All Forum Posts by: Greg Gaudet

@Allen Maris Good point; I’ve heard CA takes your income taxes before you even get the funds. Also I agree with everyone on commissions. I live on Maui where, just like CA, homes sell for 1M, 2M, 3M and more everyday and they still charge 5% or 6% commissions. But try searching BP for an investor friendly agent if you do the deal. My buddy @Christian Cramer lists homes for 1% or something crazy like that... if you can find an agent in your area that knows what their doing and will offer you that kind of deal it could be the difference between kissing money and making a good return (Just don’t use a bad agent just to save the commission, if they don’t make sales they’re probably not worth it)

@John Acklen Like everyone said, Craigslist, rentometer, chalking apartments (which I like if they’re comparable bc apartments will have done research and advertise their units at prices that they know won’t sit). But also make sure you’re not using comps that have been sitting on the market for months. Someone can ask for whatever they want, but the over priced ones will sit of course. Anyway I’d like to add that I go by the HUD rental standards rate. For Maui the 2 bedroom rental standard is $1,781 and for 1 beds it’s $1,421. I rent to HUD tenants, so I use exactly what they say. But regardless you can use this to help determine what the market rents are.

@Curtis Stoddard If you have a bad feeling follow your gut. Why on earth would she refuse a background check??? I just search my applicants on the county court website, but that’s only local to our island.. Anyway there’s plenty of qualified tenants out there. Tell her she doesn’t qualify unless she passes your background check.

@Gerald Barron I wouldn’t do it in my market because demand is so high, renters are desperate to find a place. But I also rent for cash flow in a C/D building. If I’m still getting a good return/cashflow then I would tell the renters that I’d split the difference and do 2,700 (assuming that I could rerent the place in a reasonable timeframe). Can’t imagine they’d leave over $100...

@Jay Hinrichs Thank you Jay! I love the Kuleana, the aoao is actually a client of mine. Nope, no ac in my units! They’re in harbor lights, if you remember that building by the college/harbor? Also no washers! The building has coin laundry, so no washers or dryers on the units to worry about :) just fridge, oven, shower and toilet. And the building is concrete, which helps to protect my units from other units flooding. But like any property there are also challenges; like the section 8 and lower income tenants and the drama that can come with that. But I like to say that I love owning and self managing at harbor lights because it constantly reminds me how great I have it and how not everyone gets the same opportunities I’ve gotten in life. Thank you for the positive feedback, means a lot coming from the godfather of BP!

Originally posted by @Ana Coello:

@Michael Noto Is your refinance lender different from your original loan lender? Can they be a 2 in 1 or are they typically different? Newbie here...

Ana there aren't really rules on this.. you can use whoever you want. I'm sure a lot of investors use the same bank for a bunch of deals, then move on to another bank. Just depends who offers the best terms and who is willing to work with you to grow your portfolio. 

Originally posted by @Jason Malabute:

Originally posted by @Michael Noto:

@Jason Malabute More important than anything with a BRRRR make sure you have a refinance lender lined up before purchase so you know the timetable you will be working with from a seasoning perspective, LTV amount, etc. going into the project.

 Even if you are not going refinance until 6 months-1 year later? What if you're currently

 trying to find a new job while you purchase so you are sure you actually qualify for refi?

Also, if you are a long distance investor does the. lender have to be located in market you are investing in?

Jason changing jobs can make things tricky... if you are staying in the same industry/type of job then it shouldn't be a problem. But if you go from being a teacher to a salesman then the bank will probably not give a mortgage until you've been at your new job for 2 years. 

If you're investing out of state you will typically need a lender in the state that you are purchasing in. Some lenders are licensed in multiple states. 

Again, this is all just based on my experience getting mortgages... you should definitely sit down with a lender and go through everything and takes notes so there aren't any surprises when you're ready to do a deal. I've had issues with lenders assuming that I know all their secret little rules lol like on my last deal, I brought a third loan to my lender (I purchase long term rental BRRRR condos here on Maui) and he said "oh sorry, we don't give more than 2 loans in a given condo building". The funny thing about this was that he had just given me a prequal letter to purchase two units as a package deal... so if he wouldn't fund another unit, then why did he give me a prequal letter saying that he would fund 2 more!? lol So make sure you ask them everything!

Originally posted by @Jason Malabute:

Originally posted by @Alexander Felice:

Originally posted by @Jason Malabute:

What are potential obstacles when trying to BRRRR? For example:

1. Are there cases when you can't refinance ?

2. If you buy the property in cash can you refinance?

3. Do you have to have a W2 job to refinance?  Do you have to make a certain amount from your job or business to refinance?

4. Can you always pull out 75% of appraised value in cash? Are there cases when you can't pull out the full 75%?

5. Does your yearly income and wages affect how much you can pull out from the refinancing ?

6. How soon after purchase and rehab can you refinance and pull out cash?

1. yes, all the time. Talk to your lender about the refi BEFORE YOU PURCHASE the house to ensure your debt strategy will work

2. yes

3. you'll need to have some stabile way to prove repayment. You're lender can confirm you meet requirements for refi

4. 75% is fannie mae guidelines for investment property. It's a very common LTV, but it's definitely not always

5. yes, the bank is going to look at your capacity to repay as a function of what's on your tax returns

6. 6 month seasoning is standard but can be much faster if you use delayed finance (which can be complicated). I do a full BRRRR flip in ~9 weeks

Thank you. This might be a silly question, hypothetically speaking, but assuming your only debt are credit cards (less than a $1,000), your gross salary is just below 40k, but you have a $100k in the bank would you have trouble refinancing assuming the ARV is under $200k?

If yes, what amount of gross salary will I for sure have no problem being approved for refi? For example if I  got my salary up to $100k will I be approved every time (assuming everything else stays the same)?    

I thought I'd explain DTI a little further since I don't think anyone else has yet.. I believe most banks don't want you to have any higher than 43% DTI. So all of your fixed debt expenses, including the mortgage you're applying for, should not exceed 43% of your gross monthly income. For example - let's say you earn $4,000 a month before taxes; that means you have $1,720 a month to use towards debt in the banks eyes (4k x .43 = 1,720). Now let's say your car payment is $200, your rent or current mortgage is $500 and you have a personal loan payment of $500 a month. That would leave you about $520 of available income to use towards debt, so you should be able to pay a total of $520 a month towards a home (including taxes, insurance and PMI if applicable. You should be able to count your positive cash flow towards your income, once you have done your first BRRRR and have a tenant and a lease (the bank will probably want to see the lease, my bank is reviewing my leases right now and using them to help approve me for the deal I'm working on)

Disclaimer - I'm not a banker, so someone correct me if I'm wrong! 

I also thought I would mention to keep in mind you typically will need to have about 6 months worth of reserves for each property and as you scale the bank may require more. So if your total payments on each property are $500/month and you have 2 properties, the bank will probably require you to have $6,000 cash in the bank that you're not using. You can usually use retirement accounts, but you must be able to access the funds and the banks will typically count 70% of those funds due to the penalties you pay to withdrawal from 401k's. But as you acquire more properties, you grow your monthly cash flow, which can make it easier to save a little extra money. 

If any of this is discouraging, go talk to your local banks! Start with the small local credit unions, tell them your plans and tell them you want to build a relationship with them. Make sure you know your numbers going in, so you can present some hypothetical deals/situations to them and show them that you know what you're talking about so they can see you're going to be successful and realize that they should want your business. They is always a way to make it happen. If you need hard money to make the deal happen then do what you gotta do, as long as the deal still makes sense. 

Originally posted by @Kate J.:

Originally posted by @Greg Gaudet:

@Kate J.

No these are long term rental only.

I agree that vacation rentals get hit in recessions, but if you have enough cushion you could weather the storm. Losing value wouldn’t really matter unless you needed to sell your VR during a recession. But like other have said, property values have gone down once in 90 years, even when the stock market corrects that doesn’t necessarily mean that property values are going to go down.

Personally I like Aina Nalu for vacation rentals on Maui.

If I am not mistaken Hawaii had a decline in 2000 following dotcom crash. Can this info be verified somehow? My primary issue for entering is the short term vacation housing, as people might just stop going for vacations during a recession. Are your tenants local? 

You may be right - I shouldn't speak to that point, as I was living in Florida during that time. If you're serious it may be a good idea to call some of the larger VR PM's in Hawaii and ask to speak to someone that's been there the longest. Then ask them what effects they've seen the economy have on their rentals. On Maui two of the big ones are CRH - Condominium Rentals Hawaii for economy class rentals and Destination Residences for higher end, Wailea type rentals. 

I worked in escrow here on Maui starting in 2012 and while things were certainly slower and there were more vacancies than there are now, and the number of people visiting Hawaii was certainly down during the recession, the islands did survive. Many VR's were still profitable, depending on how much they paid. But at the same time, there were a lot of foreclosures because people on the mainland that own a vacation rental in Hawaii are going to stop paying their vacation rental mortgage and HOA's first.

Yes, my tenants are local. The building I own in does not allow vacation rentals (which is one of the reasons the units don't cost 250-500k). Although I have seen a couple of units in my building on Airbnb illegally. 

Originally posted by @Jill F.:

I could squeak that out after paying for property management around here because there is a lot of competition and still have capex reserve but not paying one of the big full fee firms. No, I would never recommend those kind of properties for an OOS investor. Here's an example of why: I had been getting sporadic complaints about my newest tenant "constantly running up and down the stairs." I talked to her about it and she agreed to work on it. A couple Saturdays ago, I'm over there supervising the re-grading of our new parking lot. While I'm there, I see a car roll up the alley driving reeeaaal slow. Then I hear clomp, clomp, clomp, clomp, clomp and two guys come down the stairs from new girls apartment. Reach into a parked car real quick and the run over and hop in the back seat of the car that just rolled down the alley. In about 10 minutes they get out and clomp back up the stairs. I said hmmpf. Twenty minutes later, same thing. Six times in that one afternoon. All the tenants knew. But no one wanted to rat her out for allowing her boyfriends to run a drive-by drug service every weekend. One of them had a gun in his pocket! I was pissed. I described the activities I observed in her non-renewal letter and she's out now but they could have ruined the reputation of that building and run off good tenants.  All the others are glad she's gone; One tenant said she was thinking of moving.. but tenants in that asset class won't necessarily tell you when there's that kind of issue. Once when I was out of town the trash company didn't come for 3 weeks and nobody called me???!!! One tenant said, well I was going to call 'soon.' I guess, on the up side they really don't complain about much... but no news isn't always good news.

Thanks for example! Yeah there's definitely things like that where you just need to be there for effective damage control. Most PMs probably wouldn't have been invested enough to catch on to that. And that brings to mind the situations I've dealt with in my units that would've been bigger problems if I weren't here and involved in the day to day. 

I guess it all goes back to your asset class... From all the feedback I've heard on BP on how to invest OOS, you just have to be B- and up; C class and below seems to require that extra bit of attention that only an in town owner is invested enough to put in.  

This leads to two obstacles: 2-4 unit properties generally don't tend to be built in B class neighborhoods, and when you do find one the purchase price is pretty steep.