All Forum Posts by: Patrick Menefee

Hey all,

Looking at 2 potential investment properties and trying to evaluate some of the criteria a lender would use to underwrite me. As a starting point, i have a mortgage on my primary residence.

The first house i can easily cover down+closing and have no concerns. However the second house would only leave me with a very small amount of reserves, and would be my third mortgage. I’m not concerned with the financials on my end as the properties would cash flow well, I have access to a line of credit if an emergency arises, and my reserves will be replenished quickly enough.

My concern is how this would look to a lender. With good credit, should I expect this lack of liquidity after the final house to cause any issues? And if so, should I expect that to show in the form of a higher interest rate, or is there potential to not get approved? Also, do they factor in rental income with DTI calculations? If so that won't be a concern as it'd be under 20%, but if not I'd be around 35%. Will that cause any concern?

Thanks in advance!

@Alexander Persky

I purchased my first property (primary residence) with zero down through a VA loan (no PMI is amazing), and also negotiated for seller credits so my total out of pocket was ~$500. The obvious downsides are what have been stated and what you already know-no equity (actually probably a couple k upside down in the first months), higher mortgage payment, etc.-but i also retained all my capital that I'm now putting into a second investment property.

In a year I’ll do it again and rent out this current primary residence, and while the cash flow won’t be incredible due to the increased mortgage payment, I’ll have 2 houses with tenants building equity for me (while still generating cash flow) when I’d otherwise just have 1.

Maybe in a year or two I’ll have a horror story that came out of it (hopefully not), but I’d do it again in a heartbeat. And i will.

Best of luck!

@Kalen Ross

Hey Kalen, saw you included NC in there. Any of your group in the Charlotte area? Continuing to meet more investors in the area and share ideas/tips/partnership potential.

@Jessie Keating

Maybe you look at an Option C, since neither A nor B seem to really be conducive to your stated goal of $10k cash flow (A sounds like poor cash flow compared to home value, B provides zero cash flow).

Option C-finance your new house as planned in Option A to include PMI, sell your current house as planned in Option B, and buy a well cash flowing rental outright with the $175k cash proceeds (sorry if the math is off, don't remember the original numbers exactly). You would obviously pay more in mortgage with the PMI, and have less liquidity, but if your goal is cash flow you just generated a lot of it.

All depends on your risk appetite, ability to replenish reserves, and what your true goals are.

@Anthony Hollis

What part of Charlotte are you in? I closed on my first primary residence in March with no down thanks to the VA Loan, and while i plan to use that again after a year and then FHA a year after, I'm with you and want to get serious and get into an investment.

We should touch base, always looking to meet other people and investors in Charlotte.

The simple concept is talked about a number of times on BP Podcasts and in their books...what’s your most important next step (MINS)?

I set a few goals for myself this year after buying my first primary residence, and up until now I’ve been scrambling. I want to learn about rehab so I started J Scott’s book...I want to get better at analyzing deals so I spend time on Realtor.com and Zillow...I want to learn about funding so I started looking for funding opportunities. It’s been almost 3 months and while I’ve done a lot of good self development in a few areas, I’ve really gotten nowhere in my goals.

So tonight I did some planning. My next step is funding. I'm going to learn about funding options around the Charlotte area and analyze/identify top options for HML, private money, and seek out possible partnerships (if you know any of the above in the area or are looking for the same thing, let's talk!). That's my next step, and once i reach my tangible goal I'll move on to learning rehab.

What’s your MINS? Just looking to generate discussion and ideas.

@Daria Sukhenko I’m in the same boat. Bought a primary residence recently, but still looking to pull the trigger on my first full investment deal...tried an opportunity with a partner to get my foot in the door but got beat out on the offer. What part of charlotte are you looking in? 

Question for the group as it relates to partnerships.

How do people typically handle a partnership when a refi occurs and there’s no longer any cash in the deal? For example, I buy a property with a partner and because we initially have both names on the mortgage and split the down payment (and rehab), so we split the cash flow and equity 50/50.

We then after the rehab pull out all of our cash in a refinance, but the refinance is only under my name. Do you change the split for either CF or equity now that partner 2 has no skin in the game? Is it better to keep both names on the refi? How do you handle something like this?

Thanks!

Anduril glad to have you in Charlotte! I moved here a year ago, bought my first home as a primary residence this month, and am looking into my first deal with some partners now. 

A group of us started a Charlotte area GroupMe recently to share knowledge and hopefully get a meetup together very soon, shoot me a message with your number if youd like to join!

@Carl Crump what kind of partnership/investor are you looking for?