All Forum Posts by: Huggy Baird

James, kudos for your deal making. It is not easy breaking into the commercial lending space. I've inquired at my regional banks and have been told multiple times based on my industry code I don't belong talking to anyone in commercial. They always set me up with someone in small business. And, within minutes they say no because being a real estate investor is a speculative business the SBA won't insure. I've never even gotten far enough to be asked about sales or credit. And I've tried over a dozen times.

What sort of rate are you paying? What are the fixed costs (points, appraisal, lien recording, underwriting fees)?

I read your blog and feel humbled. I have a solid business plan, great credit, low DTI, high income, years and dozens of homes rehabbed/flipped with my company all for a profit, lots of equity and collateral, etc. I'd be delighted to find a bank willing to offer a 50% LTV as long as the cost of capital is below 9%. But I can't even break through the red tape to talk to someone in the commercial lending department. kudos again. I'm jealous.

I currently own 4 rental properties with conventional mortgages.
I also do a lot of rehab/flips with 100% cash. Since I'm holding the properties for 5 months, I'm looking to avoid points and closing costs associated with a conventional mortgage. All the banks I talk to will not offer a HELOC on an investment above 4 properties.

Does anyone know a bank offering HELOCs on investment properties 5 through 10?

It is highly unlikely this will work for a couple reasons:
1. Banks will use the purchase price for 75k (not the appraisal for 93k) when determining your LTV. You'll have to hold the home for at least 12 months for banks to use an appraisal
2. Refinancing so frequently burns a lot of wealth in terms of points and closing costs. Even if you could do it, you likely do not want to unless you plan to hold the homes for a long time.
3. 20% down on an investment property is not common. You may be able to find a bank willing to do this if you shop around though

Great advice Andy. I also email the picture to my partner so there is a timestamp of when the picture was taken in our gmail box. I started doing this per my lawyer's advice. And I sure an thankful I did. I once evicted a tenant who claimed we did not give the three day notice in time. I submitted the email with picture of it taped to his door as evidence. It saved me from having the whole eviction overturned and starting all over with a new 3 day notice.

Hi Simon,

The principal pay down on the mortgage would be income.

However, you're numbers look riddled with problems. Please check out the 2% rule by searching on BP. You don't appear to have maintenance or vacancy (or any other expenses from mailing/advertising to utilities) included in your formula.

I would humbly submit your numbers would actually look closer to:
Rent = 1,600/month
Vacancy = $100/month
Taxes = $300/month
Maintenance = $300/month (typicaly 1% to 3% of value)
Utilities = $100/month
Insurance = $70/month
Other cost = 50/month
_______________________
Net income (before interest expense) = 680/month
Mortgage interest expense = $750/month
_______________________
Net income after interst expense = -$70

Of course those are numbers just shooting from the hip. But you can adjust them for expectations in your local market. The most important thing is to consider all the costs

Good luck

Here is a link to what Steven Straughn is brought up:
http://www.remodeling.hw.net/2011/costvsvalue/national.aspx

I've never found their research useful in changing the way I do business.

I'm not so sure about this. And it is not only hedge funds and reits which have not hit this area hard yet... There is a surge in new ma and pop entrants to the market. I expect increased competition every where i turn.

Steven Walter, great article. thanks for sharing

As you all know, wall street is moving in on our turf. Thought I'd share my plan to stay alive:

1. Convert multi-family to single family dwellings. In my particular region there exists a large double (up/down) housing stock where the same sq ft would sell for significantly more as a single family. I take on these tough rehabs that most others would be afraid of. My expectation is the typical hedge fund/REIT would shy away from the headaches leaving me a sweet spot

2. Expand outside of the MLS/Auction avenues. Historically I've had too many fish in the MLS/Auction sea. Moving forward I think i need to establish relationships with Wholesalers (or possibly become one)

3. Compliment wall street by adding value. My company is also a licensed/insured contractor. I may need to do rehabs for the hedge funds. Or, i plan to keep a close eye on whether their using the 1% or 1.5% rule and find homes that would add value to their portfolio post rehab

4. Kiss my historical margins goodbye. Gone are the years when I had a 19% net profit margin. I'm ratcheting down my expectations to a 10% net profit margin on flips. This will change my return on equity from 37% down to 29% using Dupont's ROE. Nothing to complain about at all. I'm very fortunate to have 10% margins and will compete hard to maintain them.

5. More passive income Over the past few years I have NOT grown my rental portfolio because it was too easy to make abnormal returns on the flipping route. In the comping year I'll expand my rental portfolio reflecting my expectation there will be fewer opportunities for flips. I'll still expect a 14.5% return on equity with the passive income route. Plus, it offers more certainty given how unclear it is what the residential real estate market will look like in 24 months and whether flipping will even have the 10% margins in the future

What does everyone think about my plans?

What a difference a day makes:
http://projects.nytimes.com/census/2010/explorer?ref=us

Special thanks to Brian Gibbons for sharing

I don't know of any free data aggregator that will offer you that level of granularity. I'd imagine you'd have to pay for access to that database. But, I surely hope I'm wrong and someone here chimes in

The lowest level of granularity I've seen is the HPI index that tracks down to the city level:
http://www.fhfa.gov/Default.aspx?Page=216&Type=summary

There are also some links to download the historical data for different periods on that site.

It's not the median sale you were looking for. However, it is a repeat sale index it would typically be more useful for analyzing trends for locations. A median price would reflect distortions caused by mix of home characteristics changing in some regions

I hope someone chimes in with a free source for median sale by zip, but I wouldn't count on it