All Forum Posts by: Patrick Roberts

 I 2nd this path. Free up your capital, get rid of the consumer debt to improve your credit and buying power, and roll your experience and efforts into the next project. Unless you're going to pay something egregious in taxes, like $15k or $20k, then this plan is probably simplest, and simplest is usually best. 

I'd take it slower. There are a lot of rules and intricacies when it comes to FHA multifamily and 203k loans. Also, DIYing a major project while working fulltime on a single income with an infant to take care is going to equate to loads of stress, sleeping less than 5 hours/night for months, and unforeseen expenses.

I'm not opposed to grinding - I got through undergrad and grad school while working fulltime and while completing two light SFR live-in rehab flips over a 5 year period. My wife and I did something similar not too long ago - she was working fulltime while also completing her undergrad and I was working fulltime, taking care of light renovations on another live-in rehab, and handling most of the errands and household chores to keep stress off her plate. There is no way I couldve done that while also trying to manage tenants and taking care of a baby. This is incredibly tough and taxing, and I'm concerned youre tackling too much at once.

Another question - do you have any landlord or property management experience, or have you done this before? If not, I strongly recommend starting smaller. Managing one tenant is a lot the first time around. Managing 2 or 3 can turn into a fulltime job until you get your feet under you and streamline processes and workflow. Trying to complete construction on a property that is occupied during the work by both your family and tenants sounds like a nightmare. Doing major construction on your home while living in it is hell - it's months of chaos, mess, and disorder. Nothing starts your day off wrong like having to weave your way around chopsaws, lumber, boxes, and paint cans scattered across the living room as soon as you wake up. 

If this is your first househack, start smaller and work your way up. I typically recommend to my clients to look for an SFR with an ADU as an entry point if they are still working fulltime.

If youre deadset on this, then as far as converting the garage, check with the local zoning authority before buying anything. Most zoning ordinances require a certain number of parking spaces and lot size (sq ft) per unit and may not allow for permitting of additional units. Also, pay attention to floodzones and BFE. In most cases, to get CO on a new unit, the elevation of the new structure has to be a certain height above BFE, usually around 2ft in coastal states like FL. Typically in the southeast, when a garage is under a house, it's due to one or both of the issues above, and conversion to living space is prohibited. 

I've seen a lot of this as well. Investors are reaching for yield with D properties under $100k ARV because they "cashflow". These kinds of properties are highly sensitive to market adjustments. If either prices or rents correct to the point where A and B properties make sense as rentals, those D properties will be impossible to sell.

These properties behave similarly to fixed income instruments as far as the inverse relationship between price and yield. They seem attractive right now due to cap rates and yields across the market, but as soon as cap rates/yields adjust upward, either through rising rents or falling prices, then the yield on these purely cashflow properties will need to adjust through price declines. 

Theyre traps - they sorta make sense with market conditions as is, but as soon as market conditions adjust, they will lose value. There isnt any underlying homebuyer demand for value stability and long term appreciation like other properties. 

What are you looking for?

 Yep. We just went through the BAR and got demo permits last month. Huge pain - been working on that one for 5-6 months with an architect. We're just about done with renderings so we can request variances through BZA. Probably another 2 months or so in that process. 

I wish I had known you were looking for lots for new builds. A huge lot next door to where we live in Westside went under contract a couple months ago. It's already entitled with permits for 14 townhomes that likely will like sell for around $1m each. 

I think I know exactly which property on F St you're referring to. I sometimes park on F St when I go to my gym. I saw the BAR notice that was posted a couple weeks ago. There's also a rezoning request for the house on the corner of F and I to convert it into a restaurant. That area is gold - will be great for a long term play (although a few of the long time neighbors are a bit rough). 

There are a couple potential projects that just popped up in Westside that could be decent with the right vision. I think the peninsula is going to be just fine, no matter what happens to the market at large. 

 Residential transition loan AKA fix and flip

I've also been told that Kiavi has halted all RTL funding in FL by several sources. As best as I can tell, this is factual. I also saw something that they are stopping all bridge funding nationwide on stabilized properties. It's either perm financing (DSCR) or nothing.

I have directly spoken with 9 or 10 private lenders and institutional RTL lenders in my two markets in the past two weeks. The universal expectation right now is that there will be increased experience requirements and higher borrower contribution requirements (lower LTVs) on RTLs for purchases going forward.

On the primary mortgage market side, we're hearing rumors of coming updates to DU and LPA that will be more conservative on approvals for investment property loans.

Ive been expecting this for a while. I know I've mentioned this before on here, but I have seen too many deals in the past year or so that are being strung together by hopes and wishes. A lot of investors are buying doors just to buy doors - there isnt much economic justification behind it, all with way too much risk layering. 

My guess is that the institutional lender programs that offer 90%+ flip funding to 1st-time investors are about to evaporate. My other guess is that DSCR loans are going to start requiring higher ratios for upper LTV programs, probably 1.15+.

@Travis Biziorek covered this pretty well. You can get Conventional loans on these at 75-80% LTV, but youre not likely going to be able to borrow the rest of the money to be 100% financed. Also, any lender doing the 2nd on this would be committing financial suicide - this is basically an unsecured loan. There is no equity in these kinds of properties at those LTVs - if the borrower defaults and this goes to foreclosure, these kinds of properties will sell for far less than $50k and the 2nd position lender will be completely wiped out. Getting 100% financing on these is a pipedream in my opinion.

In my opinion, these low ARV properties are traps. For one, maintenance and capex are not line items that can be estimated with a percentage of the ARV; they will cost much more relative to the price of the property. Ten squares on a roof on a section 8 property valued at $80k costs the same to replace as ten squares on a roof of property valued at $180k. You dont want to be the slumlord who pays a local crackhead $50 to staple tarps to a roof to patch it for two years.

The other thing, though, is that these are basically depreciating assets. They will not appreciate like other homes will unless they area is seeing major growth and rejuvenation. Last piece - these properties can be horrible to manage because of some of the tenants and neighbors in these areas. That cashflow sounds great until your replacing both doors and all of the windows because a swat team ripped them out serving a warrant on the property, or until you cant find any PMs willing to deal with certain tenants because of violence and substance abuse. 

You cannot get a conforming loan (meaning Fannie or Freddie) with the property owned by an entity. Those loans are only available to individual persons and certain types of trusts. To get a loan with an entity, such as an LLC, holding title and/or being the borrower, then you will need to use a commercial loan, such as a DSCR loan.

Conforming loans will almost always be the best bang for the buck, but you will have to go through a traditional mortgage underwrite - income, credit, employment, DTI, etc. Typically, conforming loans will have approx the same rates as DSCR loans but without some of the points and prepay penalties. You can also transfer title of a property to an LLC once you have a conforming loan on the property, but I have my doubts about whether this truly accomplishes anything.

Whether or not you need an entity for liability protection is specific to your circumstances, and only an attorney who has been retained to represent your interests can advise you on this. LLCs are not a magic wand that make you lawsuit proof - there are a lot of technicalities and variables that affect this. It also varies by state. Limited-liability entities may be necessary in some circumstances and not in others - in many cases, an umbrella insurance policy is more than sufficient. 

@Laura Baker is a local PM in the CHS area. Luke Theriault at Portside PM is another good local resource. They could probably help with this. I could be wrong, but I believe that these rents reflect in the local MLS for comps, as well.