All Forum Posts by: Michael Garofalo

I agree with @John Powell 100%. In my experience, stainless often times isn't all that much more expensive, provided you're not going with high end or smart appliances, and they should help make the unit more rentable if you're surrounded by other properties that are putting in the cheapest stuff. Shop around and if going stainless is only $100-$200 more per appliance, I think that could pay dividends in the long run.

You're most welcome, @Jackie F. Best of luck and like @Ivory Hayes said, if you have further follow-up and need any additional insights as you're moving along, feel free to PM me too

Hi Jackie,

I was in your exact shoes several months ago, and have done a fair amount of research on this topic. For reference, I created an LLC to hold my first investment property, and am planning to do a cash-out refi before May is up for this particular unit.

To answer your question, the easiest way to do it (or at least the way I am doing it) is to take out the loan in the name of the LLC, but attach what's called a "personal guarantee." That means that the bank can still hold you personally liable in the event of default, and will consider your personal income/assets when underwriting the loan. All that being said, you won't be able to do this at a big bank because the amount you'll be borrowing (in the eyes of their commercial department) is insignificant. As such, I'd recommend visiting several local banks and speaking with portfolio managers on the commercial side. Be honest and tell them about your experience, and ask insightful questions surrounding the products they offer. If you have good credentials and can speak intelligently on the matter, they'll be willing to work with you and make the loan.

Pros and Cons of Commercial vs Personal financing? Pro's would be you get to start establishing credit for the LLC, and you get to establish a relationship with a local bank which will certainly help funding future deals for your business. You also get the liability protection that comes with an LLC, in the event your tenant tries to sue you personally.

The cons are simply that the terms are never as favorable when compared to personal financing. You'll never find a 30-year fixed product, and the interest rates will always be higher. A typical commercial loan will probably run you ~1-2% above prime, with a balloon repayment (likely no greater than 10 years), amortized at 20 or 25 years. At the end of the day, I still think it's worth it to go commercial via an LLC to protect yourself in the event of a tenant lawsuit. Umbrella insurance unfortunately isn't all it's cracked up to be.

I definitely agree with everything @Caleb Heimsoth said. 5.2% is very low as far as historical standards are concerned. 

I'm in the process of doing a cash-out refinance on my first investment property, and the terms are likely going to be in the 5.5-6% range, with a 10-year balloon (granted I am going with a commercial loan because the property is held under an LLC).

As long as you can continue to cash flow, I wouldn't bat an eye at anything less than 8%. My uncle has been in the mortgage lending business for almost 30 years and that's been his general opinion on the cost of money.

Hi Ken,

I obtained a HELOC against my primary residence here in the DC area several months back. I can't speak to what the conditions are like in NY, so take all of this with a grain of salt. I'm sure more seasoned investors than myself will have more to add, but hopefully the responses below give you some clarity.

1) Perhaps the reason they are rejecting you isn't truly a lack of credit history. If you have credit cards and obtained previous student loans as well as a car loan, that's a pretty diverse set of liabilities to prove your credit-worthiness. Did they site anything in particular or were they extremely vague?

2) To the extent that each lender will run a hard credit pull, yes it certainly will. Too many inquiries will negatively impact that score. I'd recommend to only apply at banks you are really serious about. Have preliminary conversations with them to see what their requirements are as well as the terms of their product (i.e. draw period, floating interest rate as it relates to prime, repayment schedule, annual fee, and closing costs) before you start forking over all kinds of financial documents.

3) Most banks will go with 80-90% LTV, which means they will take that percentage of the appraised value and subtract it from your outstanding mortgage to determine the credit line. In your case you own the property free and clear, so for simplicity sake let's say the property is worth $500,000. At that price, and if the bank is willing to lend @ 80% LTV, you should expect to receive a credit line of up to $400,000. If you had $100,000 in principal left on the note, you should expect to receive a credit line of up to $300,000

4) I wouldn't play this card with the big banks. In fact, I wouldn't even waste your time with the big banks. Go into a smaller local bank, and tell them your story. If you are organized, present yourself in a professional way, and speak intelligently (i.e. you understand how the HELOC works amongst other forms of bank financing), someone will take you seriously. Banks usually don't care what you use the HELOC for so long as they are protected in the event of default

Thanks all for the warm welcome! 

@Brandon L., definitely am interested in the local meetups. When you get a chance please send the details my way for the next one scheduled, either on this thread or via direct message.

Hi BP Community,

My name is Mike Garofalo. I'm new to BiggerPockets and very excited to finally take the plunge and officially join the community. I've been listening to the podcast religiously and perusing the forums for the past 6 months, which has inspired me to take action and jumpstart my first investment property purchase. I've lived in the Washington, DC area my entire life, and in 2016 purchased my first primary residence in the Northwest quadrant of the city. This past fall I created an LLC, opened a HELOC against my primary residence, and used that to help close on my first investment property (bank owned REO) in the Southeast quadrant last month. Overall, I'm most interested in buy-and-holds, with a primary focus on condos, SFRs, and small multi-family. I have a wonderful day job here in the city, but view real estate as a key component for generating long-lasting wealth and greater stability during retirement.

In conclusion, I'd just like to say thank you to the BiggerPockets team and all of its members for fostering such an amazing community. It may sound cliche, but discovering BP has changed my life and instilled a powerful new way of thinking. I therefore hope to give back as much as possible to fellow members as I continue to gain experience in the world of REI.

Thanks for reading, and happy Tuesday!

-Mike