All Forum Posts by: Pete Harper

We had a similar issue when starting up our real estate LLC. Most lenders want to see two years of tax returns and a credit history. The first couple loans can be tough. To establish a credit history I got several credit cards in the company name and used them to buy renovation supplies. Pay off the card at the end of the month to avoid interest. Here are a couple loan options you might consider.

1) Assuming you are the sole owner of the LLC you can get a conventional FannieMae loan in your personal name and transfer the property ownership into the LLC's name. You will need to wait until the loan is sold/settled, then you'll need to get permission from the loan owner to transfer deed without triggering due on sale clause. I took me just under a year to accomplish. Wells Fargo was a total PIA to work with fighting me every step of the way. Don't be discouraged if they say it is "impossible".

2) Look at investor cashflow loans from private money lenders.  Private Money look at the financials for the property and if you can show a positive cashflow after financing you can be qualified for a loan.  The downside is private money is very expensive compared to conventional financing.  You will have to pay upfront points, higher interest rates, and pre-payment penalties.  Many of these guys stopped underwriting loans during Covid. Good way to get your feet wet and start establishing credit.  

3) Look for portfolio lenders.  Target small to medium sized regional banks and credit unions.  Stay away from the big guys like BoA and WF.  I called 20 local banks/credit unions and was able to find two that were willing to do commercial loans.  Rates are competitive with conventional lenders but you need to do a lot of leg work.  Texas Commerce Bank is the one I went with.  VeraBank was the other willing to lend.

Having done all three types of loans I'm currently focusing on portfolio lenders.  Once you find someone willing to lend in your market they are the easiest to work with.  Frequently you are talking directly with the underwriting agent with greater flexibility when working with small business.  I was able to qualify with 1 year tax return, business balance sheet and solid credit scores.

Pete

@Blaine Alger I agree on the Baylor Bubble. I bid on a couple properties a year ago. Neither property would cash flow for the asking price. One property was owned by investors who had kids going to Baylor. The property lost money three of the last four years. I spoke with a local PM. He was good enough to tell me vacancy rates were high. He said if you are not full by August then it will likely sit empty. There is very little cross over with non-students. I imagine these guys are hurting now with Covid.

@Benjamin Bennett Personally I would be weary of any 19th century properties in Waco. I’ve looked at a couple. I’d have to look closer at the neighborhood but generally these are in the older section of town. You have to be within 10 blocks of Baylor to attract students. Generally speaking older homes are not that popular in Texas; Waco Chip and Joanna factor not withstanding.

Get a good home inspection. Anything that old will have termites. In Texas it’s not if you have termites but when.

@Tara Piantanida-Kelly

It is unfortunate the inspector made the mistake. I’m curious what were the consequences? Was there something negative in the report?

In California buyers are obligated to share inspection reports. We had a deal fall through and walked away from the deal. We were obligated to share the reports we had paid for free of charge to the second buyer. We saved him a bundle in inspection fees, septic inspection, and well water testing.

@Akhil Parasa Use the Trulia crime maps to help identify the better areas in Killeen. I’d also drive the neighborhood before I purchased anything. Finally ask your PM if they will manage a property in that neighborhood.

@Uyen Hoang

1) No issue with getting cashout refinance on home you own. Shop around smaller regional banks doing portfolio loans for best rates.

2) Hard money is certainly an option. Just factor in you will be paying points plus 8-10% interest rate on short term loan. If your project takes longer than expected the lender can call your loan before you are ready to cash out refi.

3) You can fill the gap with hard money, seller financing, personal loan, credit cards or many other options. Be creative.

@Ari Hadar

ARV = After Renovation Value

Use Zillow to pull comps in your market. If you are buying a C class property and renovating to B class you will want to pull B class comps. I try to find 3-5 similar properties and take an average. Or is you are working with a real estate agent ask them to help you with comps.

@Ari Hadar

I don’t personally use rentometer. It is not very accurate in small markets like mine.

You misunderstood how I use Zillow to determine market rent. Similar to rentometer these online estimates are not very accurate in smaller markets. Instead I was suggestion you use Zillow to pull rent comps. These are active for rent listings in your search area. Then you need to go in and review the comps to weed out the ones that don’t match your target property. For example the A+ property with granite counter tops and stainless steel appliances doesn’t go with the C property with 1980’s Formica. If you are buying a C property only include C comps.

The save search icon is the magnifying glass with heart in the center. If you set up a Zillow account it will send listings that match your search criteria to your email. It also saves them in a Zillow folder with same icon.

@Ari Hadar It is said in real estate you make most of your money when buy not when you sell.

To effectively scale you need to force appreciation. By buying below market you lock in appreciation early. Your other lever to drive appreciation is Renovation. Your goal in BRRRR is to drive enough appreciation in a short period of time to pull out all or all-most of your original seed capital to reinvest in the next property.

@Xavier Williams 1% rule is a metric for quickly screening properties. For example a 3BR 2BA house rents for $1200 in your market. The 1% rule says you should pay no more than $120,000 for this home. This is only a very rough rule, I would not recommend only using this rule to buy properties.

Here is how you can use the 1% rule. Do some research and determine the average rent for a house you want to buy. You can get a good idea using Zillow, Trulia or apartmentsdotcom. Plug in the number of bedrooms, baths, and square footage. Look at photos to get an idea of finishes; granite countertops and stainless steel appliances or Formica. Neighborhood and schools are also important. Now you have a good idea what the going rate is for the market you want to buy in. Now go back into Zillow and set up a for sale search based on the same criteria. Set price 30% below your final target. This leaves you room to get your equity back out after you Brrrr. Say your target is $1200 rent and $120,000 price set your max target price in search at $84,000. Zillow will deliver daily updates to your inbox of every property that meets your criteria. You can also tell realtors or wholesalers what you want. “Only send me deals under $84,000 for 3BR 2BA”. You can screen thousands of properties this way. I purchased my last duplex off a similar Zillow search. I have about ten searches running at any one time.