All Forum Posts by: Joshua Fulenwider

The appraiser may have deferred to what was reported to your county assessor or building inspector.  Does the 4th bedroom and fireplace show up on the county records?  If not they may not have been permitted.  Does the 4th bedroom have a closet, if not it is considered non-conforming and may not add as much value as a conforming bedroom.

Have you talked to a hard money lender?  Can you borrow the funds from a friend or relative?

Is the house in your own name? If so have you talked to a conventional mortgage lender on doing the refinance? If it is your primary residence and in your own name you should be able to get very favorable terms on a 30 year fixed rate term which would keep your payments lower than a 20 year term and/or allow you to pull more cash out with a higher LTV.

As far as working with the same lender (whether it is conventional mortgage lender or a portfolio lender) would be that you only have to gather all the necessary paperwork once (assuming you do the transaction close to the same time).  Probably wouldn't be able to get any better terms or rates due to fair lending laws and other factors.

As far as avoiding big closing costs, chances are you are going to have an appraisal fee if you do a cash-out refinance.  Some lenders can do a desktop appraisal depending on the length of time you've been in the home and as long as you don't want cash out.  Another big fee would be tittle insurance and it may be the only way to get around this is to refinance with your current lender.  Have you contacted them to see if they would be interested in refinancing you?  They may want to keep your loan and work around some of the costs.

@Isiah Ferguson when a partner is involved chances are you will have the loan in both of your names.  Especially if you go with conventional financing.  A portfolio lender may allow them jsut to guarantee the note, but the chances of that are pretty slim.  Generally speaking a lender likes to make a loan to someone that shows they can repay so most likely they will be signing as a co-borrower.

@Isiah Ferguson 

As far as DTI goes @Chris Mason nailed it on the head. It's a requirement. I do more commercial and look at it as Debt Service Coverage Ratio (DSCR or DCR) and it is still hugely important as that is how I judge if I can reasonably be expected to get paid back. There are some extremely rare cases where we have disregarded this but in those instances the reason is typically to try to lower payments to make them affordable. Not to get cash out. If this is all you are missing can you bring in a partner that has the income to support the loan?

@Mohammed Lone I just sent you a direct message.  Let me know if you do not get it.

@Catherine Peters

A "portfolio lender" refers to the banks portfolio of loans not your portfolio of investments.  Since you do not have an identified next property now is still a good time to start interviewing potential lenders.   That way you are not scrambling when it is actually time to purchase the property. The better defined your plan the more serious you will be taken.  For example a person who is going to invest in rental properties sometime in the future will not be given a whole lot of credibility.  However, if you are investing in 2-4 unit properties built after 1976 in Westminster, Thornton, and Northglenn and are currently hunting properties and plan to make offers to secure your next one in the next 3-6 months you will come across as a lot more professional.  

A balance sheet (or financial statement) is just a breakdown of your assets and liabilities and helps lenders identify items such as your net worth, current ratio, and equity ratio (all numbers that factor into lending decisions).  Real estate specific examples are rare most banks prefer simplified balance sheets that they can easily decipher and understand.  If you shoot me an message with your email address I can send you a copy of the one my bank utilizes most frequently.

Ramon,

99% of the time I want an appraisal as high as possible because that gives me more options.  When it is appraised you can get more money out.  If you decide you don't want more money you do not have to take it.  

Depending on where you finance it, it will depend on your ownership structure. A traditional mortgage lender will only (as far as I have heard) lend on a property in an person's name (no LLCs). If you are renting it out a mortgage lender needs to have the property seasoned (6-12 months). A portfolio or commercial bank will allow the LLC and may or may not have a seasoning requirement. There are a lot of trade-offs in terms and rates between the two type of lenders so when you are talking to them make sure you understand everything so you can compare and make an informed decision.

Hope this helps.

My concern on the million dollars is the 3 points paid up front.  Is that on the whole line at the time of origination?  That's a $30,000 loan fee or roughly 20% of your current capital.  On the back end if it is $1k fee each deal that could work.  But I think you need to build your war chest a little bit more for this to work really well for you.  After the $30k fee, you only have $120k.  At 20% down on each deal you can only borrow about $480k.  To maximize it I think you should have at least $200k.

On one of your other notes.  If you are having any doubts at all about partnering with your Mom (or any other family member) don't do it.  I made this mistake and it was painful.  If she approaches you about it you can consider partnering on a per-deal basis and take it one at a time.  That may be a way to build your capital without destroying your relationship.

Overall, I like your plan and your drive.  You've got a lot of options and I wish you the best of luck.

Cat,

Talk to other investors in your area and ask who they are working with to get started.  Talk to whoever you bank with now.  Then start cold-calling.  You want to identify portfolio/commercial lenders.  

My strategy is to work with two different portfolio lender as well as a mortgage broker but I also have in my back pocket some other portfolio lenders in the area if I get in a jam.  When you talk to them explain your basic strategy (buy, rehab, rent, refinance, repeat).  Let them know your time-frame (i.e. they may be holding the promissory note for 6 weeks, 6 months, or 6 years.  Ask them if they lend on the types of properties you have identified.  Then ask them if they would be interested in working with you. Be sure to ask them lots of questions about how they structure their loans (rates, fees, appraisal requirements, variable or fixed terms, etc).  Take notes on these so you can compare them across lenders.

Be prepared to talk to them.  Have three years tax returns, a current balance sheet, and information on your identified property (price, rehab costs, current and/or expected rents).  Bankers love documentation so make sure you note how you got the information.

A lot of banks do not like to cash-out-refinance to themselves.  Which is why this works better with multiple banks.  Buy your property with one bank and then do you eventual cash-out-refinance with a second bank (or mortgage broker if the property has been seasoned for 12 months).

As far as whether I prefer banks or brokers, I personally prefer portfolio banks.  They are typically much easier to work with, especially once you have established a relationship with them.  However, once you are done with a property for a while I recommend locking in your rate and terms for as long as possible with a mortgage broker.  The rates may be comparable to a portfolio lender, however brokers will get you locked into those nice long 30 year loans which lowers your payments.  A portfolio lender typically will not exceed a 20 year amortization.  So really, you need both.

I hope this helps.  Let me know if you have any questions here or send me a message.