000 (about $108/sq ft.) for the house and financed it with an FHA loan with 3.5% down on a 30 year fixed mortgage. The average in the neighborhood is about $118/sq ft - $128/sq ft. for duplexes so we feel we got a great deal on our first property. When the sale went through, the appraisal magically came back exactly for the value of the purchase price, which was almost identical to the last city appraisal that was done prior to the roof, furnaces and painting.

Soon after we closed, we completed substantial renovation work on the house, putting a new kitchen and bathroom and electrical panel in the upper unit, adding central air and completely repainting both units, landscaping the entire yard, adding an additional parking space to the property and adding new fixtures to the bathroom and kitchen in the lower unit.  All in, we put about $30K for rehab which we paid for completely in cash.  All work was completely permitted as well.

For the last year, we have been living in the upper unit and the lower unit has been rented out to a tenant that pays $1225/month.  Our plan is to live in the upper unit for another year (2 years total as our primary residence) and then move to another duplex that we would purchase at that time. Essentially a "house-hacking" strategy.  We're pretty confident we could get about $1400+ per month for the upper once we rent it out.

The problem I now have is the refinance part of the BRRR. I've talked to a few banks about doing a refinance into a traditional mortgage to get out of the PMI charge. With the ARV (have very similar comps withing last 6 months and within 5 block radius) of the house and the equity that I currently have in it, it should be sitting at 20%+ LTV. Also, since we bought the house, home values and sales have increased over 10% Y/Y in our neighborhood. We had an appraisal done with a large bank at the 8 month mark because they said that they appraise on ARV and they'd refund the appraisal fee if it doesn't work out. The appraisal came back nearly identical to the purchase price meaning the refinance fell through.  I'm not opposed to putting a minor amount of additional cash in to ensure I get the 20-25% LTV but don't want to put over $10K in.

My questions are:

1. Given all that has been done in upgrades as well as skyrocketing prices in the area, is there any way to ensure that an appraisal is realistic to ARV/present value and not just tied to historical sales price.

2. Am I using the BRRR strategy wrong?

3. Any other advice on the process?

Sorry for the long explanation but I wanted everyone to have an accurate background story. Any help would be much appreciated!