All Forum Posts by: Scott Hollister

@Curran D Bishop It will be easier in CT if you are making the property your primary residence. There are a few things to keep in mind as you seek conventional financing. 

-In another post, you said this will be your 2nd home. You will need 6 months reserves for your PITI (Principle, Interest, Taxes, Insurance)

-Depending on your current mortgage, you may need to go conventional and put 20% down. If you plan to purchase this as an investment with conventional financing, you may need 25% down. (There are other low money out of pocket options like Fannie may Homepath, 203k, FHA, etc.) I just don't know your situation to recommend what is best.

-Best advice is talk to a lender that is local, our local meetup is held in a mortgage office with @Kit Crowne. He may offer better guidance if your plan is to go conventional. 

Best of success.

@Curran D Bishop what type of lender in CT? 

Contact @Bill Couture and see if they are loaning at 80% LTV?

Hello @Daniel Orlowski,

My best advice is going to your local meet-up and asking for recommendations. Real estate is a relationship business, referrals are the best way to get a quality commercial lender. (Our next meet-up is this Tuesday) If Manchester CT isn't too far of a drive, we regularly have a few commercial lenders who also invest themselves. 

The best way to get commercial financing is to understand the terms and underwriting process. Typically, single family homes are valued off the comparison approach to determine value. Commercial properties are typically valued off of the income approach and use terms like Debt Service Coverage Ratio (Typically the minimum is 1.2) and CAP rate (Return on your investment if you paid all cash). Commercial financing is a different field, understand it, educate yourself, and network.

You will also "need" 20-25% down with reserves based on the property. 

Typically you will see these in a loan package:

• Executive summary
• Appraisal
• Financial statement
• Credit report
• sponsor financial statement
• property financials
• borrower resume
• Purchase and sale agreement
• legal description of the property
• photographes
• map location
• environmental information (Understand phase 1 and phase 2 terms)
• property management documents

Best of success! 

Hello @Erik Douglas,

I taught in Ashford for 3 years and focus on Tolland county for single family flips and rentals. We have a great meetup thats been going on for the last year or so. We have a meeting next Tuesday in Manchester. Check out the details here, hope to see you there! 

@Tim Nash 5% is cheap money, depending on the deal of course. So lets look into it: 

-You said you are new to the game, do you anyone else in the market to verify your ARV at 65-70k? This is the most important number in the deal.

-What are the rehab numbers? Are you doing the rehab yourself or hiring out the work? Do you access to contractors? 

-Are you familiar with the market? Average days on market, seller concessions, type of finishes, type of buyers for your house, etc. 

-Check with the town, make sure the seller isn't pulling a sheet over your head with back taxes, liens, or possibly not even being the owner. 

-Do not do this deal without taking title. Have the seller hold back a 1st. Of course, consult with your attorney. Worth every penny. 

-Once we figure out the above, then we can talk about the specifics on payments. For instance, I like to use other peoples cash when it comes to rehabs and purchase. So I may offer him a percentage higher if he will accept the interest payments at closing. This will leave you in a better cash position, especially when you are new to the game. But you HAVE to be confident in your numbers, do not take the deal unless you're absolutely positive in getting the deal done. Remember, Real Estate is a relationship business and your character is your most important asset. 

Best of success!

-Scott

@Ryan Deasy this has been the hardest part, the refinance. Here are 3 viable options:

1. Conventional Financing. 
2. Commercial Financing.
3. Private Financing. 

@Michael Noto is well versed in what you're trying to accomplish. Owning it in your own name is a good thing for conventional financing purposes, typically what I've found in CT is that lenders like to see a minimum of 6 months seasoning. NOW you have to season it in your OWN name if you are seeking conventional financing, which is a new rule in the last few months. You can imagine my excitement when I went to apply at 6 months and this rule magically appeared... Its ok, my HML enjoyed the extra 6 months of interest payments:) 

Other issues you may run into are reserves, debt to income ratio, and loan to value if you are considering the conventional financing route. 

Commercial mortgage route:

• Your terms won't be as good (5% +/-)
• They will need a 1.2 DSCR minimum.
• They want to see minimum of 1 year seasoning 
• Current leases for tenants are required

Another option you may consider, however I don't recommend because it DOES not solve your problem of long term financing. However, if you're in a pinch for cash, it may be a viable resource for you. The Rate and Term refinance. This allows you to pull out what you have into the property but leaves you with no additional cash above what you have into the property. What I understood from this, I may be wrong, is that it only pays off the 1st mortgage. I then asked my conventional lender, why don't I ask my HML lender for additional funds? He got quiet and said it only pays of the first... That was just me thinking outside of the box.

Again, like Michael was referring to. Depending on your relationships and cash reserves, you may get "special treatment" by getting better rates and lower seasoning requirements. But typically this relationship is built over time and does not help the new investor. 

Side Note:

I find it interesting that you were able to take a HML in your personal name, typically they don't allow this? (Dodd-Frank)

I have two local commercial banks that will loan in New Britain if you need good recommendations.  I have also called EVERY credit union in the state to see if they do portfolio lending, only a few said yes but still underwrite to fannie/freddie just in case then need funds. And they both wanted the seasoning requirements you see above. 

What are your numbers? I can run options for you to see what the best option is, I focus on creative financing options. 

• Purchase price
• Taxes, insurance, and expenses.
• Gross rent per unit

Hello @Mindy Jensen,

Completed a BRRRR with 0$ out of pocket. (HELOC/Hard Money Combo) A year later I walked away with $26,663 tax free and was able to keep the property as my primary with 37k in equity. 

I used a HELOC as the down payment for hard money, they covered 85% of purchase price and 100% of the rehab costs. Purchase Price: 101k. ARV: 185k

In order to avoid paying the interest on the hard money ($945 month) I was able to complete the rehab quickly and get it rented before the first interest payment became due. The tenants moved out after year 1 so I could obtain owner financing pulling out 80% LTV ($26,663.00 tax free)

All because of the online forums and our local BP meetups!

What does it mean when Goldman Sachs is getting into fix-and-flip loans? 

• They are buying Genesis Capital ("Who issued $1 Billion in loans last year, up from $50 million in 2013")
• The article went to say that bigger institutions are taking note. Wells Fargo and JPMorgan Chase extended credit lines to fix-and-flips lenders. Has anyone used or heard of this? 
• Will we see tighter guidelines with Genesis on their lending criteria due to acquisition by a "Wall Street Giant"? 

Orignial article

My Failed (almost 0$ down) BRRRR that netted me $26,663.00 tax-free and $37,000.00 of equity. Investor Profit: $14,175.00

Background: If you're new investor, here are some strategies with reflections so you can choose the best vehicle for your REI goals. These are some ideas/wisdom that I picked up doing my first few deals.

The items in bold are “quick tips” Shout out to @Joshua Dorkin & @Brandon Turner

I started my REI journey in 2012 with a "house hack" and didn't know what that was at the time. Two properties on one lot, renting out one while I lived in the smaller one (With a roommate) after I cosmetically rehabbed the property. I graduated with $60k+ in student debt and two teaching degrees. I was able to live for "free" by having my rent cover the mortgage payment. *Good way to start your REI journey is house hacking

I then connected with a with a local fellow teacher on BP in July 2015, he asked me if I would start going to a local meeting if he kick started it. OF COURSE! (Started Late 2015) *Network with others in your field of interest

So I was strapped for cash, like most newbies. I needed to find money to start buying REO properties off the MLS. About 6 months into meetings, a wise man said use a HELOC on your primary as a down payment and partner with Hard Money. I said "I can't, I bought my primary with FHA and don't have much equity." He said, "some lenders will go up to 100% LTV". Couldn't believe it! (May 2016 applied for a $21k HELOC) I was also paying extra each month towards the principle balance, which helped accelerate pay down of the mortgage. My goal was/is to get the PMI off in 5 years time which was the requirement in 2012 upon reaching 78% LTV. *Be creative, there is a solution to every problem. Ask questions and seek mentors

I partnered with a local agent that specializes in REO's and investments (it is very important to find an agent who aligns with your goals) Started looking at properties while running numbers through the BP calculators. (Which looked great when I needed to hand a spreadsheet and scope of work for HML, shows professionalism and builds credibility as an investor) *Partner with an investor friendly agent

I then made an offer on a local property listed at 119k, multiple bid situation. I won with "cash" offer (using hard money) with a 3k deposit. (Cash outlay was around 5K at the time) I was approved for the HELOC at the time, but I didn't have the funds for sure. I took a chance and I knew if I had a good enough deal someone would fund it if the HELOC didn't come through. *Have the funds to close and be quick when a deal pops up

BRRRR numbers:

Purchase Price: $100,600.00

As is Value Appraisal: $146k

ARV Appraisal: $187k

*Buy right, typically 70% of the ARV minus the rehab

Original scope of work rehab estimate: $3499.71 (Was originally keeping pool and buying used appliances)

2nd(Second scope of work edit was during 10 day inspection period where I brought in 3 pool companies) Keep the pool for $6500 or demo for $3500. I decided to remove the pool.

Cash needed for closing: $14,997.33 (Points, legal fees, down payment, upfront interest charges, title services, recording charges, transfer taxes) I ended up paying the 6 months of taxes in two weeks for another $2,400.

Actual Rehab Numbers: $10,371.76 (Pool Removal was $3,500.00 and 4 brand new appliances around $2,200)

Rest of work was done by myself, so rehab budget – actual rehab = $3,871.76 out of pocket before being rented in Sept. for $1575. *Not counting sweat equity, I worked around the clock to finish the bulk of the rehab in 11.5 days. (A benefit of being a teacher at the time.)

Total cash for Purchase of REO with down payment of 3k: $23,459.12 (Not quite 0$ out of pocket, $2,459.12 over hard money and HELOC) *When budgeting your first rehab, add in a % contingency and really hone in your budget during your inspection window by bringing people through the property.

After the rehab was complete, I marketed on Zillow and used Transunion smart move to screen tenants. It took about a month to find quality tenants with about 40-50 leads from Zillow.

So I have bought, rehabbed, and rented starting 9/1/16, just in time for tenants to pay the monthly hard money interest $949, monthly taxes $400, and insurance $100. So by the time the 6 months came around to refinance I had my mortgage guy run numbers.

The bad news: my DTI ratio was off because of my aggressive tax returns from my primary house hack combined with low teaching salary and student loan payments.

*Truly understand both conventional and commercial mortgages, their underwriting process, and sit down with a mortgage specialist to run your DTI and other key factors.

For Example:

• Fannie currently allows 10 loans at once, however underwriting guidelines get tougher as you move up to that 10: You’ll need higher credit scores, 6 month cash reserves for each property, and larger down payments.

My new plan: Time was ticking; Hard Money loans are short interest loans that result in a balloon payment (the balance of the note) at the end of the term. Mine was 12 months. I decided to call every local credit union in CT to find a portfolio lender, someone who keeps the loan in house and doesn’t sell it to Fannie/Freddie. My email to them was: (Which I learned from a podcast guest)

Good Morning,

I was wondering if your credit union offers cash out refinancing? If so, what is the percentage of the appraised value?

Thank you,

Scott

I wanted to find out what restrictions the bank had. Most local lenders underwrite like Fannie/Freddie in case they need to sell them off at a later date. Learn how a bank operates, they have to keep a certain amount of cash on hand against their liabilities. Also, find out if they loan to an LLC, if not how long does it have to "season" in your name to obtain financing.

I was also waiting for tax season, I planned on "not taking" some repair deductions, seems silly to pay more in taxes, but it ends up lowering your DTI ratio. Thus allowing you to play the conventional financing "game" and have a greater purchase power on paper; which I STILL don't understand as an investor. Paying more taxes, which puts me in a worse cash flow position… But now I can have more debt?

My DTI was still too high and only one commercial lender said they could do it, but the deal didn't cash flow: higher percentage rate and lower cash out because commercial loans go off the DSCR. And they also wanted a year seasoning; my hard money balloon payment was due at 1 year. Which ended up being 13 months total. *DSCR: basically you have to make 20% over your debts. 1.2 DSCR is the minimum I have seen in my travels

So no matter which way we ran the numbers, my DTI ratio was still too high. I was stuck and had no exit that I had originally planned for (buy and hold). Considered selling, but I would have to extend the note and pay taxes on the gain. Not the worst outcome…

In order to keep the house, because my vehicle of investing is buy and hold, I moved into the property to obtain owner financing with my girlfriend, who I was already living with at the time. Her income balanced out my debts which resulted in a $26,663.00 tax free profit (Paid for with sweat equity, networking, reading books, finding mentors, learning the trades, and playing the conventional “finance game”)

…and $37,000.00 of equity. Which is the ARV of 185k minus the loan amount of 148k. Which to me is currently "useless", it has a 0% return unless I am able to access it. (HELOC) Best way would be to "live in flip" the home, only after living there as a primary residence for two out of the last five years. You can take up to 250k as a single owner, 500k married, and not pay capital gains up to that threshold.

Investor Profit: $14,175.00 total paid to my HML, interest only payments, closing fees, and points.

It was a great learning experience and the reason I called it a failed BRRRR is because I had originally wanted it as a non-owner occupied rental. But sometimes life throws you a curveball and we adapt while moving forward.

I appreciate the online forum and community for allowing me to continue to grow into a wise investor.

Best of success,

Scott.

@Brandon Turner