All Forum Posts by: Jonathan Towell

There are many ways to use debt financing to purchase a property. Each one has pros and cons depending on the situation. For example, Fannie Mae has loans that are non-recourse but usually have prepay penalties. Local lenders are usually full-recourse, but can be prepaid early. Usually, underwriting on locally sourced debt is less agonizing than Fannie debt and so on.

I might recommend talking to a variety of lenders to learn all the options.

I'm no expert on this subject, but if my memory serves me, San Francisco crashed hard during 08/09. Of course, those values have since rebounded.

It seems like SF is very susceptible to market fluctuations in the short run. Perhaps SF is safe in the long run.

Great question. This is the kind of question I think about quite a bit.

I don't consider myself a mentor, but every now and again I get contacted by local, young guys who are looking to get into the business. I've noticed that the ones who ask the best questions are ones who have done tangible work to get started in the business. Doing informs knowing which informs the questions.

So, my advice? Make some offers on some properties, analyze some deals, open a line of credit, etc. Do something to get started and show you're serious. You'll ask better questions and your sincerity will show you are worth the mentor's time.

I wish you the best!

You might talk to a local lender to ask about some kind of a cross-collateralized loan arrangement. Or, a line of credit might be what you need. Local lenders have different products that might be similar to what you need.

Another way to scale up is to look for seller financing.

This isn't a crazy idea. It is a genius idea.

I wish I had started at 18. I would have bought a duplex or triplex. I would have lived in one unit while renting the others. About 2-4 years after buying the first, I'd do it again for another, then another. I'm 34 now, so that first property would probably be paid off. And, it would not be hard to imagine having 20-30 units, altogether generating income equivalent to my current salary.

You may have trouble getting a loan from a bank if you don't have an income. Learn about seller financing and wrap notes.

You're on the right track. I wish you the best!

Good question.

In my experience, lenders only care about the financial strength of those who are securing the loan. If the person isn't signing the loan, why would they care about their net worth?

Generally, you have two kinds of investors:

1. Active: These are folks like you who do the work and sign the notes:

2. Passives: These are folks who want to put money in, but don't want to do the work and don't want to risk more than the capital they've invested.

However, some investors don't mind lending their financial strength to a deal. Such an investor will usually sign a note in exchange for a few points of equity or some kind of "key principal fee."

It sounds like your guy is a passive. And, based on your description, it sounds like your financial strength is going to limit your ability to borrow. It sounds like you'll either need to convince him to become more active or find another partner who wants to become a key principal.

I hope that helps. I wish you the best!

Looks great to me. Nothing wrong with 26% cash-on-cash.

Love it.

The only thing I'm questioning is the Airbnb assumption. That sounds a little high. But, I've never done Airbnb, so take my questioning with a grain of salt.

Why don't you buy it, but assign it to him on closing day?

Is this a home you will be living in? If so, I would treat it less as an investment asset and more like a liability. An asset creates cash in your pocket. A liability removes cash from your pocket. If you are living in in the home, it is a liability. Maybe someday you can rent it or sell it, in which case it becomes an asset. But, in the meantime, it is a liability.

For that reason, I'd use Dave Ramsey's 1/3 rule where your house payment should not be more than 1/3 of your income.

(Dave Ramsey also says you should put 20% down. I think this is good advice because it ensures you have equity. In the event you have to sell the house, you'll be able to do it easily, even at a loss, without having to take cash out of your pocket just to sell. 20% also usually allows you to avoid mortgage insurance. That said it is sometimes hard to do 20% down.)

Why niggle over a point of interest or a few points of down payment if you can't afford owning the house in the first place?

I hope that helps. I wish you the best!