All Forum Posts by: Mitch Davidson

If you're thinking about buying a multi-family property and making one of the units your primary residence, you've probably learned that FHA is the way to go if you want to minimize the down payment. FHA requires just 3.5% down for 1-4 units, whereas Conventional requires 15% for 2 units and 20% for 3-4.

One downside to this approach, however, has been that if you have good or great credit FHA's mortgage insurance, which is based solely on the loan amount, is more costly than that of Conventional. Often double the cost. Well, there's good news today. Mortgage insurance for new FHA loans, effective March 20, 2023, is going to be much lower. For example, a $300K purchase with 3.5% down and the 1.75% upfront MI financed (which is the norm) will cost about $135/mon for year one instead of about $209/mon.

Going forward, if you want to estimate the first year's monthly MIP for an FHA loan (the amount decreases each year), simply take your purchase price, multiply by your LTV (ex: .965 for 3.5% down), multiply by 1.0175 (unless you don't plan to finance the upfront MIP...most people finance it), multiply by .0055 (or .005 if you'll put 5%+ down), and divide by 12.

https://www.hud.gov/press/pres...

Agreed. 100%. Hoping BP doesn't try other Zillow-like approaches. 

Hi @Priyo Lahiri. I felt similar when launching our Bryson City cabin last Fall. It's 1:30 from me, and I don't want to be there but every couple of months. And the population is similar to the Blue Ridge area. But I'm able to manage it easily, without a PM. One other problem with some of the PM's in that area, is that their lackluster management generates less gross revenue for their owners. Meaning, it'd be one thing if they took 30% of the $80K you could make, for example, but instead they're going to make you $50K and leave you 70% of that. I'm sure there are some good ones there though, likely smaller. 

I digress. Because the property needed a bunch of work before launch, I had met quite a few locals, by word of mouth. Those people are my team now. I have a neighbor that will run over to the property any evening, in a few minutes, for $20. My cleaner goes out of the way, in part because I purposely pay her more than the average (i.e., $200 instead of $150). And I have 3 repair type guys to call through.

I would ask your cleaning candidates what software, if any, they're used to. Breezeway is popular in my market, and is a great tool for ensuring that everything is completed, and likewise for protecting you against bogus guest complaints. Breezeway is fully integrated with some PM systems, like Hostfully. And with some others, like Hospitable, it pulls in dates by way of ical. 

I've had a bad experience with Nest, with the app logging out of my Google account and such. Thus I prefer Honeywell's smart thermostats.

Hi @Kayla Birkhead. With renovation loans, whether 203K or Homestyle (Conventional), to prevent fraud, all of the funds and work have to flow through a GC, and none of the funds can flow to a borrower as a subcontractor. Thus, I would consider funding the reno with private or hard money, or other creative approaches like a cash advance on a credit card, and then refinancing once the work is complete. I'm happy to help you tease out ideas further if you like, 

Hi @Doreen Caroll. Happy to help you connect to great people and resources here in Asheville, including some of our great meetup options. I'll message you about the meetups.

@Kyler J Sloan, I'd only buy used after confirming that a local, reputable spa service company can service it. If they tell you they can't get parts, etc., I'd buy new instead. In your region, The Hot Tub Store in Waynesville is great. Their service manager, Travis, has answered my questions at 10:30 on a Friday night. 

@Ryan Rock. Western NC would be my choice. The summers aren't extremely hot. And you might see snow for a couple of days, two or three times per winter. From an STR perspective, the income opportunities are great, in part because the offseason isn't too long or extreme; and the appreciation opportunities are likewise great. And the purchase cost is generally lower than east TN. That said, $350K won't get you two STR's in any market that I can think of. It'll get you one though.

@Sarah Schopbach, I agree with @Christian Longacre that you'd be better to focus on Homestyle. 203K is more of a pain for you and your contractor. And if your credit scores are in the 700's, you'll spend more per month on FHA compared to conventional, whether reno or not. Also, I agree that you'd need to be careful to focus on a home that needs repairs that will add dollar for dollar value, rather than a home that's just ugly and needs cosmetics. Otherwise, the deal will likely die due to the appraisal.

If I were in your shoes, I'd be eager to use VA for another primary, while keeping my current home in it's VA loan (assuming you have a pretty low rate), for sake of the zero-down opportunity.

Determining how much entitlement remaining is a little tricky. For example, if your updated COE says your current loan's "entitlement charged" is $77,500, the max price using zero down will be $416,200. Should you want to borrow $500,000, you'll need to put up 25% of the $83,800 excess, meaning $20,950. The $416,200 figure was arrived at by taking 25% of the current conforming limit (i.e., $726,200 x .25), subtracting $77,500 (i.e., current entitlement charged), and multiplying the result by 4.

Back to the reno loan matter, one unsavory factor is that all the moneys and work need to flow through a GC. So if you plan to do some of the work yourself, or if you plan to work with a tradesperson directly (to avoid a GC markup), a reno loan won't fit.

Regarding the HELOC topic, I've had a couple. I really like Coastal Credit Union. They'll go up to 100% LTV. That said, HELOC rates are terrible right now, like 9 and 10%, so I'd try to find another way. And even when HELOC rates are currently low, because they can shoot up quickly, you'd be wise to use HELOC money for temporary investing only. Meaning, much like private or hard money, you'd want to be sure you can sell the home or refi to pay the HELOC off quickly. Otherwise, you might end up crying the blues like many are right now. Also, if you plan to get a HELOC, I'd get it before you move out of the property. Most HELOC lenders only lend on primary residences.

Additionally, as you're like aware of, VA appraisals have a heightened sensitivity for health and safety matters. For example, I have a VA loan closing for a home in Hot Springs next week. Because the home is pre-1978, the appraiser required some chipping paint to be dealt with prior to closing. Not a big problem, but a burden for the seller. So, if the next home will be a fixer, you'll want to be sure it's still habitable.

Happy to discuss further, and to help you think about approaches and implications.

@Brady D'Hont. I haven’t use FF. In the past, I used Zillow, Airbnb, and Craigslist. Now I only use Zillow, in part because I can force all applicants to follow the same process, meaning an app, BG check, and credit check before I’ll consider talking to them. From what I’ve heard, FF doesn’t offer those type of features. 

Hi @Michael Abernathy. It's largely dependent on things like price competitiveness, your customer service abilities and ratings, property features, location, etc. I would recommend setting up a market report through Pricelabs. From there, you can look at how your most nearby competitors are doing, and what they're doing. Bryson, like other markets, has a lot of half-hearted listings, meaning people that have a second home for themselves and would like guest to help them pay the bills a little. Then there are others that are full-time STR but are so-so regarding furnishings and customer service. So, you probably need to comb listings, via Pricelabs, and then use the properties you intend to be like for sake of establishing your expectations. I'm happy to give you some more feedback if you want to setup a call. And I can connect you to some great help down there too.