All Forum Posts by: Dave DeMarinis

@Rene Smith I invest in California as well as midwest and southeast. I'm also a lender in the SE and midwest for short term, acquisition and renovation. The most important element of a BRRRR is your cash reserves. The second most important part is the "take out" financing for your longterm.

The takeout financing is very challenging for properties under $100K. Before entering the BRRRR, you want to have some deep conversations with your mortgage broker/banker to have a clear commitment on what you can do downstream. Otherwise, your BRRRR will turn into a Flip. Not the end of the world, but definitely better on your terms than your lenders.

I think if you are willing to pay a 7 cap, you can buy a lot of properties in Dayton.

Big money wants big projects from big, experienced borrowers. Typical insurance company money I see is for $5M+ longterm loans on large commercial real estate projects. Private/Hard money is short term, acquisition and renovation financing typically. Which type of money are you looking for?

From a borrower to lender interaction, you can look at it like this.

Large capital sources - relationships will be 1 to few

"Middlemen" - relationships will be 1 to many borrowers

The Middlemen act as one large borrower for the large capital source. Typically, the big guys want to place at least $25M/year with any given relationship. That is not the max level, that is the minimum level and they want to grow from there.

I think you should consider the partnership structure. Why do you have 3 partners in LA to buy one $50K to $70K house in the Midwest? (I'm not being rhetorical - what is each person's responsibility/what are they bringing to the table. Is it just dividing the capital contribution by 3?) The multi member LLC is going to cost you $800 every year in California (even if you open in another state, you need to register in CA since the owners are CA residents ...) You will also spend between $500 and $1500 each year filing taxes for the LLC since it is multi member. The Operating Agreement is VERY important for multimember LLC's. If the other partners are not attorney's, you definitely shouldn't do this yourself and still probably not if they are attorney's in my opinion

How many homes are you planning to buy this year? You will probably need at least 3 just to pay for your entity and administrative costs.

Of course, you should consult your advisors as I’m not a CPA, attorney, etc. but sharing my experiences.

On the lending front, I would only go with Hard Money or Private money if you are planning to add significant value (buying under market would count as @John Koster pointed out). Otherwise, it is going to be a waste. Also, as many have said - that price point will be difficult to find long term financing. Not impossible, but difficult. Also, when you are calling banks - be sure to let them know the borrower is in California. That is a problem for some banks and you want to find out earlier if that is the case.

The other thing to compare is the term of the loan. If you are 3 years in and rolling to another 30 years, that means you are adding another 3 years of payments. That might really make you think differently about the deal. Obviously, if you sell in the next few years you really get hammered by the $13K and potentially less principal pay down ... If you put the information for both in to a rate website and look at the amortization tables, you can see the crossover point exactly.

@scott krone What is PACE financing?

Ask the closing attorney/title company or your lender for a template. The certificate of estoppel is used to verify/confirm directly with the tenant what the terms of their tenancy are. Common things include

1. Rent amount, start and end of lease, when rent due, etc.
2. Deposit being held by landlord
3. Ownership of appliances, etc.
4. Utility responsibility
5. Any commitments outstanding from the landlord (I don't have to pay late fees, Promise of never raising rent, installing monkey bars and a trampoline this spring, paying my electric bill if it goes over $10, letting me operate a dispensary out of the property, etc.)
6. Who lives there and who is responsible, etc. any pets, etc.

Many people look at them as only for a larger multifamily or commercial deal but I think they are a good idea anytime you are buying a property with an existing tenant.

Sorry, were you warned TO invest in north side or NOT to invest in North Side? I think you are referring to 35810, 35811 and 35816. They all will have opportunity under $110K and definitely wouldn't qualify as B grade neighborhood. However, there are plenty of pockets that are good rentals with workforce type tenants.

I find the Huntsville small multifamily market to be very limited supply and generally I don't like the numbers. However, for a live in, you might find some viable properties in 35801 or 35803 which are both nice. I'm partial to Huntsville and think the long term prospects are stronger there but there is probably more inventory in Birmingham. @Peter McDonough @Gorden Lopes @Dena Puliatti Peter and Gorden are investors who I are having success with small multi there and Dena is a property manager and agent who can feed you some options.

I think the answer is like and old Deion Sanders commercial. It started with "Baseball or Football?" Deion says "Both" then "Offense or Defense?" Deion says "Both" and finally Jerry Jones (Cowboy's owner) says "$12M or $15M" and Deion says "Both"

You want as many tools as possible in your belt. Private money is generally harder to get but great once you have it for straight forward deals. Private will generally be cheaper. Hard Money is generally easy to find. Some advantages to hard money.

1. Professional, experienced, critical eyes reviewing the deal and actually provide additional borrower safeguards to mitigate certain pitfalls

2. Commitments are rock solid (if they are a good lender) - things don't come up at the last second where they don't have the funds for the loan

3. More capacity to fund than you have capacity to do deals which should mean more time doing deals and less time finding funding

I guess this sounds like a commercial for Hard Money Lending which isn't my point. My point is you should cultivate multiple sources for short and long term financing. This should be an ongoing effort, not started when you have a deal.

If you have a deal, make sure you get a financing offer that will work within your numbers. At that point, focus on the other things needed to execute the deal. Then you can share the deal with other potential people as an already done deal, not a request or solicitation for a loan. That puts you in a much better position and allows you to plant seeds and find lenders for future deals.