All Forum Posts by: Don Konipol

Quote from @Julian Sanchez:

hello BP Don't wanna post here the entire answer that chat GPT gave me but instead ask those here with an existing SFH portfolio how have you personally gone around Debt to income limitations?

🔵 For Residential (1-4 units, financed personally):
Debt-to-Income (DTI) ratio is critical.

• Lenders (especially banks, Fannie Mae, Freddie Mac) will often cap allowable DTI at around 43%-50%.

• If an investor's personal DTI is too high, even if the property cash flows, they can get declined for financing or be forced into worse terms (higher rates, larger down payments).

• Every mortgage they personally guarantee adds to their DTI burden.

Result: Their growth hits a ceiling fast unless they pivot to commercial lending, partnerships, or creative financing.

At some point a real estate investor needs to make a decision: limit their portfolio to property they can purchase with conventional low interest financing; or, continue expanding their portfolio of properties with alternative sources of capital. 

Some of these alternatives are becoming mainstream; DSCR are no longer “exotic”, and the premiums for these loans have decreased significantly.  So, they’re a real good alternative to consider; however, in this era of low cap rates these loans may not result in any cash flow (expenses always seem to be higher - the a/c unit needs to be replaced; the small roof leak reveals that the last roofer neglected to install underlay; etc - tenant do more damage than the security deposit and replacement tenants with decent credit take longer to find).  So investors may seek other alternatives such as buy “subject to” (the subject of much heated discussion on BP with some posters raging - incorrectly - that it’s illegal, immoral, and a”scam”, which is ridiculous) wrap around mortgage, seller financing, partnering to use partners capital and or credit.  Further a move to commercial property will change loan criteria significantly. 

Not knowing the circumstances here, my comments are general only, not necessarily specific to this situation

1. There are many middlemen / brokers disguising themselves as direct lenders, especially in the commercial / investment property field.  This results in daisy chains of brokers as well as brokers “approving” loans when they have no such authority.

2. A large number of borrowers use lowest interest rate or lowest cost as their only criteria. No thought is given to the facts that they may not qualify for the advertised rate; that the rate quoted may be a “teaser”, that the broker quoting the rate is merely quoting a rate advertised by a lender he they have no real relationship with; and or the “rate” can change radically over a short period of time. 

3. Any closing date provided by a lender or broker is a TARGET; the actual date a transaction may close depends on how long it takes to obtain a final draft of the appraisal; when any issue of title can be “cleared”, the acceptance of a survey be the lender and title company; the timing of when title policy is approved by the title underwriter; when borrower is able to provide satisfactory documentation requested; when seller is able to provide documentation pertaining to income, expenses, zoning, permitting, certificate of occupancy, repairs, property condition, etc.

4. For small to medium sized lenders the availability of capital is constantly changing.  

5. Borrowers often with hold information they consider detrimental to their loan application. When the said information is discovered by the lender, the borrowers can’t believe that the lender either kills the loan or changes the terms drastically.  Same said when borrowers attempt to “game” the system, such as filling tenant “vacancies” with leases to an entity the borrower controls made to look like an arms length lease; filing extensions for tax returns so as to not have to provide negative financial information; “creative” financial statements that inflate revenue or decrease expenses; create third party property sales to related parties to establish a higher property value; provide personal financial statements that don’t list all liabilities; or list assets “borrowed” from a third party/. 

Quote from @Gregory Schwartz:

I’ve been reflecting a lot lately on the difference between being wealthy on paper and feeling financially secure day-to-day.

We currently own several rental properties in Bryan and College Station, TX—most of which don’t cashflow much, but they at least break even, occasionally allowing us to make improvements like new siding, stairs, or converting a unit to an Airbnb. I’m genuinely proud of the portfolio we’ve built. The properties are in great shape, the market fundamentals are strong, and I firmly believe that over the next 20 to 30 years, the equity we’ve built will turn into a major asset for our retirement.

I recently played around with a retirement calculator and the projected number at age 65 was way higher than what we currently live on—which was exciting… until I looked at our current financial position.

Despite all this long-term equity, we’re feeling squeezed. We don’t have a fully funded emergency fund (we’re not even at 6 months). We need about $15K for an important project on our personal home. And while four of my rental units have received new HVAC systems recently, our own home still has a 30-year-old unit barely making it through Texas summers.

I’m also self-employed, so our income isn’t always consistent—it’s seasonal and can fluctuate significantly. All of this led us to a tough but necessary decision: we’re going to sell one of our rental properties.

It’s our least favorite one. The equity is there, and the sale will allow us to:

• Fully fund our emergency savings

• Knock out the $15K personal project

• Shore up our financial foundation so we can breathe a little easier

This isn’t a move made out of panic or desperation. It’s a strategic rebalancing—trading a piece of our long-term vision to strengthen our position today.

I’m sharing this because I think many investors—especially those of us early or mid-journey—face similar tension between long-term wealth building and short-term financial realities. Sometimes the smartest move isn’t to buy more, but to adjust your current foundation so you can invest from a position of strength.

Have you ever sold a rental to fund your personal financial stability?

Your decision is right on target - I 100% agree.
I “adjust” my investment portfolio ALL THE TIME - or at least contemplate it.  First, since I can remember, I always tried to maintain an overly cautious amount of $ in cash liquidity so (1) to meet ANY “contingencies” and (2) to be able to take advantage of rare opportunities.  When the “cash stash” was depleted I would figure out a way to add liquidity - sell a property, obtain a cash commission, take out a low interest loan on a free and clear property, etc. 

About 8 months ago I decided that the deals I was seeing had much greater profitability with less risk than the deals I had been seeing since 2001.  So I placed a low cash flowing high equity property I owned on the market, sold it for $670,000 last month and put the cash in reserve.  I already invested $250k in two notes yielding 17 and 18%, and looking seriously at a $250k short term play with minimal risk that has an expected value annual return over its max 24 months of 35% per year!   If that doesn’t pan out I may invest the $250k and some of the rest in REITs currently selling at 20% less than net asset value and paying dividends of 7.5% + . 

The thing I see in your investment philosophy where you might want to change (or not depending on your comfort level, expertise, and time) is instead of accepting any property investment as a long term given, seek out opportunities that offer higher returns.  Over 45 years investing I attribute 40% of my net worth to the power of the real estate investment itself, and 60% to “opportunistic” portfolio repositioning.  So, I’m NOT the guy that makes money turning an underutilized office building into residential trial apartments, or the guy that takes a piece of undeveloped land and develops it.  I “add value” merely by identifying and investing in properties, notes, and partnerships where the risk adjusted return is greatest.  Also, I “create” many of these situations through negotiation, creative deal making, and realizing that real estate is actually a “bundle of rights” that can be sliced, diced, and distributed each to the highest bidder.  

Anyway, you can do it in small steps.  Just realize that there’s a ton of opportunity out there; people are creating 8 or 9 figure net worth from virtually 0 as we speak, while most investors are satisfied with a 5% cash flow.  

Quote from @Scott Mac:

I think it is wise to realize that if you're going to own long term, that overtime there might come times when you're in a negative cash flow position temporarily, and you need to be prepared for that financially to be able to hold on to the property.

When things change in the area, that could be demand or demographics, or having a problem getting a problem renter out, you might be in a position where you need to ((( invest ))) a little more (of your own vs. the renters) cash into that investment - sort of like a margin call in the stock market.

Over the years I've seen so many people crash and burn and because they were unable to pay the expenses during problem times.

So in my thinking, expecting there to never be negative cash flow required during the lifetime of the investment on a long term hold is risky.

Just my 2 cents.

Great point.  STAYING POWER!

Quote from @Garry Miller:

Quote from @Jay Hinrichs:

Quote from @Don Konipol:

Quote from @Garry Miller:

Quote from @Mike Grudzien:

Garry,
I'm surprised that working at this level of real estate development and deal size that you and your partners don't have at least a dozen lenders in your back pocket that deal at that level and like your work....
I'm interested in seeing the answers here.

 Great question  - we've had a lot of success with these not quite dozen, but 7 lenders and they're all in on their respective deals to finance the Vertical construction, secured by the housing assets yet to be built.  This request is for a short term, construction/bridge loan so we can get through the infrastructure phase only.  More transparently - it gets us out of the land bank holding phase now.  Available cash is servicing the debt, with construction partners on the sideline waiting to be put to work.   Thanks for the clarifying questions - I hope this opens up some more perspectives about how to solve for this opportunity! 

1. You’re trying to replace equity you don’t have with debt.  The “horizontal”construction, while sometimes can be partially financed by debt depending on developer track record, is more often regarded as the “skin” in the game put in by developer either theirselves or thru a syndicated equity offering. I get requests for this kind of financing all the time from mortgage brokers who don’t understand the equity / debt relationship.

2. Texas is somewhat unique in that a bond can be issued which will cover some of the cost of the infrastructure development. The bond will be paid by an improvement district tax paid for by the property owners.Their are two underwriters who handle these type of bonds.  However, qualification is quite difficult because the underwriters are selling these bonds to their longtime clients and excessive defaults will kill their business.  The first thing the underwriters consider is the financial position of the developer.  Unless that’s solid they will go no further. Secondly they require the developer to place 25% of the bond issue amount in escrow, so for a $20 million bond issue that’s $5 million.  Then if the total does not cover full infrastructure development they require a plan that covers the additional amount required. 

The particular development I’m involved in spent about $400,000 on soft costs to be able to provide the necessary information to the underwriter - this was in addition to all other soft costs usually incurred in development. 

Great discussion.. Bond financing while it works in my experience is time consuming and like you said expensive.. I did 4 of them in CA back in the day..  1915 act and Mello roos. these were late 80s and even back then the Mello Roos one I did in Nevada county Ca the soft cost were in excess of 250k U had to have very expensive appraisal you had to pay bond council and then you had the investment bankers who sold the bonds. The one I did in Nevada county was the first one they ever  did in that county.. But today Mello Roos is very widly used in CA. and Frankly one of the only ways developers can get these deals done as the cash needs for infrastructure and offsites is just so high they need this added leverage. 

Oregon has Bond issues but only the cities or counties can use them private developers cannot expect for rare instances.. This makes development in our area very tough for guys like me that are not publicly traded or a large regional developer.. so the public companies and the large regional have kicked all us little guys to the curb basically. I can get horizontal for my projects but my commercial bank requires the dirt to be paid for and these are multi decade connections along with substantial deposit relationships.. 

I think Garry might want to consider phasing this into as small of chunks as possible  trying to land one huge loan is pretty tough.

 Well said team, this is progressing nicely.  I appreciate the insight both of you have shared @Jay Hinrichs and @Don Konipol.  We've been able to rework this in to phases and lower the financing needed to move forward with Horizontal work, around a 7M bridge loan, that keeps the equity table a little more balanced.  I've sent you both an email with more details, and would be glad to reach out for more guidance in the future!  

Sounds like you’re proceeding well, Garry.  Give us updates as it progresses; we want to add you as a success story! 

Quote from @Marcus Auerbach:

Great examples, love reading these stories. Equity is where it's at and most people chase cash flow. - And no, that does not mean you should buy cash flow negative deals!!

 “And no, that does not mean you should buy cash flow negative deals!!”

‘you’re right - that point needed emphasis. 
sometimes, negative cf is okay IF it’s temporay
s

Quote from @Eshe Harvey:

Currently working on a wholesale deal where the seller is asking $289,000. She recently reduced her price by $10,000, but comps in the area suggest she is still about $50,000 overpriced compared to similar homes. Buyer is willing to pay $260,000. Ideally, I would have liked to negotiate the seller down closer to $250,000 to secure higher assignment fee. However, based on the seller's pricing expectations it may make more sense to adjust the assignment fee just to close the deal, secure the commission, and move on to next deal. 

I have been like a madman all day, working back and forth through emails between seller and buyer trying to lock it up. I may need to bring up the fact that the property has been on the market almost 60 days, and she has already reduced the price by 10k. That says a lot about the true demand. If she is serious about selling, it might be wise to come to an agreement now -before more days on market weaker her position further.

For seasoned wholesalers or anyone who has experience - is it common to adjust your assignment fee slightly to secure a close, or is it better to hold firm even if it means risking the deal? I personally may just lock it in and move on. A win is a win. 

Appreciate any insight (feel free to inbox me directly as well if you would like to share any insight) - will figure this out anyway.  

 “may need to bring up the fact that the property has been on the market almost 60 days, and she has already reduced the price by 10k. That says a lot about the true demand. If she is serious about selling, it might be wise to come to an agreement now -before more days on market weaker her position further.”

I would be careful about giving either party “advice” until you’re licensed.  Lawsuits after the fact are becoming a lot more common. 

Quote from @Mike Bell:

I bought a small lot via tax lien sale, got the deed. No restrictions came up in title search however property was previously a community owned property. Sold from the HOA in 2004 via tax lien. HOA dissolved in 2005 due to failure to report to the state. Anyone have experience ? I'm going to go back into the court house to see if I can find the old CC&R to see about a dissolution clause. I'm mainly worried about sinking 5-6k into it on land clearing and then the old HOA members saying they still have a right of use. Which they may.

Sounds like you’ve got a profitable niche going.  You may just need to add a real estate attorney to your resource network.  

Quote from @Jay Hinrichs:

deal maker in Chief !!!!

GEORGE WASHINGTON DEALMAKER-IN-CHIEF: THE STORY OF HOW THE FATHER OF OUR COUNTRY UNLEASHED THE ENTREPRENEURIAL SPIRIT IN AMERICA

Cyrus A. Ansary (Author) 640 ratings

These are the two basic real estate investment strategies I used to build a 8 figure net worth - with almost no debt.  The 2 strategies are related. 

1. Go with the “deal” that adds the most to your net worth rather than adding the most to your cash.  Most people go for the cash.  I’ll give you two specific examples.  When selling a property, I almost always advertise that I’m willing to seller finance, with a decent down payment.  Because this increases  the potential buyer market tremendously, I’m able to obtain offers to purchase at a significantly higher price with seller financing than all cash offers.  When the seller finance offer is greater enough to offset the risk, I accept the offer and carry a note.  If I need cash for another deal, I borrow using the note I now hold as collateral, or use the note in a more creative way.  If I am able to wrap the new note with a higher interest rate around an existing lower interest rate note, I’m further ahead. 

A second example is when "syndicating" deals, or JV, or any partnership. Most investors putting together a deal want to get their initial investment in appraisal costs, earnest money, inspection fees, etc out in cash when the transaction closes. I instead take an additional ownership interest in the subject asset - at 50% of greater valuation than the money I invested. Passive investors in the deal love this - shows my commitment and confidence in the deal (which is true), and aligns our interest.

Third example - I’m always willing to entertain a trade of properties, not for 1031 exchange benefits (which I believe is overhyped and over rated), but as a method for adding to my net worth - IF the exchange puts me in a higher wealth position.  Surprisingly, people will do exchanges that DECREASE their own net worth IF the trade enables them to accomplish a more important goal. 

2. Buy properties or notes FOR CASH where the use of cash enables you to obtain a LARGE discount.  While these deals are somewhat rare, they do exist. Here are two actual examples. 

25 years ago I was offered an automotive repair facility that was an asset in bankruptcy court.  The kicker was that there was an environmental concern.  The court was suggesting a price of $300,000, and the trustee had no interested buyers. I obtained a few quotes from licensed remediation companies and the quotes ranged from a high of $55,000 to a low of $3,000.  I visited the state environmental branch office, and in speaking with the chief engineer found out that the firm with the low quote was highly recommended.  I made an offer for the property, which the court countered at a small increase, and ended up buying the property for $115,000.  No financing was available because of the environmental situation which eliminated all the “wanna bes” with no capital; eliminated those who had assets but no liquidity, eliminated those that had credit but couldn’t use it on a property that was not “financeable”.  I remediated the property for$3,000, rented it out for $3500 per month while waiting for a certificate attesting to no environmental hazard, and sold it to the tenant for $325,000.  

Another example. I was offered 50% ownership in an LLC which owned a single property worth about $250k. The owner needed to sell fast - like that day. He was asking $100k. I told him to get realistic. He said $50k. My response was "I said realistic, not optimistic." He said 25 k. I knew his "partner" the owner of the other 50%, was well known to be difficult to deal with. Further, I had dealt with this seller before, and he screwed me for about $10k on a deal, so I was not about to help in out with a short term loan as I would have anyone else. I offered $5k. We "settled" on $10k. Now here's where it get weird LOL. The next day I visited the other 50% owner at his office. He couldn't believe that his "partner" had not offered the 50% to him - although they had not been on speaking terms for 2 years. I told the partners that he and I had done three or four deals in the past, all profitable for both of us. It would cost us too much money in opportunity cost to end up never doing any more deals because of a partnership despite. Further, since we both had capital, getting attorneys involved was the same as each of us taking $30k and flushing it down the toilet. I further told him a partnership could never work because he's an a - hole. So, here's the solution. I buy him out for $100k - or he buys me out for $100k. After much hemming, hawing, crying, anger, etc. he said he'd buy me out. Writes a check for $100k on the spot. I know this guys checks are as good as gold, so I accept it, sign the sale agreement we drew up right there, and made my biggest single percentage profit in one day.