All Forum Posts by: Huggy Baird

I joined in January and am part of the recent upswing in unique visitors. I'm fairly knowledgeable already on REI, but could only possibly know a fraction of the collective expertise here on BP. I've been taken aback by not only the knowledge, but the genuinely good and helpful nature of everyone here.

I'm waiting for the one strategy/contact/advice that clearly makes makes me money, then I'm going to sign up for a Pro account so BP can make some money. My "thank you" to Josh and others for making this all possible. I'm not sure I will get benefit to the upgrade, but I'm positive I get benefit on BP in general and will feel like a leech if I'm the only one seeing the upside

Btw, I may have already received that piece of advice in another thread last week related to discounts on materials suppliers. I'm monitoring the benefit and will likely be a Pro account soon

One additional tip. I bought a tablet and use ezPDF reader (a $3.99 app) to sign all my legal docs. I rarely print/scan anything anymore. I guestimate i save over $500/year in ink. And over $2,000/year in my time to print/sign/scan. I simply sign it with the digitizer pen and save it to dropbox and email it out.

Couple important thoughts on this:
1. You'll need a "digitizer" tablet or phone. a traditional phone and stylus is simply not good/accurate enough. I know the Samsung galaxy note is a phone with a true digitizer. Or the lenovo thinkpad tablet i bought works great.
2. There is some question on credibility of digital signatures. See wikipedia for all the concepts. The jury is out on this, but it is of little concern to me since I cant see any bank/buyer saying my signature is falsified

Thanks Will. This was what I always tried in the past. Rather than mentioning anything about rehab, investment, flip, etc... I just walked in with a list of homes to offer as collateral and the bank was very receptive. Bank's love this approach because of all of my credentials (Credit, LTV, DTI, etc). But, it came down to having 5+ homes and turned down

I will take your advice and avoid using the word "flipping". But I think it's necessary to explain the renovations performed to be considered for a commercial loan.

Thanks for the quick reply. You did inspire me, and even though I took some hard knocks today... you still got me off the bench

Ever since I left the bank I've been reflecting on how I presented myself/company. I was wearing a suit, well spoken (or maybe i suffer from a delusional sense of grandeur;). Trying to impartially assess what went wrong, I honestly don't think it was me. It seemed like the minute I said "fix up dilapidated residential properties for resale" was the very moment alarm bells went off in everyone's head like a fire started. I'm still going to reflect on my tone and think of ways to improve, but I think it was mainly they have zero appetite for REI companies

To some degree, the loan officers were not just trying to tell me they did not want to lend. The once seemed intent on "jabbing" at me. It reminded me of a building inspector that on our first meeting/inspection said "I know your game. You want to cover up problems and try to make a quick buck everyone else's expense. Damn shame". I think there is a general undertone of unethical behavior and some people want to undercut REI companies. Ultimately, this inspector came around on our final inspection and even offered some compliments on our work. But breaking that preconceived notion is not easy with many people.

It was not fun today. But I suspect the experience today was atypical. I'll get out and try a couple more banks and credit unions in another couple weeks. I may not get a loan, but highly doubt it will be as awkward as the one loan officer I met with today

After having the door closed over and over years ago, @James Vermillion inspired me to try to get a loan with his blog post
http://www.biggerpockets.com/renewsblog/2012/05/27/financing-first-real-estate-deal-pitch-new-business-banks/

I have over $250k income/year, excellent credit, extremely low DTI, high net worth, personally own 8 rental units with mortgages (none are upside down or cash flow negative). my company has been in business and profitable for years (with zero debt on our large balance sheet). Over $300k cash on hand plus three homes (currently flipping) owned and renovated with all equity.

I was hoping to talk with the bank about either a commercial loan or a retail mortgage for the homes in my company.

On the commercial side, I could never even get to talk to someone. James inspired me to have another attempt

On the retail side I've never had any success due to both (a) wont lend if you own more than 5 properties. and especially (b) only up to 70% of the purchase price for the first 12 months. Since i buy the most dilapidated homes, I spend as much on renovations as i bought the home. For example, If i buy for $50k and invest $50k in renovations for a ARV of $150k. The bank will only lend $35k on that home since they use the purchase price. It's just not worth the hassle and closing costs for 35% LTV based on my investment (23% LTV based on appraisal).

Rather than the typical large banks that have policies written in stone, I took some advice of the James Vermillion and the BP community to shop around to two small regional banks today.

It was the most awkward experience ever. It was like I was radioactive from the minute I explained I'm looking to borrow on homes I'm fixing up for resale. The loan officer stood up and said "sorry, I can't help you". The second place I tried was reluctant to accept my business card. so akward. I spent a maximum of three minutes talking to each. The second bank was boarder-line unprofessional/rude. The first bank was just very short and wanted me gone

I did manage at the first place to say "I recognize agency guidelines make this impossible for the retail side, I've found others in my space have had success with commercial loans on pools of residential property. Is there someone from commercial I can speak with?" To my shock, for the FIRST TIME EVER, I did get to speak with someone from commercial. I think mainly because the retail loan officer wanted to walk me away ASAP.

On the commercial loan officer I received a greeting and within one minute I was told "our policy is to not lend on any dwelling with under 5 units". I will say, at least the loan officer in commercial was pleasant. I thanked her for her time and we exchanged business cards. I said I'll give her a call back next year to see if the policy changes and she was receptive to the idea. It was at least a minor win that for the first time ever someone would talk to me.

I'm thankful I really don't need the loans. My company is successful with our equity position. But with a little leverage we could do better for sure. I may try a couple more regional banks and credit unions... but I think I'll give it a couple weeks time to recoup from this demoralizing experience today

Hope the other BP members have some better luck than me

I second what others have said about the two car garage being the best coarse of action. Both higher rent and resale value.

I'd add one new thought to this thread, check with the South Euclid building department before making this decision. Rebuilding the existing one car garage is considered repair. Building a new two car garage is considered new constriction/addition and there is zoning guidelines by street with requirements for yard space (ie can't cover over x% of the lot with building/drive), distance to neighbor, etc.

Thanks for all the helpful replies. William Bannister you really shared a wealth of private research and opinions. More than I would of ever expected.

I'm going to roll the dice and not buy title insurance. I will have my title company do a search.

I'm no stranger to taking risk in exchange for expected upside. Lightning does not strike often.... so I'll take the chance i don't get struck on this one

Thanks again for the well thought out responses

Thanks for sharing. Why wasnt the title clear? Was it IRS taxes due?

can't be done. ha. kidding.

Fix&Flip. Pros: Highest returns and frees up capital most first timers need. Cons: damn hard managing and estimating a reno. earned income tax rates

Fix&Rent. Pros: Medium returns and more steady passive income. Lower taxes on capital gains. Cons: damn hard managing and estimating reno. Ties up capital/money

Buy&Rent Pros: Less work and risk compared to major renovations. Lower taxes on capital gains. Cons: Lowest expected returns. Ties up capital/money

Those are general rules of thumb. Depending on area, strategy, and your personal expertise, you may be able to throw some of those back in my face and be a nay sayer yourself. For example, if you have 10 years general contractor experience, you can do the " i told you so" dance with my comments on challenges with major renovations

I just did some bar napkin math to compare the Conventional vs FHA options assuming a 30 year term and purchase price of $500k:
Conventional Mortgage:
Purchase Price $500,000
Down Percent 25%
Down Payment $125,000
Rate 5.5%
Mortgage Balance $375,000
Payment/Month $2,150
Interest Portion of Payment $1,719

FHA
Purchase Price $500,000
Down Percent 3.25%
Down Payment $16,250
Rate 5.00%
Mortgage Balance $483,750
Payment/Month $2,622
Interest Portion of Payment $2,016

The FHA rate will cost ~$300/month extra in interest. And free up that $110k in capital you were going to do for the down payment. Surely you can get over a 2.9% return on that $110k. But, the other side of the coin is that by moving in you have an opportunity cost of lost rent. So you'll have to factor that in. If gross rent for that unit is $1,500 or more the decision is much less clear. It will all depend on how you can put that capital to use

As for picking properties, all the methods you mentioned work together. Base on the list you provided I think you are well on your way to selecting the best deal. I dont find any method to be the silver bullet.

Finally, are you sure you can get FHA financing on a quad? I vaguely recall a guideline limiting the units to 2

Good luck