All Forum Posts by: Julie Gates

You can background check everyone before renting to them. I would not recommend doing this with travel nurses as they are already background checked. Simply ask for a copy of their contract. However, nurses wouldn't be going after a luxury listing. Definitely be careful.

As commercial lending continues to wave the white flag, the DSCR loan has become the new darling of lending for real estate investors.

As an investor who was able to maintain a portfolio through the Great Recession of 2006-2008, I can tell you with experience that the adjustable-rate mortgage was a giant contributor to the issues that followed. Investors and homeowners alike were being handed loans that included low equity and low interest rates. The possibility of a rate hike in the future was rarely discussed and often poo poo’d. When my husband and I bought a property in 2004, we were offered 110% financing on the property. “Won’t you need money to furnish and renovate it?” the lender offered. Luckily, we opted to finance at 95% of the sales price. We made it through this recession with all of our properties, mostly because of our lending frugality.

As Covid 19 shut down offices everywhere for weeks and months in 2020, the rumors abounded that commercial real estate would crash. “How would this play out?” I often wondered. Will most of the country magically work from home? As it turns out, about a third of the workforce continues to stay away from the office. Headlines are filled with companies demanding that their workers return to the office even now in 2024. The commercial landscape has definitely changed, although retail and restaurants have returned to a healthy spot nicely.

Yet the ugly, loud and smelly cousin of the adjustable-rate mortgage is now appearing at Christmases everywhere for investors who have commercial loans. Commercial notes have always been put together differently than residential loans. Commercial loans rarely allow investors to have less than 80% of the value of the property leveraged. However, since the value of a commercial property is almost solely based on the income of the property, investors and bankers alike have grown to love balloon payments and rate resets. Commercial borrowers tend to want to refinance their loans every 5-7 years. As property values go up, investors can make a nice, tax free return on borrowed money. As property values go up, investors cash out into new loan products and pocket the extra money as the value goes up.

When I first started getting commercial loans, the standard time for a rate reset was 7 years. Nowadays, that timeline is typically 5 years. For a loan with a balloon payment, the investor first chooses the length of amortization. This can range from 10-25 years and rarely goes any longer. Banks are typically quite flexible with shorter lengths of time (I have managed to get a commercial loan with a 7-year amortization without a balloon or a rate reset, but these loans are rare and quite painful as the payments are high). Built into the paperwork, signed at closing, reads the fine print as to whether the lender has chosen a 5-year balloon or a 5-year loan reset.

If an investor chooses a balloon payment, this means that he or she will be getting a new loan at the end of the 5-year period. The loan will be amortized as if the investor will keep it for 20 years, for example, but after 5 years, the investor still has 15 years left of payments The investor must at that time get a new loan. The new loan can come from the same bank or it can come from a different bank. The old loan is repaid in full and a new loan is issued.

With a rate reset at the end of the 5-year period, the investor would make payments based on the amortization, again we will use the example of 20 years. At the end of the first 5 years, the interest rate will reset. The investor will continue with the same bank, but the payments will either increase or decrease based on the current interest rate. For borrowers who hit a rate reset when rates are lower, there is a huge benefit in that the loan payments now go down, sometimes considerably. I had a commercial loan that was at 7.8% APR in 2009. Later, I was able to move to a rate of 6.8%. When rates are significantly higher for the borrower at the time of the rate reset, investors must scramble to cover payments that can be quite painful. However, they are not able to take more money with a loan reset. They continue to pay off the loan, so the principal part of the payment remains on the same trajectory. The interest portion of the payment is the only change to the monthly total and the new payment becomes set for another 5-year period.

As rate resets and balloon payments have begun to hit in the post Covid rate hikes, many investors have found themselves in trouble. Increases in payments have taken most or all of the profits for investors with simple rate hikes. For investors with balloon payments, lending has become almost impossible. As lending institutions have been in the rhythm of loans being repaid frequently on commercial notes, borrowers are scrambling to perform on their side of the bargain. Commercial lenders must receive these balloon payments in order to then lend to the next borrower in line. This has created an era of what borrowers are calling “extend and pretend” as lenders are forced to extend loans outside of the contract terms with all sorts of concessions like interest only payments. Borrowers are scrambling to raise capital as payments increase overnight and values are dropping as rental rates deflate. Even a small reduction in income can have large effects on the values of these properties. Keeping a commercial property that has a lower value and a higher payment is not an easy task.

Enter into the picture the new kid on the block, the DSCR loan. This acronym is short for Debt Service Coverage Ratio. Lenders have created a new product based on the income of the property alone. The income of the borrower is given much less weight (if any) on the lending. The other bonus to a DSCR loan over a commercial one is that the interest rate is fixed for the entire loan and the lender can take the loan out 30 years. Another great feature of this loan product is that lenders will provide these funds on properties in an LLC, so lenders like myself who want to close a loan on a property in an LLC are able to achieve a loan on a single-family residence or higher. Additionally, the interest rate and payments are fixed for the entire term of the loan.

Before you look for the link to apply for this great product, please allow me to drop the other shoe. The fees are higher on this product than a commercial loan. Borrowers typically see a 1% fee at closing for a conventional or commercial loan. This equals 1% of purchase price, which is a lot. DSCR loans average a 2% fee at the closing of the loan, and like the other loan products, this fee is built into the loan and borrowers will pay interest on the loan fee throughout the length of the loan. Keeping in mind that if the borrower has to get a brand-new loan at the end of a balloon period, they would again pay a 1% loan initiation fee, so it's easy to argue that this 2% fee isn't terrible considering the alternative. Borrowers who use hard money typically pay 1-2% of the loan amount when they take out the loan and also 1-2% when they pay it off, so a DSCR loan looks like a gift when compared to terms like this.

Another downside to the DSCR loan is that it does come with prepayment penalties. Lenders frequently sign for loans in high interest rate periods like this one and console themselves that they can refinance the loan at a later date when rates are lower. With a DSCR product, the lender must promise to keep the loan for a minimum amount of time (typically 5 years) and that if they pay the note off before that time period is up, they will pay hefty prepayment penalties. This allows the lender to easily sell the loan on the market and buyers of the note have some guarantee of their return on investment.

If you are an investor looking for a great loan product, keep the DSCR loan in mind. I have one and will most likely have more in the future if commercial lending standards remain tight. As a borrower who has already maxed out the number of conventional loans allowed, I am thrilled to have another option for borrowing on investment properties. Real estate works best when combined with a great lending product, and I believe this product is here to stay.

MTR's are a GREAT rental strategy. Every time I do a speaking engagement, everyone asks about evictions. It's time to talk about them, sadly.

Medium term rentals are the new darling of short term rentals. As a large chunk of the American workforce can now work from anywhere, investors are scrambling to provide great places for these digital nomads to explore a new city. As a property manager in Savannah, GA who has been hosting these guests for longer than 7 years, I’ve spoken publicly many times on the lack of concern about guests becoming squatters. Guests are paying for an entire month up front, not an easy task. Guests are rarely coming to party. They are working or they are retirees looking to have some fun. For years paying the bill wasn’t an issue.

However, as inventory has ballooned, prices have decreased. The increased frequency of these longer stays has brought with it increased issues. One of the biggest concerns for both the owner and the property manager like myself, is getting paid.

Many guests book for much longer than 30 nights. A travel nurse, for example, would typically stay 90 nights on a single contract. It is a great advantage to the guest and also the host to split the stay into several payments. Guests rarely have the entire amount ready to put down. Also, the home owner most likely has a mortgage and receiving a large amount of cash and then not spending it for 3 months can be more challenging than you’d think. I’ve been in this situation and with a growing portfolio and expenses, it’s hard to put money aside for two mortgage payments.

At Sid Was Here, my management company, we’ve always offered to let guests pay into the future for longer stays. This is very non traditional in the short term rental space, as all stays are paid in advance. The host knows they will get paid. Airbnb was the first of the OTA’s (Outside Travel Agents) to offer payments into the future for guests. This ballooned the amount of guests booking longer stays on their platform, and pushed them into being an industry leader in the medium term rental space.

My company has had a few struggles with payments, both with direct bookings and also for guests staying through AirBNB. When you have an AirBNB guest who hasn’t paid, you wake up one morning to a terrible message saying that AirBNB has failed to capture payment from guest Mr. X. They will continue trying to reach the guest for payment, but the host now has the right to cancel the stay without penalty and may remove the guest from the home. This is a nice way of saying, “Good morning, Julie. We tried, but you’re on your own with this Mr. X.” Thanks, AirBNB! These are dark moments for hosts and property managers alike. In AirBNB’s defense, I also get the same drop in blood pressure when someone on my team tells me that a direct booking guest, Mr. X’s card was declined and he is now late on a payment for his medium term rental. At the end of the day, the problems are the same, just on different platforms. If you think that bad guests are only on one platform, you are dead wrong and that’s the truth.

Enter in the evictions. I want to say truthfully that these are extremely rare. We have hosted thousands of medium term rental guests and we have completed the eviction on all of 1 guest. That statistic isn’t bad in my opinion. The second one that I would call half of an eviction was a guest who kept blowing us off on making the payment that was getting later by the day. I was having nightmares about calling the owner. No one wants to hear this and I don’t want him to ever think that we haven’t done everything in our power to get the money out of the guest. In Georgia, we send what’s called a Quit or Pay notice of eviction. This is an official letter that the eviction process has begun and they need to either pay or leave the property. This happens on day 7 after the payment is due, and notifies the guest that we will be filing an eviction in the court system on day 30. Our best leverage is that this will place the word eviction onto their credit history, which is huge as you can imagine. The second time around, the Quit or Pay notice worked and the guest was able to produce a credit card that would take the payment. The first guest that I mentioned went through the full eviction process and left before being removed by the sheriff.

Since I’m telling stories here, I’ll also tell you that I am one of the rare hosts who has successfully evicted a short term rental guest as well. We had a guest stay for a few nights, then cancel the stay early through AirBNB. For short term rental booking that is cancelled early, the guest is to leave on the day of cancellation and the host will not get paid for any additional nights. In this case, the guest refused to leave. He had some colorful language and quite a few magical reasons that he didn’t have to leave. I knew the law and used it to my advantage. A short term rental is technically a hotel and falls under hotel laws. I called the City of Savannah Police Department and explained who I was. I told them that I had a guest in a licensed short term rental who was refusing to leave. Two deputies were there within 30 minutes and removed the guest for me. I had a front row seat to some drama and learned a few new words that day, but the guest was removed with no damage to the home. The best thing that I did that day was let the officers do their job and they came through for me beautifully. I showed them all paperwork and explained the situation and they took it from there. Was it fun? Absolutely not. Did I get a great story out of it? Unequivocally yes.

These situations weren’t fun, but keep in mind that I have successfully hosted thousands of guests in these homes with great success. Like the review system that we all despise, most guests are great and you’ll never hear about them. It’s only the crazy ones that make for great stories. Short term and medium term rentals have been a huge part of my portfolio growth and I have no intention of stopping my work in this space, despite these situations. Real estate is a business and bad things are going to happen when you are going big. Put your head down and get through them. Know that people like me will be here to support you on platforms like Bigger Pockets whenever you do hit an issue like these.

That's awesome!!! Same here!

I posted an article under general property management yesterday about using virtual assistants. I am a property manager and short term rental investor in Savannah, GA. I will repost the article here if you are interested.

I received a message from a fellow BP member. She is a virtual assistant looking for co-hosting work. I'm not hiring now, but would any of you be needing help? Please reach out to Ibienne if you do. It sounds like she has a good bit of experience with short term rentals.

Here is the article for you on virtual assistants. They have been a game changer for me.

I agree. Take great care of your VA's and they will be very loyal and work hard for you. Great discussion!

Being successful in real estate investing is no easy thing – it's not just about mastering facts; it demands a toll on physical, emotional, and philosophical levels. Amid the chaos of decision-making around buying, selling, renting, or rehabbing, investors often find themselves seeking ways to simplify their operations. While employees can be a valuable asset, they also come with a hefty price tag.

In my journey as a real estate investor, I discovered a game-changer – virtual assistants. These remote workers, scattered across the globe from the Philippines to Egypt, offer diverse skills and language proficiencies. Some business owners have found success hiring assistants from South America, benefiting from similar time zones and language capabilities.

The turning point for me was enrolling in a course on hiring and managing virtual assistants, created by Anna Li. Li began hiring virtual assistants to scale a thriving wholesaling company in Philadelphia. At the time, she was living and working full time in Switzerland. She later leveraged her experience to teach others how to harness the potential of virtual assistants globally.

One crucial lesson I learned was the importance of timing. My initial hire, working from 5 pm to 3 am, was aimed to provide me with more family time. Unfortunately, having a new employee during these hours forced me to also train during family time. I also realized that if I didn’t leave my assistant with enough tasks, they ended up sitting around for hours with nothing to do and no one to ask for help. My next hire worked during business hours, aligning with peak activity times and supporting other team members who were also balancing growing responsibilities.

I have spoken with many entrepreneurs who are opposed to using virtual assistants on many levels. As someone who has hired and worked with many, I’ll tell you that these employment opportunities are great for both sides, just as every business transaction should be. Many of the virtual assistants that I have hired have told me stories about getting yelled at constantly (one worked at Comcast, if you can imagine) and almost all of them have had stories of either not getting paid, or not ever knowing when they would get paid. Like you and me, they want to do a good job and be rewarded for it. They want to take care of their families and better themselves.

Over the years, my virtual assistants have become an integral part of my team, very much like family. Despite skepticism from some entrepreneurs, my experience emphasizes the mutual benefits of these employment opportunities, which every business transaction should be based on. Virtual assistants, like any employee, seek fair treatment, timely payment, and a chance to excel.

As your business expands, consider virtual assistants as an option. Virtual assistants can handle calls, texts, appointment scheduling, and more, contributing to increased efficiency. My advice is to hire thoughtfully, offering a full-time position even if the workload is initially light. Guaranteeing steady pay attracts top candidates, and services like those provided by professionals such as Li can enhance your success.

Consistency is key – create a work environment that you would want to show up to every day. Virtual assistants can be a valuable asset, streamlining your real estate investments and contributing to the growth of your business.

Please join us for speed networking! 100% free and everyone welcome! Come meet and network with other real estate investors in Savannah.

Hello, we have a meetup next week! Please search Cashflow Savannah Meetup on Facebook and you'll see details. I should probably post it to this web site now that I think about it....