All Forum Posts by: Daniel Dietz

Hello All, 

I have a few general questions about conventional loans - the lender I am planning on using who was refereed to me by another investor is out of town for a week or so. He IS very 'Investor Friendly' and does a LOT of rental loans. My only experience so far is non-recourse loans for my SOLO410K and Commercial Portfolio loans for properties I own in an LLC with my partners. We have a total of 26 doors so far.

I am wanting to buy some properties on my own now, and a few with a partner where we will just do TIC most likely. That partner will be bringing the funds for the down payment, and I will be doing all operations from locating, acquiring, placing and managing tenants, and minor repairs.

My first question is for ones that I would buy on my own and DTI ratios. I want to know if I am on the right track in my thinking. The last 2 years my income, which is on a K1 Partnership Form (I only own 5% of it) has average $3600 month. My current personal monthly liabilities for house, HELOC, and vehicle and one 0% interest CC are $1425 month, which it looks like it comes out to about 40% DTI.

The places I am looking at to buy would have a minimum of $1500 monthly income, and the payments, taxes and insurance of about $975. If 75% of rental income is used to 'qualify' that would be $1125 month, so it seems that I would be $150 month 'in the positive' so to speak. I am assuming that each place like this I bought would add $150 per month to my 'net monthly income', so it would actually make my DTI 'better each month'?

With a partner, his DTI is very low, around 20% or so. So I assume as we ''blend" our DTIs we would still be in good shape for this? I assume if we do this as partners, with both of us on the loan and deed, that each property would 'use up' 1 potential loan for each of us? If so, are there any ways around this through only one of us being on the loan, deed, etc.....

Thanks, Dan Dietz

@Jared Rine, there are several different properties I have been looking at, a few that are 'off market' but I know the owners and they are retirement age and wanting to get out of the day to day. 

One is 3 4-plexs on the same lot for around 960K. Another is 5 4-plexes for about 1060K. Each set are on a single city lot. 

I think with 'net worth' rule that would rule me out. Just out of curiosity if it were say a 3 way LLC that was purchasing, would it be the combined net worth of all 3 members?

We are currently being offered 5.25%, 25 year amortization, 20% down (owner can carry up to 10% second if the total DSCR stays better than 1.2) with a 10 year lock and maximum 1% per year increase after than and a max 6% increase of the life of the 25 year loan. Those are the best we found and I think they are very good. The higher cashflow with the longer amortization is very appealing to us.

Dan

Thanks for the advice do far!

If I am understanding right 1) "agency loans" start at a minimum of 1 million and up? 2) There is a *possibility* of doing one if multiple properties are on one 'tax parcel'? One that I have been working on has 5 4-plexes all on the same city lot, same parcel number etc.... 3) Am I hearing right that my networth would need to equal the loan I would be seeking? Meaning if I am looking for 1.5M that my total NW would equal that? 

It seems like working with my existing commercial lender would be MUCH easier, but the rates and longer amortization are SO appealing!

Thanks, Dan Dietz

@Kevin L. we have just started using Rentec Direct (so far just for tenant tracking and rent payments) and really like it so far. 

Other than your beef with their attitude about loyalty to existing customers, what do you think Rentec is lacking that Buildium has going for it?

We DO plan on digging deeper into the whole 'book keeping/accounting' side of it shortly here. Right now we do that with Sage Accounting that I use in my 'day job' business, but would really love to get the rental accounting out of there as it is WAY overkill for the job.

Thanks, Dan Dietz

Hello,

I have been working on coming up with a more accurate personal balance sheet (as have my two partners in my LLCs) and personal financial statements.

One things we are a bit confused on is how to show the assets (rental homes) and liabilities (mortgages) of the properties we hold in 3 way LLCs. Our lenders have told us that since we EACH needed to sign 'personal guarantees' on the loans to the LLCs each of our 'personal debt' for those properties shows up at 3 times what we each owe when divided up evenly.

An example would be if our LLC bought a property for 750K and borrowed 600K. Seems like we should each 'own' 250K worth of real estate, and 'owe' 200K in mortgage. Sounds easy enough. What lender is saying is that when they do credit check it shows up that EACH of us are responsible for the ENTIRE 600K.

So is there 'a generally acceptable method' of how this should show up when we come up with our personal financial statements? Do we each 'own' 750K and 'owe' 600K, or each just 1/3 of that? The later seems logical, but not sure.

Thanks, Dan Dietz

Hello, 

I have been working on coming up with a more accurate personal balance sheet (as have my two partners in my LLCs) and personal financial statements. 

One things we are a bit confused on is how to show the assets (rental homes) and liabilities (mortgages) of the properties we hold in 3 way LLCs. Our lenders have told us that since we EACH needed to sign 'personal guarantees' on the loans to the LLCs each of our 'personal debt' for those properties shows up at 3 times what we each owe when divided up evenly. 

An example would be if our LLC bought a property for 750K and borrowed 600K. Seems like we should each 'own' 250K worth of real estate, and 'owe' 200K in mortgage. Sounds easy enough. What lender is saying is that when they do credit check it shows up that EACH of us are responsible for the ENTIRE 600K.

So is there 'a generally acceptable method' of how this should show up when we come up with our personal financial statements? Do we each 'own' 750K and 'owe' 600K, or each just 1/3 of that? The later seems logical, but not sure. 

Thanks, Dan Dietz

@Dan Velasquez I will give a little input from the investor side as opposed to what the providers are saying, which is great advice so far. It sounds like you are completely on the right track with your thinking of how things can work.

I have invested in buy-n-hold rentals with my own SDIRA and SOLO401K (you need to be self employed for SOLO, but a great option if it fits) and am currently working with a couple possible investors that are working on figuring out if they want to partner on some deals with cash or set up a SDIRA. 

There are essentially two ways you can go when seeking other peoples money (same as with cash deals)..... one is to borrow at a fixed rate, the other is to let them partner with you. In my opinion it depends on their goals and risk tollernce. I can imagine a question that would come up with doing flips is 'what if you loose money, do I?" It depends who you set things up obviously. 

In my case, all but one of my potential partners like the idea of being a partner as compared to just being the lender in order to get higher potential returns. We are leaning towards them bringing the needed 20% down from their SDIRA and the LLC we form borrowing the rest, and me doing all management. Essentially they dont want to loan at say 5-6% when they can partner and earn 10-15% long term.

Dan Dietz

@Michael Hutchinson I have been thinking about this too, but we are already many properties into it, and looking for both more properties and investors to partner with too. 

I think it sounds like a good start you have. Do you have any experience as far as construction goes also if you are buying places that need any fixing?

What I did for our last two purchases that consisted of 4 duplexs and 1 fourplex in two different deals was send a copy from the BP Rental Calculator (Lender said he was VERY impressed) along with a personal 'bio' on both myself and two partners. This was somewhat in 'story format' going all the way back to my grandfather investing in the 70s in the silicon valley up to the fact we have managed our own businesses for 2 decades, and our past experience with rentals, pictures of our current places (we take very good care of them) including things like the fact that our vacancy runs less than 2% but we still figure 5% into our projections to be conservative. 

One of the recent 'touches' we are going to add since we have the equipment at our 'day job' is to laminate the front and back covers and use a binding machine (total cost about $150 for them) instead of just stapling things. 

I think the more professional the better. 

Dan Dietz

@Nick C. 

There are obviously a LOT of things to think about here; taxes/penalties, the option of investing INSIDE your IRA, how much higher of a return you need to get OUTSIDE your IRA to make up the cost of taxing out the non tax free part etc...

I DO invest in both my SDIRA (ROTH - because you cant roll ROTHs into SOLO401K) and SOLO401K (Traditional) along with two partners who also us both SDIRA and SOLO401K. We dont use leverage in the SDIRA, although it is not hard to do and the resulting taxes are minimal if doing buy-n-hold investing. The reason we used the SOLOs is because they are exempt from taxes due to leveraging. We were able to find loans at 60-70% LTV in the 5-6% range.

With that said, I think you need to just run the numbers and compare 1) If I keep these funds IN my SDIRA and use 60% leverage I can earn what percent? (ours is about 12-16%) vs 2) If I take the funds OUT and pay any penalties and taxes and invest 'traditionally' with say 80% leverage I can get what percent? (In our case 15-20%). Then simply run then numbers to see how long it would take to 'catch up' with the lower principal amount but a higher return.

With THAT being said I am considering take a little bit of the penalty free contributions out of my ROTH to use as a down payment on a duplex since I can leverage it at 5 to 1 outside the IRA and only 2.5 to 1 inside the IRA. I would lose the 'tax free' advantage of the ROTH, but I see buy-n-hold as somewhat 'tax free' or at least 'tax deferred' when done right when considering depreciation, tax free cash out refinances, and 1031s down the road.

Good Luck, Dan Dietz

Hello,

I am looking to get some direction on the possibility of one of the loan programs geared at larger multifamily units such as HUD Fannie or Freddie that are usually used for larger multifamily properties, but for say 10 duplexes all bought at once 'as a package' for say 1.5 million. I see it as a 20 unit ;-)  They ARE on adjacent lots, but the zoning can NOT be changed to be 'one property'.

Is something like that every allowed? I did some googling but did not find this particular issue addressed.

What interests me is both the properties being valued on the financial performance and the longer loan terms with a fixed rate.

Thanks, Dan Dietz