All Forum Posts by: Mike Klarman

sent you a dm

I'm more curious about the lenders you do have that will do it.  Manufactured is tough and so are trailers.

Welcome Demon. NC is a nice state to invest in if you can afford the entry points. I help line up lots of financing for STR so I'd be happy to walk you through the process and what is expected.

The drawbacks of STR is the management of it. I hear some brutal stories about what the tenants did to houses and then all the complaints from the pains in the butts which covers most of America.

However, I have a client who specializes in STR up in the Pocono Mountains of Pa. He does very, very well. His yearly cashflow from 5 STR assets is almost 1 million and the appreciating value of the 5 assets is 3.5 - 4 Million.

If the market the house is in is conducive to STR, then it can be worth it, but in some circumstances and in some markets I think LTR still works better, but it is clear STR is taking a foothold as an option in the Investor mindset and we see that in the market and I think a pretty clear prediction is that STR will take a bigger and bigger share of the investment strategies of investors.

You see a house on the market for 100k. Let's assume youre all set up in this example and you have an agent and a contractor that can run an ARV/Comp Anal and a rehab estimate. Turns out if you buy this for 100k and put 80k into it, it can be worth 295k. You make the offer and in a perfect world you win it.

Your lender, is giving you terms of 85%/100%/11.5%.  That means they will fund 85% of the purchase, provide the 80k in rehab, and you will be on an unpaid balance interest note of 11.5% apr.  So in this scenario you'd put up 15k plus closing costs.

If you buy for cash and rehab for cash and then wait the seasoning period to refi, you do not have to put up anything, you are taking back.  In the same example,  You put up the 100k cash, and the 80k cash and you're in for 180k cash and in 6 months you have a renter and you're ready to refi.  An appraisal is done and the new value of the house is 295k.  You get 75% of that in a loan - 221k.  So you'd be taking home 40k during the refi.

I'm getting in with ppl who buy at auction. I'm learning the ropes and learning. This is the real way to do this. It is VERY HARD to do the BRRRR on Wholesale/Retail prices. More times than not any wholesale deal you do will have lots of hidden fees attached to it, namely picking up all the transfer taxes so depending on the county you could get hit very hard. Then all the escrow for the various school/county taxes. The escrow the lender does for the first few payments, the wholesale fee, the cost of settlement. You'll be 10k over what you thought you'd be or what you had in your numbers.

At auction you're purchasing for 50% - 80% of the market.  I watched an investor buy a house for 35k, it was in a good school district and was a 5/2 house, but it was a wreck and needed 100k - 110k in work.  The comps in the area show 320k - 330k.  He sold the property to a client of his for 100k, and that investor will put 100k in and their target exit is 320k.  Great deal for the investor but also a great deal for the purchaser at auction.  Made 65k in 4 months without lifting a hammer or taking out a loan.

But he was thinking of doing it himself, if he did it would have been a 140k project cost and a 320k exit. You could give it away for 280k and still do very well. Why do you have this cushion? Because of the price you got in. Riding on thin margins and trying to scale the BRRRR is a recipe for disaster.

Multifamily DSCR products will be 70% - 75% leverage, and the rate will be higher than the 1 - 4 unit bucket. You will need to inherit some leases too. I'd say at least 3.

Multifamily Bridge loans will offer 70% leverage but include the rehab.  

You're coming out of pocket here 100k for either option.

On Cash purchases, most lending institutions will make you wait 3 - 6 months, sometimes more before you can refinance at new value. The ones with no seasoning periods will make you pay dearly either with the rate or with loan costs.

In the scenario you mentions above, if you bought a house for 30k (you didn't mention doing any work, but I assume since you mentioned BRRRR there is a rehab), you do the work and get a renter in there with a lease and then after the seasoning period, you now can refinance based off the new value of 165k of which you should get 75%.

But why 15 yr mortgage, why not 30 yr to make the payment smaller?  

A quick check for your max loan payment a lender will allow is to divide your rent/1.1 that number is around what the max loan payment will be by the lender.

I've done 40+ bridge loans with Kiavi in the last 18 months.  Their draw process consists of a draw sheet, a lien waiver, and then matching invoices.  Lots of lenders are moving toward the app - take pics - upload model.  Kiavi is still doing the forms model.

Are you making any change orders?  If moving money around in the budget they can be tricky in that regard, but if it is a straightforward draw request then it usually goes smooth.  

I'd be happy to take a look at your forms if you want, I'm usually initiating multiple draws per week with them.

You won't beat the rates of conventional, but if the asset is good and it cashflows well then that's all that matters.

You'll need to open an LLC and put the properties in the entity and then you can apply for Hard Money loans and most lenders will go at least 2 million deep with someone in loans. Some have no cap.

This industry is a double edged sword.  It is also unforgiving and it will punish those entering before they are ready.  There's paradise here, but also disaster.  I'm sure for every success story there's 100 disaster stories.

Entering with no money, no track record, no knowledge and looking to do a flip is a bit of a dream.  What are you bringing to the table if none of the above?

In a small market in the midwest, somewhere in western PA through Indiana you can get into a house for under 100k and with 75k - 90k in work that house can be worth 270k - 290k.  That opportunity is there in places like Pittsburg, Columbus, Toledo, Springfield, Dayton, Fort Wayne, Indianapolis.   But to see a project through it's entire lifecycle 6 - 9 months, you'd need to absorb 40k - 50k in costs and fronting money.  And if you do not have the proper money to see the project to the end then you'll get stuck and just be paying loan payments with the balloon payment looming over your head.

A zillion things can go wrong, financing is the least of the worries of an investor.  The real problems come in the rehab and the exit.  If the rehab isn't up to par then you can't get your exit, if the rehab is good and the market is soft you can't get your exit.  You'll have a property be sitting for 45 days and you'll start the reducing game.

Also, very few agents present real comps, wholesalers almost never do.  They show you top of the line comps only.  So it is easy to fall into a project and then once you're in the middle of it and it has gone sideways, only then realize what a mistake you made but it is too late.  There's waaaayyyyyyy more of those stories then there is of ppl coming in with no money and getting in and out of a flip with oop and making like 25k.  The ladder belongs in a Disney Fairy Tale book somewhere in between Snow White and Cinderella.

Fire when ready!!!!  I hold all the dog tags of those no longer with us!!!!