All Forum Posts by: Nghi Le

This isn't your standard success story.  I'm not going to talk about any specific deals, or a cashflow number.  I'm not going to tell you that I'm retired, or that I'm close to it.  Instead, I'm going to tell you how real estate landed me in the perfect "job".

My past life was in software engineering, data & analytics, and consulting.  I used to be passionate about technology... until I found a new passion (real estate), and then the 9-5 started to feel like a "job" and "work". I wanted to get as close to real estate as possible, but I knew I couldn't just leave a stable job and jump into real estate full-time 1) because of the need for financing and 2) I had high expenses and still needed to pay the bills.

I've always invested in real estate while working full-time. I've found that it strengthened, rather than hindered, my investing, especially when it comes to getting financing.  This was proven when I took a leave of absence in 2015 and told my company, "I'm probably not coming back..." and then, of course, came back in 3 months.

I started investing in real estate back in 2014, with BiggerPockets being my primary source of education along with the local real estate community here in the Greater Seattle area.  I often had to do checks and balances between the two because most of the strategies preached in other markets don't work here (and vice versa).  For example, it is illegal to target homes in pre-foreclosure as an investor here in WA state due to RCW 61.34 (let's not turn this thread into a discussion on this as there are plenty out there).  At the same time, it's one of the rare states where most of the local hard money lenders will finance a property at the auction same-day.

The first few years of my real estate journey have not been rosy.  My first flip went well and it falsely gave me confidence to jump in at full speed.  Over the 6 months, myself and two other partners purchased 8 new flip projects.  None of them went to plan (mainly due to our malicious 3rd partner), and we lost money on most of them.  Our average holding time on these projects was 11 months, and most of these projects were financed with local hard money (at 12% interest and 2-3pts on 6-month terms) and private money.  As you can see, I learned some painful lessons about extension fees on most of these.  One of these projects took 2.5 years and we ended up paying $280k in financing costs, having 3 different contractors run off with $100k total, while only losing $60k on the project (read more about that here).  I still own one of those "flip" projects to this day, 5 years later.

I then graduated to cashflow and BRRRRs and started investing out of state.  I also took another shot at flipping, both locally and remotely.  The BRRRRs have been mostly successful (and I still continue to buy one every couple months), whereas the flipping not so much.  I've done deals in 8 different states, but have been scaling back over the past year due to headaches and wanting to simplify my life.  Remember... I've always worked full-time during all of this, and I currently have a 1-yr and 2.5-yr old at home.

I've learned a lot about real estate and have many stories to tell.  I am now an "expert" in financing (have borrowed from 20+ HMLs and talked to over 200+ commercial/asset-based lenders), exit strategies (lease options is my favorite), partnerships (everything I've done in real estate has been with partners), and tax/legal strategies (although I'm always going to tell you to consult an attorney/CPA).  Did I tell you that I've had properties liened by contractors multiple times (lien waivers don't fully protect you), and sued by employees of a contractor (because their boss decided not to pay them after I had paid him)?

But let me rewind a little bit...

Back in 2017, I reviewed my P&Ls from all of my deals and saw where my two biggest costs where:  financing costs and rehab costs.  Rehab costs weren't going to go down anytime soon in our market and many investors (much more experienced than I was) were already trying to solve it.  But it didn't seem like anyone was trying to solve the financing problem.  So I decided to focus my time on it, to cut my financing costs in at least half, and to better execute on my deals (because execution was definitely a problem with most of the cheap national lenders).

That driving focus led me to join a startup called Certain Lending in 2018.  We met because a mutual friend in real estate introduced us.  The founders were looking for someone to lead their efforts in the Pacific Northwest, and I was looking to leave my job and career to start a commercial (and hard money) brokerage company.  After weighing the pros and cons, I decided that if I wanted to change the financing industry for investors, doing it with a team would be much more effective than by myself.

Despite being in a W2, it doesn't feel like one.  I'm doing what I would be doing every single day if I was in RE full-time, which is talking to real estate investors all day (because that's who our clients are).  And I'm solving real estate problems and making an impact on the national lending landscape as well as the local real estate community.

I get to create loan products for investors, products that I can (and do) use myself.  It started with a bridge/rehab loan that combines the best aspects of national and local hard money lenders; we have competitive terms, we're fast, we're flexible, we can lend in most places, and most of all, we just get it (because most of the client engagement team are also investors).  Then we saw all the limitations of conventional financing in BRRRRs, so we created a 30-yr loan product that overcomes it.  And now we're tackling multifamily and new construction.

I remember when I was an aspiring investor and had just discovered BiggerPockets.  I wanted to work for BP, but was sad that they only had positions in Colorado.  I was also sad to recently learn that most of the employees do not invest (and I'm not sure whether most of them want to invest).  But I'm still inspired by that original vision, and I aim to create that vision here with our company.

I was employee #4 in May 2018, and we now have 30+ employees, primarily in our San Francisco headquarters.  We just moved from a 300 sqft office (and a local team of 3 people) to a 6,000 sqft office in the Seattle area, and my goal is to grow the team to double the size of our company by the end of the year.  I pushed to have an office slightly south of Seattle because it provides much more opportunities to house-hack (and still be within a 20-minute commute to the office) vs core Seattle/Bellevue, which I believe is the best way to get started in real estate.

With each hiring candidate, I intentionally look for and/or instill a real estate passion, otherwise it's just a job to them.  I'm going to have an office with a bookshelf filled with books mentioned on the podcasts and recommended by other investors, so that any employee can borrow them to further their real estate education.  I currently host a couple of meetups each month, but plan on doing that on a more regular basis and start partnering with other local meetup hosts to use our facilities, so that I can constantly have real estate investors in front of our team.

I can tell you that I've been living the dream for the past year and a half.  I have the best of both (W2 and entrepreneur) worlds.  I've reached that next phase in my retirement plan, which is to do something that you love so that it doesn't feel like a job.  I've learned a lot more about real estate and risk (wearing a lender hat does that to you), and I've met some pretty awesome people in real estate that I otherwise wouldn't have.

Finance and Sales wasn't something that I went to school for, and I never imagined that I'd be doing this when I first started flipping houses 5-6 years ago, but my real estate journey and experiences (especially my failures) have led me here and I'm extremely grateful.

Thanks for taking the time to read this.  I hope it inspires some, especially those who are in a rough spot in their real estate journey right now and don't fully see the light.  I've been there many times.  As my 2.5-yr-old daughter (who apparently wants to be Dory when she grows up) often says, "Just keep swimming."

@Rey Orinion We typically underwrite actual rents to 1.1 DSCR, but with AFH we need to see a 1.35 DSCR minimum, which isn't hard to achieve with the high rents from this strategy. The limiting factor may be the market rent itself, which needs to meet a 0.8 DSCR. This is still a lot better than most DSCR lenders, who usually take the lower of market vs actual rent and subject them to the same DSCR.

Also be careful how different commercial lenders calculate NOI and DSCR because it will vary from lender to lender; that's the nature of working in a (commercial) realm where every lender makes their own rules (as opposed to having conform to Fannie/Freddie). There's always some kind of built-in expense ratios for things like vacancy, property management (even if you're not using one), reserves, etc.

The other problem I see may be the appraisal.  A lot of people think that a AFH should be worth more than similar SFRs in the area, or that its value should be based on its income and not comps.  Unfortunately, if it is a residential property, it needs to comp, and oftentimes there aren't enough comps around, so the value could be all over the place.

If anyone's going to be in town Friday night, I'd love to get together and meet folks before the Summit.  Say 7pm on Friday, Feb 7?

Oh, and if you're familiar with the area and can recommend a nice place for the networking event, I'd appreciate it!  Otherwise we'll probably just meet in the hotel (Courtyard Oakland Downtown).

@Omid A. Sorry I had tagged you on my previous post but it didn't register correctly; BP doesn't always work correctly on smartphones.

You mentioned you had a fixed 3-yr lease on the AFH?  I've typically seen long leases (3-10 years) with built-in rent increases of 3-5% per year.

Congrats @Donald Thomas!  That is a pretty sweet first deal, especially in our competitive market.

How much do you expect the monthly rent to be?

Also, there was someone mentioning that you can get 75% cash-out without any seasoning. You can actually go up to 80% LTV for cash-out with no seasoning. But not on a conventional loan; it has to be a commercial product. Conventional, as you mentioned, will only allow 70% LTV for cash-out on 2-4 units.

We've started financing these assisted living / adult family homes on 30-yr commercial loans and can confirm they get some pretty amazing and stable cashflow. Much easier to put a DSCR loan on them than most of the rentals you see on the west coast, where you rarely find the 1% rule.

A lot of investors have had to get creative on their rental strategy because LTRs simply aren't that feasible here. Things like short-term rentals, corporate rentals, boarding houses, recovery homes, supported living, rent by the room, etc.

@Omid A. I've been wondering why it was called Adult Foster Homes in Portland. Thanks for the insight.

You guys are really gouging your borrowers on the fees there, and I speak as both an investor who has borrowed from a couple dozen different HMLs, and as a lender myself.

1pt/month is insane. Most of the national lenders that lend in PA are 1pt for 3-6 month extension, and these guys are lending at 12-month terms. We're even less than that, but our extensions are on a case-by-case basis. We'd rather set up loans for longer terms up front (ie 12-36 months).

If a loan is past its maturity date, that means something went wrong, and charging huge fees adds to their problem instead of helping it. I understand the need to motivate borrowers to pay off your loan, but trying to find ways to help them goes a lot further to building a long-term relationship (as opposed to them becoming a one-time borrower).

Of course, all of this depends on how your capital is set up, and the overall market there. I'm not sure what price points are in the areas where you lend. Most of my rental portfolio is in PA, ranging from $25k to $100k. The terms you guys are stating may make sense for $25k because nobody else lends at that amount, but at $100k it's not competitive.

Search for Julie Clark from the Seattle Investors Club. She works with a lot of investor agents and has a lot of experience in wholesaling and commercial investing/brokering. She also hosts weekly masterminds for investors and agents. I think the closest one to you is on Thursday mornings in Redmond.

If you don't want to go the conventional or bank route, you can try going for an asset-based loan, which doesn't care at all about your personal income (and won't even ask you for tax returns or pay stubs).

One is the short-term bridge loan, which most people know as hard money.  It's the fastest and easiest way to pull money out of the property.  There aren't usually any prepayment penalties, but it's often high interest (starting at 7%) and short term (6-36 months).  This loan can often close in 1-2 weeks.

Another is a long-term rental loan, which is based primarily on the property's cashflow.  You can get rates in the 4's and 5's with your high credit, but if the property doesn't cashflow very well, you might not be able to pull out as much of a loan as you'd like.  There are also prepayment penalties if you pay off the loan within 3+ years.  This loan can close within 3 weeks.

Daniel, do you manage room by room rentals?  Most PM companies don't, but if you are we should chat.  Seems like you're in the area; I live in White Center.