All Forum Posts by: Wes Ripley

Could anyone recommend any banks they have worked with in the Columbus Ohio market that are investor friendly?

I know the general plan would be to look for local banks and credit unions but I was hoping for a direct recommendation.

We are hoping to do a cash out refi of our current residence to use as a down payment on a new larger house that would then be our primary residence and use the current house as a rental.

Thank you!

How did you come up with your ARV? With 16 units, that's commercial. Is the cap rate absolutely abismal? Typically if the cap rate is lower, rents are higher... an 16 unit can only be so cheap.

Even at $50 profit/unit/mo is $9,600 a year in gross revenue. At 300k ARV, that's a 3.2% cap rate!? How are the numbers so bad? Is there any way to raise your profit per door?

Matt, I would recommend that you reframe your approach.  Being conservative is fantastic and will make sure when you finally get a deal, it will probably be a good one!  

That said, there is a difference between being conservative in approach and being sloppy with numbers.  Do as best you can to identify your scope of work and attach the appropriate costs to that.

Replacing floors?  Great, attach your material and labor costs per square/ft.  Painting, do the same.  And down the line.

Once you’ve done that, you have you expected budget.  You can add a contingency budget as a separate line, but your planned repairs are your planned repairs.  

ID your scope of work and your ARV. Consider the difference between using you me contingency budget and not as the difference between a single and a double. Only then will you be able to evaluate on the back end how well you did at projecting your costs and comp evaluations.

Something you have to look at as well is your return on equity.  That’s about 1.84% for you right now.  That means you need to take action!  

I think you should look at either option 1 or 3.  If you sell though, instead of investing in the stock market you could 1031 exchange the property.  That will put off your capital gains tax.  

You could definitely keep the property and continue to rent out.  I feel like the rent probably isn’t high enough relative to the value to make it a great rental.  You could probably get a better cash on cash return in a different area if your current rent is where the market is.  On the other hand, if you can expect solid appreciation that can definitely justify keeping it, appreciation can generate much more wealth for you than cash flow.  You would need to look at the expectations for your area to estimate this.

In either case, you need to use the equity you have to work for you.  Again your ROE is currently ~1.84%, it’s like a fat slob sitting on the couch.  Let’s whip it into shape!

You’ve said both that you realize a Heloc would have been better. You’ve also said you haven’t closed on the property yet. Any reason you can’t back out of the mortgage and go with a Heloc? @Russell Brazil probably hit the nail on the head that this was generally a thin deal to start given the higher cost of this property. If you do manage some of the renovation yourself, you can probably shave a bunch of money. Doing floors and tile yourself would save thousands assuming you are doing a floating laminate or engineered hardwood floor. If you go that route, make sure to adjust your holding costs as it will likely take you longer to do those tasks than a contractor.

(Not legal advice, but you might consider....) Let them know they are in violation of the federal Fair Housing Act 1968, and I’m guessing they would change their tune fairly quickly.  Depending on their language, they could be descriminating against you in several ways.

Google “Budde v Cornerstone Mortgage Company pregnancy discrimination.”  

My initial response apparently cut shorst.  I was going to say worst case, the underwriter is just not very good and/or inexperienced and to find another one that is investor friendly and willing to think outside the box to make the deal happen.

In the lawsuit I quoted above, the mortgage company indicates as much that the particular loan officer on the case was their most experienced person

As David often says on the podcast, have you asked, “Why?”

The underwriter mightn’t think there’s is an issue and simply making him answer might be enough to make him find an answer and see that they are wrong.

Worst case, 

So let’s say you keep it.  In 5 years it might be worth 300-350k.  This is where location, location, location comes in.  You have a house in a good area that is appreciating.  

I am still learning but it seems the 1% rule holds truest for houses 100k and less.  Those will cash flow better but typically are in Your c and d class neighborhoods, which don’t usually appreciate much.

I feel like it comes down to what are your goals, cash flow or wealth.  Cash flow would probably say sell it, wealth would say keep it.

Is it zoned for commercial?  You might have to factor in the process and fees of getting it zoned correctly if not.

Is the owner able to do seller financing?  If so, you can swing a lower sell price with a higher interest rate.  The seller will pay less in taxes and you can potentially pay less overall as well.  You could both come out ahead and Uncle Sam is the only loser.

You would also have more money available for you repairs/value add up front since you just put less down on it due to the lower selling price.