All Forum Posts by: Ben Kevan

Holy Cow, you're going to have quite a job in front of you.

Are you doing everything alone? Do you have a team? What's your experience level?

What's your exit plan? When do you want it done by? I've requested access to the numbers, since you don't have it shared as open.

Once I see the numbers, it'll make more sense to see what you do.

I am at the home stretch of my first deal, and thought I'd share my experience.

My goal was to purchase a recent rehab from a veteran flipper and hold for the long term.

Now that I knew my style of investing, it was up to location. I live in the California Bay Area, and searched locally until I found that the type of cash flow I'm shooting for wasn't sustainable, and made me more subjective to require an appreciation.

I then researched properties in OH, NC, FL, TX, TN. I first looked for properties within a certain price range, with a certain cash flow criteria. After I found that each location had these types of houses, I lowered my research to certain cities within OH / NC / TX and researched local government, employment situations, population changes, and added some of my notes of historic principles of the area and other variables of my own. After getting it down to a select few cities, I then started shopping for property management companies (since this is a remote gig).

I networked with realtors (investor friendly), wholesalers, investors and residents of the area to find recommendations of property management companies. After compiling the list of property management companies, I sent an "Interview" worksheet to all the property managements with very specific questions, to gauge response time, response methods, and attention to detail of responses. One of the many property managements was very responsive and the only one that answered all questions in the format I was hoping, and mostly with the answers I wanted. However, I chose the top 3 and interviewed them further, until finally solidifying that I found a trusting and worthy property management company.

Now that I found my property management company, it was time to start looking for properties. I sifted through assessor records for people who owned many homes, or often bought and sold. This was a criteria I looked for to help find investors that I'd want to buy houses from.

I then contacted several companies / individuals locally and asked for listings of their properties. Finally, I found 2 houses I liked, and 1 owner owned both of them.

Now the fun began. This offer was written at the beginning of December and I was pre-approved for a mortgage well above the range I was looking in. I had the inspections done very shortly after, and after getting the list of repairs, I decided that prior to going forward with this one, I wanted to make sure it was the one I wanted. I then ordered an inspection on the other house I liked, but hadn't yet put an offer in on.

At this time the loan process had started on the first property.

I then made the decision that I'd want to spend the extra 10k on property 2 instead of going ahead with property 1.

I write an offer, and null out the existing (meaning I explained to the owner that I wasn't going to go with the first one using the inspection contingency).

I then re-do another loan application, and get it all started, and it looks like it's going to go through. During the holiday's I was notified that it was going to be a little bit longer since the risk assessment department wanted to look at a few things, and wanted a written letter that I had removed myself from the other contract per the inspection contingency. Done.

Then the new year comes, and I'm told "Sorry, we can't do your loan, it's under XX amount, and we can't do it sorry.". Mind you, 3 weeks have passed with the KNOWN amount on the offer. Not to mention, it was a question I asked up front.

Now onto lender #2, they tell me the same thing.

Now onto lender #3, he says yeah I'm not going to make enough on origination and the secondary market is horrible for this high cost loan, sorry.

Now onto lender #4, this servicing major bank said the amount didn't matter. SCORE. Now we're rolling. We enter into contract, and they order the appraisals, and get everything done pretty quick. We're into underwriting and the risk department has the loan papers when it's kicked back and denied after about 3 weeks because the house had been purchased within the last 12 months. They had a guideline where they wouldn't fund an investment property that has been flipped / sold within the last 12 months to the seller. We're now into the beginning of Feb.

I have a big long list of things that I ran into with financing and contact another bank. I contacted both a commercial and residential loan officer. They took the list and talked within themselves and confirmed that they too had the 12 month investment property limitation which looked to be tied to a fannie / freddie guideline. However, the commercial loan officer indicates that it's a residential loan limitation, and doesn't apply to commercial loans, and since I was looking at a 2 unit, that it would qualify as a commercial property. I get him all the numbers and decide to apply for the loan with personal guarantee without utilizing rents in the income to cover part of the debt services.

This process is going by quick, and the lender has been awesome.

Mind you, I'm mentally beat right now, the investor keeps asking "what's going on".

I tried to be conservative and re-use the appraisal from bank a with bank b. After a full week of going back and forth with the appraiser, bank a, bank b, rels and the seller we finally get everything bank b needs to reuse the appraisal from bank a. Score one for me.

Everything else has been pretty smooth with the exception of me being in a 5YR ARM w/ 20 yr Amortization. All my original numbers were based on 25% down w/ 30 yr fixed, and not 20% down w/ 20yr amortization. So the numbers came up a little worse then I originally wanted. But that's fine, I just want to get my feet wet at this point.

That brings me to today. I'm a day or so from everything being recorded, and getting my first rents (everything should be done by the 1st of March).

I'm nearly a real estate investor (outside of throwing money into REITs like CYS / CMO / NLY).

What I learned:
* NEVER GIVE UP BECAUSE OF FINANCING. Even the selling investor seemed impressed with my ability to press on as I kept getting weird answers and rejections with regards to financing.
* Shop, shop and shop. The shopping is free, the purchasing is what costs money. So make sure you want what you buy.
* Numbers aren't everything for your first property. Your first property will be great for learning, and hardening long term numbers. Don't just go buck wild and not use them, but don't back out of a deal because it doesn't hit your numbers. Because at that rate you may never get over that hump.
* Financing sucks
* REI takes a lot more time then some total passive income scam. At least the beginning process for me did.
* Appraisals are a MAJOR deal with valuation. My valuation went down 5k in offer because of appraisal. The seller was livid because of the choice of comps (1+ miles away, 1.5 year old sales all while newer closer and better comps could have been chosen to support the offer price).

I learned more, but I've written so much already I forgot where I was going with this all.

My numbers:
Offer: 65k
Sale Price: 59K
Down Payment: 20%
Monthly Payment: 325 (PI)
Expenses: 420 (TI + Utils + PM)
ROI: 16.5%
Cap Rate: 10.0%
Cash on Cash: 10.3%
Expenses / Income Ratio: 54.6%

Again, I wanted better numbers but moving it to 20yrs thwarted all of that.

I know some will say I didn't do well, but I did it. I got a property, and I've got my skin in the game (well almost a few more days).

I must thank ALL the people who have answered questions, given me support on the forums or via contacts through email from BP. It's been a wealth of knowledge, and a good pointer on things to look for.

I'm closing on my first property tomorrow, and had a question regarding the utilities that are paid for by the tenants.

Here are the 4 utilities:
Owner Paid:
Sewer
Water
Tenant Paid:
Electric
Gas

It's obvious that I need to change the Server and Water to my name, so I can start paying. But what about the Electric and Gas, which are currently under the names of the tenants. Do I notify the power and gas companies about the change of ownership of the actual property, but make them aware that no changes in payments of services will change?

I can't wait to finally be a landlord, this first one has been a WILD ride.

It's the strong arm and the messages they send to people when you are getting bid against.

I'm a fair market person. Let it run as it will, without fraud and that should tell us the values. It very well could be, that the price they pay IS fair market.

Major banks care about origination. Local banks want people who live locally. I didn't fit into either.

To the other guy, I wouldn't like and say I would live in the property. I want separation and don't want some little lie to catch up to me. If I can't get the house without being honest on the application, then I don't want the house.

Either special financing or conventional, I want to do it legally without lying. This is how I am and who I am. I'm open, honest and trustworthy. Some say it's a flaw, but I think it's a virtue.

Hello Finance,

I have gone through a stringent property management interview process prior to choosing the one I ended up with. This included referrals from current investors etc. I have also gathered some local resources that are in property management and will ping them with things that I feel "aren't right".

As per my area. I live in a "Class A" neighbourhood in the Bay Area, and the cash-flow is not that great. There are Class C / B area's around me, but since Jerry Brown was elected, some of the biggest employers in my area are leaving. One that was founded in my city has already left, and the other one has opened talk to leaving since Meg Whitman lost. On top of that our unemployment is higher than where I'm investing in Ohio, and purchases of the bottom side are hard to get (FBI just ran through our sheriffs auctions and will hopefully put an end to the price fixing that's been going on).

If things start looking up better in California, then I'll consider it. But as companies leave Silicon Valley, and my immediate area, I'm going to invest where cash flow leaves a bit more room for error / vacancies. :).

On that note, one of my interview questions was to get proof that PM went into properties when asked for walk through. This is a picture of inside the property with newspaper.

Igor,

I have secured financing in the ways of commercial lending. It's a 5yr ARM w/ 20 Year Amortization, which obviously contours my numbers quite a bit.

I am just looking forward to getting the keys and title to the first investment property, and moving to the next. After I buy a second, I am going to concentrate on really feeling REI out, and finding out if it's right for me.

With that I'll probably roll the capital gained into an account for future purchases and rolling into an LLC. I'll be putting private funds into paying the properties off (hopefully the second will be 30 yr fixed).

Although I was told I was approved, I won't believe it until the seller has the cash, and I have the title LOL.

Look at how Canada handles home loans. Now look at their default rate. We could definitely learn from them.

Hell, they have a higher home ownership percentage, and yet they aren't able to write off the interest.

Removal of deductions on interest make people more likely to pay it off quickly, which they do in Canada. Not to mention they have variable loans, and not long locks like us. However, if rates go north, they may have to consider locking it for people at an affordable rate, or else they'll get their share of defaults.

Right now I'm looking at a commercial loan to get around the residential loan restriction of 12 months of flips from Fannie / Freddie (according to the underwriters).

I have a contact / friend who is the VP of underwriting here in the Bay Area for a major bank, and will be verifying with him if that's an issue, or if it is indeed a Well's Fargo extra step. But USBANK also has that same restriction with residential loans for investment properties.

Bryan,

Yes, that's why most the local banks wouldn't loan to me. I was an out of state investor, and they'd only sell to local residents or people out of state looking to purchase a residence and not an income property. In parallel to my working with USBANK, i'll collect more of the local banks, and see what else they may be able to do (first targeting Credit Unions, since they service and hold the banks to term).

I hope to catch 1 that'll finance.