All Forum Posts by: Jacob St. Martin

Hello Bryan, these are good questions. I was in your shoes a couple years ago. Here are my thoughts about what you should do:

1. Really know your stuff. You want to be really well educated to show to the potential investor that you are serious and someone who is going to make them money. If they start asking you questions and you can't answer any of them it is a bad look. 

2. Know your market. When you wake up instead of scrolling on socaial media scroll through zillow. Eat, sleep, breathe your market. I want you to know it so well that when a new one comes up you think, "oh I haven't seen this one before". Analyze deals over and over again so that you know your market well enough that in a 10 second glance you can get a pretty good idea of how the property might do. 

3. Analyze the property in depth. Have a spreadsheet that shows a conservative estimate of revenue, expenses, and what their return will be. If it is not a simple project have a summary of the plan. 

4. You definitely want to have thought through the partnership structure already. My question to you would be what are you looking for from the partner? To be honest 20/80 is kind of a low split even for your first deal. If it is your only way to make it happen then that is fine. 20% of a deal is better than 0% but I would start off asking for more. 

5. Have a deal so juicy that they can't say no. This is how I did it. If it is a run of the mill deal then there is no reason for them to partner with you when they could just do it themselves. This is the hard part because everyone wants an amazing deal and a lot of the people looking for those amazing deals have more resources and connections than you do. This means you need to make a great deal out of something other people are passing up, find a niche that is less explored in your market. 

When it comes to posting in the forum, it can't hurt but I wouldn't count on it. You will likely have more success reaching out to people in your current network or expanding your network through things like meetups and networking events. 

I hope this is helpful, feel free to reach out if you have more questions!

Hello Brandon, I am not an expert on these methods but I might be able to provide some insight!

I believe that if you were to do this as a subject-to deal that the loan stays in your name while the deed transfers to the new owner. That means when you go to buy another house it still shows as a debt against on your DTI so it would impact your ability to buy another house but not your credit. If you were to do a wrap you essentially create a loan between you and the seller that mirrors the note you have on the house. This way when you go to the bank they will see a debt of X dollars and an income of that same amount from the other note so it is a net zero.

I will say that you mentioned wanting to tap into the equity in your property to build your business. This doesn't really sound like the way to do that, this will provide you with some long term income for the peice you seller financed but I imagine that is not what you are looking for? Also do you already have a buyer lined up? I am interested in seller financed/wrap deals

Hello Hunter! I am not familiar with your specific market but I should be able to provide some general insight.

You should almost certainly get your garage conversion permitted as an ADU. If you were just going to convert it and have a friend live in it for free or under the table it wouldn't matter but because you are planning on renting it as an Airbnb which you will likely need a permit for in your area, they will probably check to see if it is permitted and you might get in trouble if it is not.

When it comes to whether STRs are allowed in your neighborhood, normally I have not seen STR regulations attached to a specific zoning district but rather they are defined in a different part of your locality's laws. Try looking up STRs or if that doesn't work they are sometimes called home stays in the regulations. If that doesn't work just call the closest thing you can find at their office and they will be able to direct you. Sounds like a great opportunity! Let me know if I can help any further!

Hello Yvonne, 

The answer to this question depends on your goals and skills. If you have a background in developing or construction AND are willing to wait 2 years before you really start making profit then development is probably the way to go as you will likely build more equity and might have better cash flow. However, if you do not have both of those things I would not recommended. There are a lot more moving pieces when it comes to developing that when renovating a preexisting house. You probably want to have a decent net worth or other substantial income source before you start developing because there are more things that can go wrong and you wouldn't want this one deal to tank you. 

I hope this is helpful!

So just to clarify, is the $15,000 your down payment? If so I have a couple thoughts. 

Rate: 11% is pretty standard right now and actually not too bad

Origination Fee: This is kind of absurd. The highest I have ever seen in 3 points. 

Down Payment: if you are only paying 15k out of pocket this is pretty good and that is probably why you are paying so many points. 

Overall: My philosophy is that any loan that you can cover and gets you into a great deal is worth it. Whether or not this loan is good or depends on how strong the deal is. That being said I would probably shop around a little more because there fees are very high. If you are a newbie that could also explain the high fees. Maybe consider bringing on someone with more experience in order to get better terms? 

Hello Clareen, I am an investor in Charlottesville! I just closed on my second property which will be an airbnb after some renovations. My first one is a long term/rent by the room. I would love to connect sometime. There is also a real estate meetup that I attend on the second tuesday of the month at the omni hotel that is a great way to meet some other investors in the area!

Hello Amos,

I think you are not alone in running into these hurtles. I think that the main point that I would consider is the opportunity cost of leaving your cash in this deal. If you think that you would be able to use the cash from that refi to go and BRRRR one or two more properties this year then I would take the hit on the rate as long as you are close to breaking even on the cash flow side and/or can maintain being in a minor deficit for this time period, which it sounds like you can. If you are not planning to use the money for another property right away then I think you should just wait until rates come down a but because you aren't in a rush to get that capital out.

I am not an expert on taxes but I know that at least one downside to not refinancing is that you will not be able to write off your mortgage interest against the cash flow you are making from the house. If you refinanced and were not making any cash flow after expenses and were paying mortgage interest you would be showing a loss on paper which would be beneficial but I doubt that it is substantial enough that it should be the deciding factor. 

Your cash on cash return would technically be higher if you don't refinance because you will be cash flowing and not at a loss but your return on equity will be really bad so the more important part here is the first part of my response: whether or not you will be able to utilize the capital immediately if you pull it out. 

I hope this is helpful, feel free to reach out with follow up questions!

Hello Kevin, if your goal is from an ROI perspective you probably shouldn't go with either of these options, especially not paying down the mortgage. Here is why:

We often use the cash on cash ROI as our metric for determining the best way to use our money. While this number is helpful it is not the complete picture. There are two concepts that I think will help you decide what to do with your money: return on equity and internal rate of return.

The return on equity is similar to the cocROI except that the denominator in the equation is your equity, not the amount you initially invested. This tells you what return you are getting on the total value of your equity, which on day 1 is the same as your cocROI but this number goes down when you build equity. When you put your cashflow toward paying down the mortgage you are increasing your equity by that dollar amount but not increasing the income of the property which means your return on equity is continuously declining. Your return on equity will end up so low that even the low return from bonds would be better. 

Now I don't think you should do bonds either if your goal is ROI. Every investment has a set of strengths and weaknesses. Bonds are specifically designed to trade a higher return for more safety. If safety is your goal, maybe consider this option, but otherwise you can get way higher returns elsewhere.

Now if your goal truly is getting the highest ROI, then you should save up that cash flow and buy another property. Or if you have the skills to be successful using the BRRRR method go do a bunch of BRRRRs and you might not even need the capital from this property if you are using hard money or private money to do the BRRRR. If you don't want to spend so much of your time then maybe invest in stocks that will give you returns closer to 10% rather than 4% in bonds.

I hope this is helpful! Feel free to reach out if you have any follow up questions. 

 To my knowledge yes you can! 

If you don't have any w-2 income you have two options. If you want to refinance into a conventional loan you will need a cosigner. This is normally a tricky thing to find unless you have a family member with a high paying W-2. If you don't have that you could look for someone to cosign more as a partnership. Maybe you give them a portion of equity and cashflow for cosigning. 

Your other option is to do non-conventional financing. I would need more details to know exactly what the best move for you is but more likely than not a DSCR loan is the way to go. They will look at the finances of the deal, not your personal finances and will lend accordingly. This can get a little trickier if you don't have a proven track record as a real estate investor or proven track record of income for the property but if you have one of those it should be no problem. Even if you dont have one of those if you offer someone with more experience part of the equity/cash flow in order to be in on the deal and give you more credibility that works too.