All Forum Posts by: Steven Goldman

Quote from @Randee Erickson:

I’ve been getting texts from Blue Gate Capital and was wondering if anyone has had any dealings with them. Are they legit?

Hi Randee: Due diligence is important at every stage of the transaction. We recommend that you check reviews of the lender; Ask for references; If the lender is advertising something that is outside the normal metrics for the industry it is likely a bait and switch.  No NON-QM broker or lender should be collecting upfront fees for processing. I would avoid anyone who wants you to pay anything upfront other than an appraisal. The market is in a extreme state of flux due to interest rate volatility. I would check the internet for articles about any lender you are considering. Two of the biggest players in this space just folded. Sprout and FGMC. In this business its just not who you know but what you know. Good luck! https://www.prnewswire.com/new... https://nationalmortgageprofes...

Quote from @Devin Bost:

I've been aggressively studying how to successfully buy, rehab, and flip (aka "redevelop") residential properties, and I'm currently working on my marketing strategy. I've been investigating the idea of looking for off-market pre-foreclosure properties specifically, and I'm wondering if anyone has any tips or stories "from the trenches" regarding how to do this successfully and how to avoid any critical pitfalls. 

I'd also like to know about things like:

• How motivated are the sellers typically (especially in comparison to other types of distressed seller situations)? 
• How easy is it to find motivated pre-foreclosure sellers (especially in comparison to other types of distressed seller situations)?
• Are there legal complications that can occur?
• How sensitive do you need to be with the timing of the sale, such as when foreclosure proceedings are starting or about to start?
• Are there additional risks that are more common with these types of properties?
• How often are the sellers very emotional and hard to deal with?

Any guidance would be much appreciated.

 Hi Devin, I have been involved in many short sale and pre foreclosure sale transactions. The key is to be able to detect that the borrower is late and arrange for a sale prior to the default notice. In a judicial State the default notice only starts a lengthy process until foreclosure. The pre foreclosures are only a good deal prior to an agent listing them for sale at full price. So you need to get leads on lates, or get courthouse information and than direct mail, call, door hang or knock in order to make direct contact with the owner. You need to be able to accept rejection and also persevere. Borrowers who are late often ignore all attempts to contact them because they can not deal with the emotional stress of their mortgage default.  I have found that the most tenacious investors who are able to make contact with the owners are rewarded with the best deals. 

All of the owners are highly emotional. So it requires strong communication skills and the ability to persuade them to take action when they are often in ostrich mode. I often find bird dogs who were familiar with the communities we were interested in and would be able to more easily contact the owners because they were living in the community. Good luck. 

The complexity of converting a single family to a two family depends on the structure you are trying to convert. Obviously, once converted it will have increased income and be capable of carrying a greater principal mortgage. I would get an estimate from a contractor on the conversion before I got to far into the deal. Your offer should be contingent on getting any necessary approvals for a two unit. Just  because it it a permitted use in the area does not mean you will not have to obtain certain governmental approvals prior to a conversion. Good luck.

Hi Jason, I would notify the owner that you have learned the property is only a 2 bedroom and not a 3 bedroom as advertised and ask the seller to release you from the agreement. As a former practicing attorney in Pennsylvania I would recommend you get legal advice from a practicing Texas licensed attorney. I would avoid a conflict if possible as the lawyers are the only participant in a fight who are guaranteed to make money. Good luck.

Quote from @Patrick Eldridge:

My wife and I get a little creative with our financing but let’s say the Asking price is $100,000. We offer them $125,000 with 20% sellers assist, So we get $25,000 sellers assist at closing. There’s no cap on sellers assist with a commercial loan. I’d rather pay an additional $25k to  finance the closing costs and keep are hard cash to buy more properties. You have to explain the math to the sellers, they’ll still be getting there $100k in some cases we offer more to cover the taxes they’d pay on the additional 25k but only if they question it.

This strategy only works if the property will appraise and debt service coverage at the maximum LTV of the sales price. So you need good rent and good value. Otherwise a reasonable sellers assist is permitted by most lenders. You still need skin in the game. Good luck.

If your borrower is financing the transaction other than through your friend you will be unable to get a mortgage position. If you are going to provide all of the financing than it is much lower risk as you can take a first mortgage position on the property. 

Be aware it only takes one deal which does not pan pout to put your capital at risk. So it is not risk free. Honestly, unless you are getting a first mortgage I would steer clear of financing flips. As to 10 percent as a return at time of sale, it seems to low if you are essentially the equity partner in the deal. 

Finally, if your friend is doing so well how come he needs to borrow money from you to do his deals? Just something to think about. If you are going to lend him money I would want a credit report and also a financial statement. You should essentially follow the steps any lender would take before lending money into a real estate transaction. Good luck.

Quote from @Darryl H.:

Hello! I am first time real estate investor from California. I am looking to BRRRR in Columbus OH, in North Linden or any similar C+/B- neighborhood. My budget will be around $200K saved up within the next year to finance a cash offer and rehab.

I am planning for a 3 bedroom SFR, cash offer of 125K-150K, and rehab costs of 20K-40K. Including closing & holding costs I can be at ~170K all in, and I am guessing around 200K ARV (maybe a higher ARV? I need to get some more opinions on this too). Does this all sound reasonable so far?

With a 75% LTV I would have to leave ~20K in the deal. I think I would be okay with this since it is half the down payment of a $200K property, I would have 50K in total equity right from the start, and I get a fully refurbished property. Minimal cash flow is acceptable for me because it seems like appreciation and increased rent could work well for me long term. I also do not plan on quitting my W2 job any time soon.

Are my expectations with BRRRR too low here? I already spoke with an agent & contractor that have been super helpful with all my questions. I just cannot get the numbers to work out to fully recoup all the money I would put in. Should I just consider a different market where I have a better chance to recover more of my cash invested?

Hi Daryl:  it appears you have put a lot of thought into your BRRRR process. I have several suggestions that you may consider. First, a 30k spread is inadequate to succeed in a BRRRR purchase. Most of the fix and flip lenders will make you put a great deal more cash into the deal if the spread is that thin. Second, on a thin spread if some of the challenges that @Darryl Hua mentioned materialize you do not have enough of a margin to have a successful exit strategy. I suggest that you look for a minimum 50k spread. You should also know the maximum LTV on the out based on the DSCR. This will change as rates change but it will give you a good sense of how much you are going to get out on the refinance. 

Finally, it is not a good time to buy a listed property from the multi list and than rehab. and refinance. You must work the off market deals, sheriff sales, short sales, internet listings and foreclosures. If you pay market price than you will have a tough time executing out in a advantageous fashion. Good luck.

Quote from @Mike Schorah:

Are there any type of rehab loans or rehab/mortgage loans that I could take out if I have a 20-40% down payment?

HMLs seem to want experience and I don’t have enough to buy 100% cash.

Mike their are many lenders who will lend to a first time rehabber. In fact, if you do not have experience most hard money lenders will limit the LTV and expect you to put more money into the deal. You can expect 80-85 percent of the purchase price and 100 percent of the rehab up to 70 percent of the ARV. You should conduct thorough due diligence nd make sure the broker or lender has a good reputation for closing loans. As an investor I enjoy attending meetups, working with newbies and sharing my experience with them. It is very exciting to see someone begin their journey and than succeed at BRRRRing. A good broker will know how to walk you through the entire process including application, closing, scope of work making draws and refinancing. Be aware you should understand the LTV and refinance process when you to your deal analysis to avoid coming up short on the refinance. Good luck.

Quote from @Brandon Oldham:

I'm ready to refinance and repeat but I seem to be having trouble with the refinance part of it. I spoke with different companies and it seems to be all over the place with requirements on credit, seasoning, rented or not rented, min loan value, and percentage. Anyone have any solid recommendations for the Detroit area to refinance a BRRR PROJECT.

Thanks!! 

Hi Brandon, not to lecture you, but we always suggest that you already line up the refinancing before you start the rehab. project. It allows you to understand how much you are going to be able to take out of the ARV after you have leased the property. A good broker will be able to match you to a lender who will lend in the greater Detroit area. That is not always a given That is why we recommend you always arrange the out before you commit to the project. It is hard to give you better information without knowing your specific finances and the projects metrics. Generally, you should be able to cash out refinance up to 75 percent of the ARV as supported by the DSCR. So the rental income (Minus adjustments for repairs, maintenance and management) must support the LTV for the loan. This figure is dependent upon the interest rate and the amount of the loan. Good luck.

Quote from @Evan P Stegman:

Hello BP,

I'm approaching the 3rd R of the Brrrr method. I'm Very curious what would make more sense, a home equity loan or a cash out refinance? I've always heard of just doing the cash out refinance, but don't really hear anyone talking about just doing a home equity loan. What are the befits of doing a home equity loan over a refinance?  The scary thing is my current rate is at 3.8% and don't want to refinance and change that rate to 6%. let me know if you have any insights about this situation or advice that might help. Thanks have a great day. 

Hi Evan, your question is a good one and I do not believe their is a right answer. I ascribe to the idea that each deal should stand on its own. Also that your personal assets such as your residence is better off not funding your real estate projects. So, I prefer to draw the equity out of the deal with a refinance and then use it to buy the additional properties. This keeps everything separate. However, if you have a lot of equity in your house and can get approved for favorable terms on a HELOC than that is a valid path. (Make sure your wife agrees with you, many do not.) I prefer not to use home equity as it is not always real! If you are not careful you can overleverage your primary residence and get into trouble. We are approaching a down cycle so what is now home equity, may vanish. Good luck