All Forum Posts by: Dave DeMarinis

@Rob Cucugliello Are you advertising the commercial spot as NNN? If that is feasible in the market and there are separate meters, you should not need a PM. In NNN (Triple Net) - the tenant is responsible for taxes, insurance and repairs. The landlord is possibly responsible for some large capital improvements carved out from repairs (roof, parking lot, HVAC and foundation are the typical negotiating items) but there should be very little intervention from management. Although, in NNN - the tenant even pays for management, since the tenant will still look at their total cost, I think for one NNN unit, you should consider "self managing." It is nothing like managing a residential unit.

If you look at rates only, conventional will be best and should always be used if possible. That won't work in this case, so you move down the line. Private vs. Hard - generally, rate and term will be friendlier with Private vs. Hard but it depends on the project, market, etc. If those don't work, the most expensive money is an equity partner. 

To Taylor's point and especially in the foreclosure situation - you need to perform. Private lenders can be flakey, get second thoughts, change their mind, not have the money available after all and/or take more hand holding. With Private Money, you need to have your primary focus on protecting them and their investment. With Hard Money, the lender will protect themselves and you will get additional protections which are more valuable the less experienced you are. As an example, a Hard Money Lender is going to check if the property is in a flood plain and force you to get the correct insurance. If the property is vacant, they'll make sure your policy allows that and still provides coverage. Most Private Lenders won't know about those things so it is up to you to make sure they are accounted for.

The real difference to me is Private Money is lent based primarily on the relationship between borrower and lender. Hard Money is lent primarily on the security of the underlying asset.

I would line up a Hard Money Lender now as well as seeking possible Private Money Lenders. Then, hopefully you have options and you mitigate your risk of not being able to close.

@Steve Keirn Dayton has an incredibly supportive investor community and it sounds like you found your way to it already. The meetups are definitely highly recommended. What is your day job and/or what are you hoping to provide? Construction/contractor/renovation is the NUMBER 1 need by far in the market. If you have skills there, you can easily partner with successful investors. It will be a huge help to them and they will help you get off the ground and running as well. 

@Nathan Goff As stated, using hard/private money is definitely more common, faster and scalable than saving 100% for the project. Typically as a newer investor, you can probably get someone to fund 90% of your purchase and 100% of the renovation up to 70% or 75% of ARV. That looks like you only have closing costs and 10% of purchase to come out of pocket. Now for the tricky part.

Lack of sufficient reserves is the 3 most common causes of failure in real estate investment. How much reserves should you have?

1. How long is your renovation? Reserve enough cash to make interest payments for 2X as long as forecast

2. How much is your renovation budget? Reserve that much in case your renovation runs 2X over budget - unfortunately relatively common among new investors unless they are from the construction industry, then only reserve for 50% overage

3. Finally, reserve enough money to float your construction draws (you will likely pay your contractor before the lender pays you) 

Each project and situation varies, but a good rule of thumb is 20% of the entire project costs. The other option is to bring in a partner with experience and/or money so you can avoid some of the 2X time and cost over runs.

@Marcus Cannady In that case, I would do a cost comparison of bringing in a partner compared to a Hard Money Lender. Interest rates are "high" for Hard Money but giving up equity is generally more expensive. Also, since this is a BRRRR, there isn't an easy way to pay off the partner which means you now are sharing ownership longterm. You can look at two hard money options.

1. You refinance the current loan plus renovation costs to a hard money lender. (I know, it sounds crazy but just figure out your total cost)

2. You get a hard money lender to give you a renovation loan, 2nd position. If you can do this, it will probably be cheaper but the larger the 2nd loan is compared to the 1st and it might even be cheaper to go with #1 above. The other reason to check on #1 is it may be hard to find someone to do #2. 

3. Compare this to the cost of giving up equity to a partner.

You can then choose the best one for your long term goals.

What size Multifamily are you looking for @Kenneth Fung That will have a huge impact on your potential and available management options.

Did you buy it cash? If so, I think the combo of credit card with 0% for materials and introductory terms with as many suppliers is best advice. If you are still going to need money, then you should be able to easily place this loan (if there is no lien on the property) with an investor. Once you complete it, there are sources with 30 day seasoning from time of purchase so you'll be in good shape there.

The proposal is actually to severely limit STR. You can only STR your primary residence. At least 185 days of you living there and max 180 daysof STR there. You can not own a unit only for STR and comply.

To get a quality response, lenders want to know where the property is (at least city and state) purchase price, estimated rehab ($ and time), estimated ARV, requested loan amount and how you will make interest payments. Also, understanding you are a new investor, do you have experience or skills in construction or renovation? If so, definitely highlight it.

Remember, properties and deals don’t make interest payments, they secure the loan. Borrowers make the payments. 
Both are important. 

@Greg Dickerson @Natalie Kolodij Is it true the Depreciation Recapture is also deferred AND discounted the 10% if hold period met? I thought the deferral and discount ONLY applied to Capital Gains and not to Depreciation Recapture.