All Forum Posts by: Jeff Kehl

I find that commercial bankers are most interested in financing a good solid deal so if you find one they will likely be interested in talking to you regardless of other factors.

But I've found that the two other most important things that help when meeting a new commercial banker are 1) A personal financial statement which is essentially a personal balance sheet listing all of your Assets and Liabilities and totaling to your net worth. 2) Profit/Loss statements on your existing properties for the last couple years to show your track record. Even if it's just a single family home or two it shows some rental experience.

I would also give them copies of your tax returns for the last 2 years.

Wrap this in a package with an executive summary of you and the property opportunity and you're ready to meet with them. 

If you're looking to get started now, why not start with something you know something about now, military housing? I agree with your assessment that San Diego is too expensive and I think looking in the Southeast is a good idea. Our population and job growth is doing really well down here at the moment. Pick some bases in Florida or NC you could possibly be stationed at and look at off-base 2-4 units you could potentially owner occupy. Use a VA loan for low money down if they'll let you do that while you're on a ship.

You should be able to get a 4th Fannie Mae Loan as long as the new property is 1-4 units. Beyond that you're into commercial financing and they don't care how many loans you have as long as your overall financial position is healthy.

I would definitely do this because with the Fannie loans they are fixed rate 30 year notes at very low rates. I've heard these days you can go up to 10 Fannie Mae loans pretty easily. Back when I did it in 2011 you could only do it with specific lenders on bank owned property.

@Robert R. I took a look at your places on VRBO. They look great and you must be doing something right with all of those good reviews. Couple questions if you don't mind. How many nights on average are you booked over a year? Your calendar looks pretty booked out over the next 3 months but I'm curious what it is over the course of a year in a place like Gatlinburg.

Do you carry loans on them or own them free and clear? Are there any HOA costs on cabins like those?

I'm thinking that would be a great retirement strategy, get some VR properties owned free and clear and live off the income. Do you just own in the mountains? Ever considered adding a beach property?

@Rob Randle, that is a very hard question to answer. The cost of water and electricity varies drastically around the country depending on the area and provider. I grew up in the Midwest and thought water was basically free until I moved to California and saw the amounts they pay out there.

Your best bet is to get actual copies of the historical utility bills. You may be able to get them now from the seller's agent or by just calling whatever provider they use. You'll probably need the meter number for the common area electric. But if not you should make sure to put a contingency in any offer that you be provided the historic bills so you can back out if they are way more than you expected.

One thing I've found is that landlord provided utilities tend to be a signal to tenants to use a lot of whatever you provide.

@Timothy Gleason thanks for that exhaustive list. Made me tired just reading through it. That's one thing that scares me off Vacation Rentals. The Ski condo I had was very simple and I think if I get another I will stick to a condo instead of a house at least until I have more time to deal with it.

@Monika Haebich that's an interesting business model you have. I had not heard of Wholesale VR. I like the idea that the NOI I received would be a known quantity so maybe I could find something with a very small return but at least I knew I wasn't going to be losing money. And not having to worry about all of the little details is certainly appealing. But I'm sure it would just make my search that much harder because I have to find something with positive cash flow after your cut.

@Florian N. thanks for the spreadsheet. Looking at that, the example properties seem good. I will see what some real life examples look like. I think mainly the examples in there are kind of nuts. A $78k purchase price that rents for $175-250/night? I'll take it! It's been awhile but I think the stuff I was looking at was more like $200k  renting for $100/night. I wonder if there is a 2% rule for VRs using the daily rate? I guess it would have to take into account occupancy rate as well. A VR rented 95% of the time at the nightly rate probably looks good no matter what the expenses are.

I would say they allow it but not generally. I've done it a few times in the past couple years but there were extenuating circumstances. Both banks I used have known me for quite awhile and they know that I'm experienced and would not enter into the deal if it didn't make sense for me and them. 

Two deals I bought way below market value and they knew I would be rehabbing and putting them into a more than 0% equity position. Both properties now have a 20%-30% equity position for the bank.

Another one I did, I was not going to do much to increase the value so I put 15% down and the seller held a second for 10% so that I had some skin in the game.

Also keep in mind that it is hard to cash flow something that's 100% financed. I find that sellers are fine with 5-10 years but most don't like longer than that. One of my properties with a 5 year 20% second on it is fairly high cash flow negative on paper and so far somewhat cashflow negative in reality. I am ok with that though because I can cover it with other properties and in 4 years it will be a good cash flow property.

Think of the commercial banker as your business partner. If you can make a deal work so that they're safely making a good return they should be fine with it.

I think what you probably want to do is go for a commercial loan as was mentioned in #2 above. You can bundle several of the properties together. Biggest downside is it will probably be a 20 yr amortized loan that resets in 5 or 7 years. Good news is the interest rates are really good on them now and the banks are very anxious to make these type of loans.

Find a couple local banks and call up and ask to speak to the commercial loan officer and tell them what you're looking for and see what they'll offer.

I agree with the 'don't rehab until they move out' philosophy. Has worked very well for me in a number of cases. And the new tenants don't know what the rent used to be or whether they were paying utilities or not.

Also as a bonus, your rehab costs are spread out over time and you can absorb more of it out of the cash flow and don't have to come out of pocket.

My only caveats to this are, make sure it works financially on the current rents in case the tenants decide to hang out another 7 years. And don't plan to sell or refinance until a full year after the rehab is all done because the financials will look best when your rents are raised and you're no longer investing in the property.

Ali,

Are you living in the house currently? I'd be surprised if a commercial lender would give you a loan on a personal residence. Commercial loans are meant to be for a business purpose. So a loan on a rental property would work but not on your personal residence. Why not just get a HELOC on it and use that to invest further?