All Forum Posts by: Nathan Grabau

There are lenders that lend based off of the net income a property produces or its "DSCR". I would recommend trying to push it through the way you would with a house hack. A lender looking at the property this way will care less about the classification and more about the income. You will probably have to hope for an aggressive appraiser, but if it has recently sold for that dollar amount, that will help you. You might be able to find an appraiser that will appraise it based off of the question "what is this income worth in this neighborhood?". Good luck!

If you can find a private(local might be a better term) bank to do this, it might actually make deals easier for you in the future. Using private bank funding in Central Iowa has made my life much easier when it comes to closing deals. 

Have you seen the movie "The Big Short". It's incredible and very great for helping understand the difference between what is going on now and in the 2008 run up. https://www.finra.org/investor.... This is also another article when I searched Mortgage Backed Securities, because it is a relatively underreported, you won't find a lot of "noise" when you look up information on MBS's. 

What happened to your in this situation was probably that you are dealing with a broker who gave you a teaser rate on a pre approval to lock you in and then actually when they ran the numbers the risk of the note was not the best case scenario and the rate went up.

When I bought my first MF property, I started with my lender who is great for convectional primary residences, but was not as experienced with rental properties, and the rate ended up moving higher once it was ran as an investment property, along with a whole slew of other things like mandated cash reserves and a higher down payment. 

Rates have been moving up quickly in the last few months, but they have not spiked that much this week. You can check this site for a daily survey of different interest rates:https://www.mortgagenewsdaily....

The website also has data on Mortgage Backed Securities which are one of the top tools investors use to buy and sell the debt from a mortgage, which has a very large impact on rates on a day to day basis. Understanding how MBS's worked gave me a much deeper understanding of the lending processes and helps offer more depth than just looking at headlines about rates. 

Hi Jay, I am a fellow long distance investor and a commercial roofing contractor in Colorado. What are you currently being offered for the lot if you sell it as vacant land? The new build process carries a reasonable amount of risk right now as prices are escalating very quickly and it is pretty hard to find quality contractors to do smaller projects. I have some friends who are custom home builder GC's in Colorado who are working on a new construction home, and even at a 5m price point they said getting bids from subcontractors is like pulling teeth and taking months to come back. 

Since you have experience with flips, you could be better off taking the money and doing multiple flips in the time it takes to get the project from conception to sale.

Hi Sophia,

My property manager charges a monthly pet rent, that I keep(minus PM's 10%) as the owner. I think this makes a lot of sense because pets cause accelerated wear and tear to the property that may not be justifiable as a one time charge to a deposit. One example of this could be carpet wearing out faster. The pet rent just covers wear and tear though and if the pet ate the trim or left a permanent stain the tenant would be charged. The "pet rent" also then increases the security deposit because the security deposit is one months rent. The property manager then takes their 10% out of the pet rent as if it were normal rent, paying them for providing the service. Hope this helps! 

I am not well versed enough in 1031 rules to know how paying off the loan would impact your exchange, but I would generally advise against paying off the loan on the mortgage. The issue with only get .25% on your money in the money market account's best solution is probably not to pay off the mortgage. While you do increase your "return" on that cash, there are better ways to get a higher return elsewhere. Also, depending on your cashflow situation, the interest on the mortgage actually helps your tax position because you can write it off. 

If you want to deploy that cash towards paying off the mortgage, I would actually recommend investing in Mortgage Backed Securities. This gives you a higher rate of return on your money that mortgages provide, and will also allow you to continue to take the tax advantages of the interest on your mortgage. 

JR, I am invested in the Ames, Iowa area. It is a market that still offers cashflow but also has appreciation. It does not appreciate like Colorado or Oregon, but it is not a depreciating market like some other mid-west areas. Iowa is also unique in that it was not a formerly industrialized mid-west state that is now suffering from factories moving to the south/ other countries. My RE Agent in Ames owns a few hundred doors, has a management company, and has a maintenance company that is very reasonably priced. He was also able to get me set up with commercial lending which was so much easier than the conventional lending for MF properties. Send me a DM if you would like and I can get you connected with him!

One thing I would be careful with is to confirm that the value of the custom home is not different than the construction costs. Often, especially with how expensive construction is, custom homes are not appraising at their cost. Due to the recent market jump in the last 90 days, this shouldn't be an issue but it is something to be aware of.

If you are able to lock in a low rate today for the 395k you owe on the property, I would recommend a HELOC to not mess with the underlying note. That being said if you have to refi the construction loan when the project is complete, you will be paying the interest rates at the time when you are refi'ing the property and I would recommend taking as much money out as you can at that time. This will probably limited to 80% as it will be viewed as a cash out refi. Quorum Federal Credit Union has a great 90% LTV HELOC product that could get you another 10% out of the property.

I am not a Toledo investor, but I would assume that it will be very hard to get appreciation in a sub 100k median sale market. I did a quick search for median home values over time in Toledo and realtor.com has data about different markets. From April 2019 to Feb 2022 the media sale price went from 97,7000 to 99,000. For some comparison data, I put Longmont, Colorado in, a pretty average Colorado city and it has gone from 415k to 565k in the same time period. Nevada, Iowa, where I am getting MF at under 200k, with 10% CoC, has gone from 139k to 198k. If you want appreciation, you are probably looking in the wrong market.

One of the best ways I have found to understand whether a market is going to appreciate is by looking at the population percent change. All major towns on Wikipedia have a demographics section where they have a historic population by decade. In doing this search on Toledo for example, I found that the population has decreased by at least 5% every decade since the 1970s. Less people living somewhere is going to negatively impact housing values. This is why you get "rewarded" with better cashflow in these areas, because since people are leaving, home prices are decreasing relative to the market and driving up relative cashflow. 

I would like to share another data point as a commercial roofing contractor based out of Northern Colorado. The cost of new construction is skyrocketing, maybe even faster than the housing market. We have seen over 40%+ in material price increases in the last year and are being told to continue to expect another 5% a month. Beyond that, projects even with our the best general contractors we have are running behind. We have gone from being able to get a load for a large roof like a school or 100+ unit apartment building in a few weeks, to now being out about 11 months, with no signs of improvement on the horizon. 

To further cement this point, I had put a proposal together earlier this week where we were offered a cost lock to the end of the year. I had to put a 42% escalation over the whole project to protect us, so this includes labor and overhead, not just materials, and there was not a concern over the updated price. It is a very strange market, but one where we do not need to worry about new inventory underpricing/ flooding the market. 

I personally have got to the point where I think the government will need to come in and subsidize new construction somehow, because the price of building is going to start dramatically exceeding existing inventory appreciation. When we cross this tipping point, if the government does not step in, it would not surprise me to see another super aggressive move in the market. 

We really do have a listing supply issue, that does not seem like it is going to be fixed any time soon.