All Forum Posts by: Drew Castleberry

@Steve Babiak

The note balance is 55% of the property values, and the purchase price is 70% of the note balance.

I deal just fell into my lap over the weekend. A family friend that has his on REI business (175+ properties) wants to start liquidating his properties and is giving me first dibs. He wants to sell of pieces of his portfolio over a couple years and I'm hoping to establish a relationship to be able to eventually buy his entire portfolio from him. Here's the initial deal:

6 rental properties - market value $300k, purchase price $210k. All properties already rehabed and have long term tenants. Total monthly income after expenses and reserves is about $450, or $75 a door.

4 performing notes - remaining balance $$185k, purchase price $129k. Notes are at 9%, 10% and 2 at 12% with remaining payments of 45, 275, 219, 239. Total monthly income of $1400 after debt service.

Since I can't pay cash and have to finance, the 6 properties by themselves aren't that great of a deal. But the notes themselves make up for the properties performance until I can pay off the mortgage to increase the cash flow.

Essentially, he is giving me a 30% discount off of market value. I wouldn't buy the properties except that it's all or nothing, and if I want to purchase more from him in the future I need to buy them all now to establish the relationship.

Here's what I need help with. How can I get financing for a packaged deal like this? I'm waiting to hear back from my lender if they can do a commercial loan but don't know if they will or not. If I can't package them together, I'll finance them separately. How can I finance note purchases? I haven't been able to find anything here on BP and all my google searches came up with note financing with a minimum of $1M or more.

I'd like to buy and hold the notes, but one scenario I might be open to is selling the notes after a year or so since they are peforming and if I can get a good enough deal out of them, use those funds to pay down/refinance the mortgage on the properties to increase the cash flow and/or purchase more properties from him.

Any and all help is greatly appreciated! Right now I'm hitting a mental road block on how I can make this work.

@Mel Wyatt

If you're looking at creative financing, check out the Bigger Pocket's book by @Brandon Turner

http://get.biggerpockets.com/nomoneydown/?utm_source=search&utm_medium=internal&utm_campaign=nomoneybook

Great way to get started on learning creative financing, definitely worth the read

I'm working on a deal to purchase 6-10 properties and am looking at commercial financing rather than portfolio due to better rates and terms from my lender. On the deal, I'm able to purchase all the homes at roughly 75-80% of the appraised value of the properties, they're all recently renovated, fully occupied with market rents.

My lender requires 75% LTV and I'm able to use the equity as the down payment which is awesome, so I'll only have to pay closing costs. I have 2 questions for all you fellow investors that have utilized commercial financing:

1. Is 75% LTV the norm, or is it possible to find 80% LTV? If I can find a lender that will provide 80% LTV and I have greater than 80% equity, I'd like to roll the closing costs into the loan to reduce and/or eliminate my out of pocket costs.

2. Has anyone bundled properties into one loan? If so do you recommend it? By doing this with my lender, I can reduce my rate, origination points and even get terms for a 30 year fixed with no balloon payments. Plus I think it would be a lot easier to only have to make one mortgage payment.

One thing to consider as well, your fees for borrowing against your 401k are minimal. Mine is only $50. HML fees are usually any where from 1-3%, mind charges 2%, but I can roll those costs into the loan. So depending upon the size of the loan it could be several thousand dollars.

Also, the interest that you'd pay on your 401k loan, you're paying back to yourself, so even though it wouldn't be in your account working, it'll be invested in real estate hopefully making you higher returns that being in your 401k, and it's also making you an additional 5%.

@Melissa Searing

I'm located in Simpsonville and work in Greenville. There's a ton of upside to the market here in the Upstate. TONS of new jobs, new construction like crazy. Housing prices are increasing and entry level price points are getting higher, but there are still deals to be made, just have to work a little harder to find them. The rental market is strong as well.

On the plus side, the cost of living is relatively inexpensive, especially compared to Mt. Pleasant / Charleston area. So at least by moving here you should be able to save money based off that which you can funnel into investments.

If you have any questions on Charleston you should contact @Jay Hinrichs, he's got a lot of great info on the area as he's actively investing there.

I'm sure it'd be tough to leave Mt. Pleasant, it's a beautiful place! I have family there and it's always great to go down there for a visit. But I'm sure you'd love Greenville, downtown is amazing, very nice, lots to do, great restaurants. Also very close to the mountains and outdoor activities (Blue Ridge Parkway, Ashville, etc). The Swamp Rabbit Trail is awesome that runs up into Travelers Rest.

I'd go with a shower door, specifically a frameless one. That will capture buyers attention. For the garage, look into getting a floor buffer with diamond encrusted type of sand paper.

I flipped a house where the previous owners had 19(!!!) dogs that they kept in a 3 car garage. Needless to say it was nasty. We used some concrete cleaner/solvent and buffed the floor with some type of sand paper made for concrete. It didn't take all of the stains out but made it look 10x better and put a nice circular pattern on the floor that looked good.

Only cost about $50 to rent the floor buffer and about 4 hours of work.

@Matthew Swisshelm 

That's awesome if you don't have to pay PMI for a VA, more money in your pockets every month.

I'm definitely not an expert, but there's a ton of info on forced appreciation through rehabing and increasing rents and doing exactly what your trying to do here on Bigger Pockets. Just do some searching in the forums, it might take some time but you'll find more detailed info there. But either way, you'll get appreciation through the sweat equity and rehabing increasing the properties value or by also increasing the rents. Not sure exactly what method is used to appraise a 4-plex, but it seems like regardless you're setting yourself up well and headed in the right direction.

First thing I thought of is PMI. Not sure if VA loans carry PMI, but if it does I imagine it would be substantial with 0% down. With an FHA loan a minimum down payment is 3.5% and carries PMI and I'm pretty sure that it's on there for the life of the loan. If you put down 5% on an FHA the PMI will go away once you hit 80% equity, unless you refinance. Just one thing you might want to check, as the PMI can raise your monthly payment a significant amount.

Also, if you're going to be rehabing the properties, you might want to check to see what the property values would be when it's completed. Assuming you repair/update the units, you should be able to increase rents which would increase your CAP and thus forcing appreciation. If you get enough appreciation you could do a cash out refinance. This would get you extra money in your pocket for the next deal. If anything, you could just get enough appreciation to refinance to a conventional loan and not have to worry about the VA on that property anymore.

Just a few things to think about.

I can't do anything this weekend as well, but anything after that I can make work. Sundays are doable if it's the afternoon/evening. Typically weeknights other than Wednesdays work or usually on the weekends as long as I don't have previous plans.