Tuesday, January 24, 2023

Navigating the upgrade game when buying a newly-built home: a series for the new home buyer (part 2)

 Now that we’ve looked at how the design center options/upgrades process works when buying anewly constructed home, it’s time to study which of the builder’s offerings are prudent to pay extra for, which ones can sit on the shelf for a while, as well as offer some food for thought as this “production line” home is being built.

Your home’s exterior

Former new home sales manager/sales manager Dena Kouremetis offers her expertise from the other side of the fence, saying, “If the builder offers you a choice of exterior elevations, such as siding, stucco, brick accents, river rock, etc., and up-charges for them, you may want to consider them seriously.” She goes on to say the maintenance of some surfaces mean regular investments (such as painting siding), whereas easy-care surfaces (such as stucco or brick) stay fairly timeless. Paying an extra $20k for an upgraded exterior, however, might find you in a quandary as to its value in the big scheme of things if this home is NOT your “forever” home. If you do plan to be there for a number of decades, however, she says passing up the upgraded elevation might find you having regrets. And if you have ideas to alter them yourself? “Whatever exterior options are offered, however, have been pre-approved by the city. Changing the exterior elevation of your home on your own after the fact may find you facing fines.”

“As for the remainder of the outside of your house, most builders include a minimum of landscaping to the front yard, but always hope you will improve upon it, depending on the neighborhood rules governing the look of your home,” says Kouremetis. “If the builder has an option to sod and add a larger or covered patio to your backyard space, however, compare the costs with outside contractors. There is certainly a beauty to your backyard being just as move-in-ready as the interior of your home. Living with dirt in the backyard for an extended period of time is simply a pain.”

Electrical and plumbing options

Homebuilders in some states are required to install energy-saving features in their new builds — amenities such as hot water on demand (to save water) but most of these also save you money on your monthly water bills. Solar as well. ENERGY STAR appliances are now the norm and not the exception to it, and may be required in most states. If the builder offers other electrical or plumbing options, however, this is the time to think long and hard about it. Kouremetis asks, “How handy would it be to have extra exterior weatherproof outlets for holiday lights and outdoor appliances/future kitchen? This is the time to do it, and chances are good that whatever they charge for things like surround-sound wiring in the ceiling, plumbing for a laundry sink, or recessed or canned lights in some areas will not be much different from having a contractor come in, charging time, materials and labor.” She warns against making quick decisions to have the builder install things like entire sound systems through the builder. “It can be a real crap shoot. Whenever a builder deals with an outside company it contracts with to offer a product in your home, they usually charge a hefty premium. This is the time to do your online homework.”

Flooring

There are a number of ways to look at this important element for your home. The amount of time you plan to live there, whether you have dogs and kids (promising lots of wear and tear), and your own sense of aesthetics all come into play. Many families with young children decide not to invest in an upgraded flooring, opting instead to change it out to a better grade of carpeting or to hardwood or tile later on, when the kids are older. Others decide they want bullet-proof flooring from the get-go. The builder will finish your house with the flooring you choose (in most states, lenders require flooring to be in place before COE), but before you make that selection, get a bid from a flooring company and compare. Should you decide to go outside, the best time to have the flooring installed by the builder replaced is immediately after close of escrow. As for the brand new carpeting or vinyl being torn out at that point, get a handle on either selling it to a private party (perhaps an apartment landlord/owner) or donating it to Habitat for Humanity or another charitable cause.

Window coverings

 A builder’s design center usually offers a window covering package — at the minimum some blinds to cover windows throughout the house. The neighborhood rules (Covenants, Conditions, and Restrictions) may forbid sheets up on windows immediately upon move in. So compare the price the builder offers for this. If going fancier, such as with cellular shades, drapery, or plantation shutters, again — look around. For both flooring and window coverings, permitting the builder to install these items also means they may be covered by the new home warranty for a period of time. That might mean peace of mind as well.

Lighting fixtures

Chances are good that there will be some “standard” fixtures included in the sales price, such as an entry and dining room chandelier, recessed lights in hallways, bathroom fixtures, and lighting/ceiling fans in some rooms. But you will be asked if you wish to upgrade these items as well. “Light fixtures are a highly personal choice, but don’t pass up the opportunity to add recessed lights to rooms where they are lacking, such as bedrooms,” says Kouremetis. “Either add your own dimmers or look into how much extra dimmers cost through the builder. You’ll thank yourself later. The design center consultant should be able to show you a blueprint of the lighting locations in the house, and it’s before sheetrock goes up that your decisions should be made. Don’t snooze on this one.”

 Paint

You may not have much (or any) choice in interior or exterior paint colors. If the builder offers choices, however, take it as a bonus. They may even offer accent wall colors. Just know that whatever kind of paint job is done by the builder, it becomes part of your new home warranty — a “punch list” item the builder will return to repair/redo if not done perfectly.

 A buyer’s obligations/rights to the home during construction

If you are ordering up a home starting with dirt/sticks in the ground, there will be cut-off times for many of the decisions you’ll have to make. A production home is like a car on an assembly line. Once certain parts have been put into place, it costs a lot of time and money to backtrack and add things to the product. Same with construction. A building superintendent has a schedule to follow, with homes required to be move-in ready by a certain date. After that date, the finished-but-unoccupied home becomes the builder’s liability (a regular mortgage payment). So PAY ATTENTION to cut-off times for your electrical, architectural, flooring, and plumbing options. Some must happen before the foundation/slab is poured, others before drywall is installed, and others before cabinets and trim are started.

As a word to the wise, Kouremetis adds, “Just because you have placed numerous deposits on this home-to-be does not mean you have a right to be in or on the property before you own it, and it definitely means you can’t do any of your own installations (paint, flooring, appliances or even grandma’s antique crystal chandelier) before you hear the words ‘You’re on record,’ and someone hands you the keys. “The builder is liable for anything that happens on their property before move-in, so even if your building superintendent says it’s okay to walk around your home being built, wear the hard hats he offers you happily and don’t sneak around after hours. He does not have to permit you to be there at all.” 

Afterthoughts

Your smartphone camera will become your best friend. Whether you are mulling over your choices at the design center, watching the walls go up or even catching some sloppy work before you have your new home orientation (the equivalent of a resale “walk-through”), let your phone document whatever prompts questions on your part. “No question is too silly or dumb,” says Kouremetis. “Don’t think just because you don’t know what you don’t know, the builder would not be both eager and happy to explain every step of the process. While it’s their job, it will become your home.”

I hope this was useful.

Thank you for visiting my blog, please leave a question or comment and come back again soon. 

Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,

NMLS#269926 Company NMLS#1930219

TBWS


Friday, January 20, 2023

Navigating the upgrade game when buying a newly-built home: a series for the new home buyer


 
You’ve been looking in earnest at resale homes, but on a tour of the outskirts of town, you see something off in the distance. A series of signs and banners are everywhere, leading Hansel-and-Gretel style to a brand spanking new set of stunning, lit-up model homes. The curiosity is killing you, so you take all the requisite turns to reach the model home sales office. There, you are greeted by a friendly salesperson (usually a licensed real estate agent) who works exclusively on behalf of the builder.

You are handed a brochure and a price sheet, but pay little attention to it at first. Instead, you stare down at a structure in the middle of the sales office that appears to be a miniature layout of the neighborhood. Called the builder’s “top” (topographical) board, it contains pre-planned cul-de-sacs, a space for a neighborhood park, a future school — it’s all there. Now it’s time to walk through the model homes. There is that new home aroma of new furniture, paint and flooring, uncovered windows letting every bit of light in, and accessories and artwork you know you can’t buy during a quick trip to HomeGoods.

You are unwittingly being romanced at every turn, making you feel like a kid in a candy store. Former CA-based new home sales trainer Dena Kouremetis offers her advice to buyers in this series on the ins and outs of the upgrade options offered to new home buyers. Questions include (1) Should you settle for only the amenities the builder offers in the base sales price and then add your own upgrades later on? (2) Why/when might it be prudent to use the upgrades offered by the builder’s design center? (3) Should you compare the costs of everything you can get at Home Depot or Lowe’s for similar items before signing on the dotted line? (4) What amenities are ALWAYS best to get on your own, after close of escrow?

 But first, let’s cover the topic of how this upgrade/design center thing works. The homebuilder offers its 2415 square foot single-level, 3 bedroom + office/den, 3 bath home for $530,000. Included in that price is either a carpeting option throughout most of the home (except for the entry, laundry, bathrooms and kitchen) or LVF (luxury plank vinyl flooring) throughout. The included appliances, windows, interior paint, lighting fixtures and standard electrical and plumbing features are all listed on the builder’s slick brochure in your hand. In order to physically find any of the standard items within the model home, it may take several more visits, but they are usually somewhere in one or more of the models.

 As you walk through the prototype of the home that interests you, there are disclaimer tags on walls and items saying things like “I’m included!” But most of them read, “Available feature!” or even one that explains that the case goods and furniture throughout the place is not available at all, since it was a staging company that placed it all there. You’re attracted to the 8-burner Wolf range, would die for the built-in SubZero refrigerator, salivate over the wine fridge, love the idea of a whole house speaker system, and have only dreamed of the telescoping folding glass doors that open up the entire family room to the backyard covered patio (which in the model includes an outdoor fireplace). They’ve got you baited for sure. As you can imagine, the builder’s design center is no doubt a gleaming theme park of upgrade possibilities. The stage is set, however, and now you’ve got a visual handle on what it might be like to live in a home like this.

 Once you commit to the house itself (you’ve studied the area, the commute, the schools, the builder’s reputation, etc), the salesperson’s next duty (if you’re not paying cash) is to make sure you are fully pre-approved for the mortgage. Knowing you may add some upgrades here and there, they try to qualify you for the max amount — certainly one over and above the sales price. They explain that for each $1,000 increment you add to the price of the house for upgrades, it adds X amount of estimated dollars to the monthly payment you’ll make. That extra $100 per month to your payment (depending on the interest rates at the time) may only amount to a month’s worth of Starbucks runs in the big scheme of things. But for your future home it means hardwood floors as well as upgraded appliances -- that is, <i> after</i> the builder credits you for the amount their (included) flooring allowance would have covered —at their cost, not at retail. After all, although they buy in bulk, they do intend to sell it to you for a profit.

So now your mind is at work. If amortizing the amount of your upgrades over the life of the loan, how much might that cost you by the time you either sell your house or pay it off? Might it have been more prudent to just live with vinyl on the floor, cook on the standard 6-burner stove for a while and look into fancier versions later? At that point, would you pay cash for it, would you be financing it all through a credit card, or refinancing when it became cost-effective to do so?

 Your new home salesperson may not cover all these ‘what ifs' with you,” says Kouremetis. “They don’t want to pry too much into your financial situation when you begin making decisions regarding upgrades. But they may have some suggestions for how to proceed if you prefer NOT to add upgrades through the builder, such as paying for the house to be PREPARED to receive extra electrical and plumbing options later on. They may also offer some food for thought on how it may be wiser to go through their design center for some of the options.”

You’ve been looking in earnest at resale homes, but on a tour of the outskirts of town, you see something off in the distance. A series of signs and banners are everywhere, leading Hansel-and-Gretel style to a brand spanking new set of stunning, lit-up model homes. The curiosity is killing you, so you take all the requisite turns to reach the model home sales office. There, you are greeted by a friendly salesperson (usually a licensed real estate agent) who works exclusively on behalf of the builder.

 I hope this was useful.

Thank you for visiting my blog, please leave a question or comment and come back again soon. 

Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219

Monday, August 29, 2022

Can I Get A Commercial Loan With 20% or Less Down

 Question: "I have about 10–15% to put down, but I’m afraid they won’t qualify me because I don’t have the 30%. I also want to use the properties leases as additional income to help swing my DTI in my favor. Is there a way to accomplish this? Or should I just focus on getting a cheaper property with cash?"


In the commercial world, it’s tough to buy with less than 20% down. BUT not impossible. 

Commercial loans are appraised and underwritten differently from smaller residential income properties (1–4 units). Lenders do not use debt-to-income ratios (DTI).

Both the appraisal and the underwriting will be done largely on capitalization of income. First, let’s define a capitalization ("cap") rate for those readers who may not be aware of the term.

When we evaluate income property, we first reconstruct the income and expenses. We’ll look at scheduled market rental income and subtract a reasonable market vacancy factor. The resulting number is called Effective Gross Income. Next, we’ll reconstruct operating income for the property. We will include a management fee, even if one is not currently being charged, and standardized factors for repairs and replacements. We’ll subtract those expenses from the Effective Gross Income to get Net Operating Income (NOI). The NOI does not include depreciation or debt service.

We calculate the cap rate by dividing the NOI by the property’s value and expressing the quotient as a percentage. Thus, a $1 million property with $80,000 NOI would have a cap rate of 8.0% (80,000 / 1,000,000 = .08 = 8.0%).


An appraiser will use a market cap rate for the type of building he is appraising and work backward, dividing the NOI by the cap rate. A building with NOI of $100,000 in an area where the typical cap rate is 7.5% would have a derived value of $1,333,333 (100,000 / .075 = 1,333,333).

The lender will base their loan partly on "debt service coverage." This means that they’ll expect a certain amount of cash flow left over after the debt service. They will use the calculated NOI to arrive at that number. If their guidelines specify debt service coverage of 1.2, that means that our building with NOI of $100,000 would support annual debt service of $83,333 (100,000 / 1.2 = 83,333). Working backward from the annual debt service and using the loan terms available, we’ll get the size of the loan (with some possible limitations).

Annual debt service of $83,333 represents a monthly payment of $6,944. If the lender is willing to make a loan with a 5% interest rate amortized over 25 years, you’d have a loan of $1,188,000 (trust me on this. I know things). So working backward to check our work, we divide the $83,333 annual debt service into our NOI of $100,000, and we get 1.2.

These kinds of loans are almost always "portfolio" loans. This means that the lender will not sell them on the secondary market (Fannie Mae and Freddie Mac are among the largest buyers of residential mortgages), but will hang onto them. Because of this, they have the flexibility to set their guidelines. They will typically do two additional things with their loans: they will extract a personal guarantee, and they will have a maximum loan-to-value ratio (LTV) for their loans. If their maximum LTV is 80% (which is typical), the loan we’ve just calculated would be good for a property valued at $1,485,000 (1,188,000 / .80 = 1,485.000). If the property you are considering has a price lower than that, let’s say $1,300,000, the lender is likely to approve you for $1,040,000–80% of the purchase price. If your personal financials look good, some lenders may be willing to extend more credit. They might look at "cross-collateralization," for example. This means that they would encumber other properties you own to secure the excess. They may also make the loan "recourse." This means that in the event of foreclosure, they would have the right to come after you personally for any shortfall if the property should not bring in enough cash at sale to clear the mortgage and costs of foreclosure. This personal guarantee can make refinancing or selling those other properties difficult.

The primary things to keep in mind with commercial financing is that the lender is looking very hard at the economic viability of the property when approving a loan.

I hope this was useful.

Thank you for visiting my blog, please leave a question or comment and come back again soon. 

Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219

Friday, July 8, 2022

MAKING A DEAL ON REPAIRS AFTER THE HOME INSPECTION

 For everything we hear about outdoor air quality, few homebuyers seem to be overly concerned about the air they may breathe inside the home they’ve just submitted a purchase offer. Most Americans will spend at least one-third of their time every day inside their house. So if the air they breathe during that huge chunk of their lives is unhealthy, it has the potential to be a really big deal.

According to a Redfin article by Dylan Clark, many indoor air quality problems are difficult to inspect for or gauge accurately because they lack easily definable metrics. “This leaves uncertainty regarding things like mold, formaldehyde, pets, rodents and other peculiar odors, he says. “One indoor air quality question that comes up a lot on older homes, which is a bit more precise to measure, is asbestos.” That means if you're a homebuyer, homeowner or remodeler, it’s wise to learn all there is to know about asbestos.

Asbestos is a mineral that naturally occurs in the earth. Because it contains properties that make it an excellent and inexpensive fire retardant, it was added to a number of building products back in the 1940s all the way through the 1970s, including insulation, floor tiles, ceiling tiles, heating duct tape, boiler pipes, cement siding, textured ceilings, and even the glue used under flooring.

The reason you hear remodelers on HGTV shows shriek with horror when they find asbestos materials during a house renovation, however, is because it can not only be toxic when the abrasive fibers get inhaled into the lungs causing damage to lung tissue, but remediation can also be a big hit to their renovation budgets.

So how do you determine if asbestos is present in your house? For one, you can hire an industrial hygienist or an environmental lab to perform an evaluation of the house, according to Clark. “These contractors should follow a thorough testing protocol and will often take more than a dozen samples from the building. Once you have the results, you should know what materials contain asbestos, and most labs will also provide a protocol for remediating (safely removing) these materials. You now have data.”

Then there question of what to do. In older homes many of the materials that contain asbestos are already encapsulated and can’t become airborne, so you can rest easy — nothing needs to be done. “The biggest risk posed by asbestos in buildings is during a remodel or renovation to an old house,” says Clark. “This is when the asbestos-containing materials get damaged and aerosolized and people working or living in the house are at risk of exposure.”

State laws often mandate that homeowners and their contractors test for asbestos before any construction or renovation project if a house was built prior to 1977, when the substance became banned for public health reasons. Remediation must be done by licensed abatement contractors before starting demolition work.

Homebuyers tend not to test for asbestos as part of their due diligence when buying a house for a number of reasons, including no immediate plans for renovations. If there are no real plans to potentially disturb the asbestos products a house may contain, you may to test the house later when you have work done. But if you are the new owner of an older home who instantly plans to take down interior walls, rip out old drywall, lath, and plaster, you need to plan a budget for lead and asbestos identification and remediation. “If you have time to do this evaluation before buying the house, that is great,” says Clark. “The more data up front, the better.” Often, however, home buyers have short timeframes to complete their inspections.

It should be noted that home inspectors generally are not certified for asbestos inspections. While many home inspectors report on the presence of building materials that are likely to contain asbestos, their findings should not be confused with a comprehensive asbestos identification inspection.

Thank you for visiting my blog, please leave a comment or question. 

Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219


Source: Redfin, TBWS 

Thursday, July 7, 2022

FHA Loans And First-time Homebuyers

 Question: Are FHA loans only for first-time home buyers?


Not at all. The Federal Housing Administration was formed in 1934 to provide financing for low- and moderate-income buyers, but there is no maximum income for buyers or requirement that they are first-time buyers.


FHA has become a useful choice for many buyers whose credit situation might make conventional financing more difficult and more expensive.

FHA loans today require a minimum down payment and mortgage insurance for the life of the loan. Although it is not a first-time buyer program, it is very popular with these buyers, partly because many communities offer down payment and closing cost assistance for qualified first-timers, whose income falls beneath certain limits.

FHA is also an excellent choice for those buyers whose credit scores are at the lower end of the scale. Whereas conventional loans require a minimum FICO score of 620, FHA accepts scores much lower. Contact your lender for specific terms or to apply for an FHA loan.

FHA does have a potential disadvantage, and that is the way mortgage insurance (MI) is handled. Lenders require mortgage insurance to limit their risk any time the loan is for more than 80% of the property’s value. With a conventional loan, a borrower can ask the lender to remove the MI once they can demonstrate that the loan is less than 80% of the property’s value. With FHA, the mortgage insurance will be in place for the life of the loan. Borrowers pay MI in two ways: there is an up-front premium that’s added to the loan and a monthly premium that is also added to the payment.

FHA loan calculations can be a little tricky to explain in this medium so you should absolutely reach out to a trusted, licensed lender like ME, to better understand or apply for an FHA loan.

Good Luck and thank you for visiting my blog! Please reach out or leave a comment or question. 

Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219


Thursday, October 21, 2021

Hedging Your Bets On Your Very First Flip

So you think you’ve read enough books, gone to enough seminars, watched enough HGTV, finally
got an offer accepted on an investment property and are now waiting for it to close. What should you expect? Smooth sailing or a nightmare? Is there an in-between?

So let's goes over the possible outcomes,  it’s good to talk to others who have been there/done that. And even though none of it will insulate you from reality, here are a few ways things can go.

Best case scenario is, of course, that it goes swimmingly, making you think you’ve got a handle on this investor/flipper thing. Here's an example of a couple who had great success with their first purchase. No major issues, making them confident that investing in real estate is much less complicated than they originally thought. But the couple had also done their homework. They took the time to speak to other flippers, studied how to evaluate the value of a property, took notes of what damages or potential expense to look for, and learned how to evaluate the housing market. They also got wisdom from others on the importance of how to communicate with their clients. If you do all these things, “Then you stand a much better chance of having a really smooth, profitable first purchase. Of course, a lot needs to be learned on the job, and you’re bound to make mistakes here and there, but this ‘pre-deal education’ will go a long way.”

The key in the beginning, anyway, is to be involved in EVERY aspect of the investment — from knowing the numbers to knowing the area to analyzing the repair costs. Don’t leave any of this in the hands of others. “Successful closes depend, in large part, on your commitment to, become the expert in your market,

Many investors buy too high; get their rehab estimates wrong; miss something in the walk-through that’s going to cost them later. “Profit on your first deal is by no means a guarantee. However, your first close can make you money. So let’s say you’ve done your homework and educated yourself on the process, how to price and value things, and you’re ready to go. Crunch time. Your accepted offer is accompanied in your mind by a certain profit figure when all is said and done. First home buying experience was exciting, fun and stressful all at the same time. What was supposed to be an 8 month flip with a six-figure return turned out to be a 1.5-year flip and with a mediocre return. “We learned very quickly that it’s good to trust people, but you must VERIFY that their information is true. We are talking permit and contractor delays, hiring the wrong people and finding more repairs than originally anticipated. Hopefully there is enough equity in the deal to cover any such short comings. 

Takeaways are the following:

  • Learn by doing, not just reading about it. Know that ANYTHING can happen.
  • Profit is never guaranteed (at least not what you may have originally had in mind).
  • Gather a solid, trustworthy team around you.
  • Make sure the information the homeowner is giving you is true. Don’t take their word for it, even if they had good intentions.

Have a heart. You are buying what was once someone’s home. Treat them and the deal with care and compassion. Closing a profitable deal was only half the excitement. The other half is coming through for your seller. To them, it may be much more than a transaction.


Thank you for visiting my blog, I hope you enjoy it and learned a thing or two. 


Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219

Friday, October 1, 2021

Using Real Estate As A Vehicle For Wealth

For many of , our most significant investment and largest profits in life are due to having bought a house — something that acts as a de facto bank account, grows in equity and provides shelter all at once. But what if we want to use real estate as a money-making opportunity instead?

Real estate has, of course, made many millionaires. The Wall Street Journal recently reported how more than 80% of borrowers who refinanced in the third quarter chose the “cash out” option, withdrawing $14.6B in equity out of their homes, according to government-sponsored mortgage corporation Freddie Mac. Now, many are finding their homes to be a tappable source of wealth. “Home equity is the big pot of gold,” said Sam Khater, the chief economist at Freddie Mac.

It’s not hard to see why many have successfully made money buying and selling real estate because of the diverse ways to grow wealth with real estate investments. Creating wealth through real estate is common among the most successful investors, whether they’re house flippers, residential home landlords, or large apartment complex owners.

Knowledge is, of course, key. Real estate investors always seem to know more than those around them — what drives markets, how to time market cycles, and which things to watch out for. “They are much more likely to recognize shifting markets before others do and are prepared to take advantage of these opportunities when they present themselves. The very best never stop learning, and real estate is no exception. Apart from websites where investors can learn, network, and find solutions to their problems, some also collect books written on how to invest in real estate, reading them over and over again. Developing the ability to analyze a property for cash flow as well as recognizing an under-valued property when you see one. Then develop a basic understanding for estimating rehab costs along with the various pieces at play when it comes to owning rental property.

“The more you know about real estate investing, the less fear you’ll have. Overcoming fear is one of the best things you can learn to do if you want to carve out a successful career for  yourself in real estate.

Patience is also a virtue. That it may sound simple, but that’s not always the case. “When it comes to real estate investing, there is a lot of pressure on you to move and move fast. The best deals go quick, and allowing projects to run past the agreed upon timeline can be expensive. Investors are constantly facing pressures to do more, do it faster, and do it cheaper.”

The best investors know when they need to run fast and when they need to stop and wait to see how things develop. Patience can take several forms when it comes to real estate investing. Learning to recognize areas where you’ll need to practice it can save you from a lot of expensive mistakes.

Understanding market cycles are also of vital importance. Top investors zig when everyone else zags. They are fearful when others are greedy and greedy when others are fearful. Waiting for the market to slow down, or crash even, can require more intestinal fortitude but it is also a much better time to be picking up assets.”

Learning how to transform a property, how to be efficient, and how to be keenly focused and how to develop important relationships, go to BiggerPockets.com, where you can get tips like this for free.  Top notch investors see ways to add value to properties without spending more money than they have to. For those with the vision to bring it about, there can be big rewards for those who buy the ugly duckling and turn it into the beautiful swan.

Thank you for visiting my blog, please leave a comment or question and come back again! 


Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219

Source: Wall Street Journal 

Sunday, September 19, 2021

Can You Get A Commercial Loan with just 10-15% Percent Down?


Question: "I have about 10–15% to put down, but I’m afraid they won’t qualify me because I don’t have the 30%. I also want to use the properties leases as additional income to help swing my DTI in my favor. Is there a way to accomplish this? Or should I just focus on getting a cheaper property with cash?

In the commercial world, it’s tough to buy with less than 20% down.

Commercial loans are appraised and underwritten differently from smaller residential income properties (1–4 units). Lenders do not use debt-to-income ratios (DTI).

Both the appraisal and the underwriting will be done largely on capitalization of income. First, let’s define a capitalization ("cap") rate for those readers who may not be aware of the term.

When we evaluate income property, we first reconstruct the income and expenses. We’ll look at scheduled market rental income and subtract a reasonable market vacancy factor. The resulting number is called Effective Gross Income. Next, we’ll reconstruct operating income for the property. We will include a management fee, even if one is not currently being charged, and standardized factors for repairs and replacements. We’ll subtract those expenses from the Effective Gross Income to get Net Operating Income (NOI). The NOI does not include depreciation or debt service.

We calculate the cap rate by dividing the NOI by the property’s value and expressing the quotient as a percentage. Thus, a $1 million property with $80,000 NOI would have a cap rate of 8.0% (80,000 / 1,000,000 = .08 = 8.0%).

An appraiser will use a market cap rate for the type of building he is appraising and work backward, dividing the NOI by the cap rate. A building with NOI of $100,000 in an area where the typical cap rate is 7.5% would have a derived value of $1,333,333 (100,000 / .075 = 1,333,333).

The lender will base their loan partly on "debt service coverage." This means that they’ll expect a certain amount of cash flow left over after the debt service. They will use the calculated NOI to arrive at that number. If their guidelines specify debt service coverage of 1.2, that means that our building with NOI of $100,000 would support annual debt service of $83,333 (100,000 / 1.2 = 83,333). Working backward from the annual debt service and using the loan terms available, we’ll get the size of the loan (with some possible limitations).

Annual debt service of $83,333 represents a monthly payment of $6,944. If the lender is willing to make a loan with a 5% interest rate amortized over 25 years, you’d have a loan of $1,188,000 (trust me on this. I know things). So working backward to check our work, we divide the $83,333 annual debt service into our NOI of $100,000, and we get 1.2.

These kinds of loans are almost always "portfolio" loans. This means that the lender will not sell them on the secondary market (Fannie Mae and Freddie Mac are among the largest buyers of residential mortgages), but will hang onto them. Because of this, they have the flexibility to set their guidelines. They will typically do two additional things with their loans: they will extract a personal guarantee, and they will have a maximum loan-to-value ratio (LTV) for their loans. If their maximum LTV is 80% (which is typical), the loan we’ve just calculated would be good for a property valued at $1,485,000 (1,188,000 / .80 = 1,485.000). If the property you are considering has a price lower than that, let’s say $1,300,000, the lender is likely to approve you for $1,040,000–80% of the purchase price. If your personal financials look good, some lenders may be willing to extend more credit. They might look at "cross-collateralization," for example. This means that they would encumber other properties you own to secure the excess. They may also make the loan "recourse." This means that in the event of foreclosure, they would have the right to come after you personally for any shortfall if the property should not bring in enough cash at sale to clear the mortgage and costs of foreclosure. This personal guarantee can make refinancing or selling those other properties difficult.

The primary things to keep in mind with commercial financing is that the lender is looking very hard at the economic viability of the property when approving a loan.

Thank you for visiting my blog, let me know if you have a question, or I'd love to hear your comments. Come back again soon. 


Roxy Redenbaugh, Broker/Owner
Cascade Lending LLC 
Residential and Commercial

The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219

Tuesday, August 31, 2021

Vacation Homes Increasingly In Demand Because Of Remote Work Trends

It's not something you'd expect during a pandemic and recession, but numbers don't lie. According to a PRNewswire report, sales of vacation homes are soaring. According to Redfin's report, demand for second homes skyrocket 100% from a year earlier—the fourth triple-digit increase in the last five months. That outpaces the demand for primary homes.

Home sales are on the rise across the board due to record-low mortgage rates but also because of a wave of relocations during the pandemic. Demand for second homes rises to the top among more affluent Americans who work remotely, no longer need to send their kids to school in person, and are limited by travel restrictions, according to Redfin's lead economist Taylor Marr.

"With mortgage rates at all-time lows and offices shut down across the country, the dream of having a second home outside of the city is becoming a reality for many wealthy Americans," Marr said. "Unfortunately, at the same time, millions of less-fortunate families are behind on their mortgage or rent payments due to financial hardship brought on by the coronavirus pandemic."

Some of these second homes may eventually turn into primary homes, as it's not uncommon for a buyer to close a deal on a second home before putting their current house on the market. It seems resort towns across the U.S. have attracted more homebuyers. Hotspots include Lake Tahoe, Cape Cod, Palm Springs, the Jersey Shore, and Bend, OR.

Even when offices reopen, folks will be able to spend more time than ever before in their second homes because many employers will continue to offer flexible remote-work policies. With workers still commuting in one or two days a week, resort towns that are near major cities will likely continue to heat up."

Thank you for visiting my blog, please leave a comment or question and come back again! 


Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219


Source:PRNewswire, Redfin, TBWS

Saturday, May 22, 2021

'Aging in Place' Helps To Fuel Housing Shortage

As the baby boomer generation has aged, it has also stayed put. And for all the innovations
builders and product manufacturers have come up with to help seniors “age in place.” they may have also made it difficult for would-be homebuyers, causing a lack of housing inventory.

According to a new report from Freddie Mac, 2019 will see a significant shortage of available homes here in the U.S., failing to meet needs by 2.5 million units. It doesn’t help that at the same time millennials are buying fewer homes at this point in their lives compared with previous generations at similar periods.

As seniors continue to prefer to stay where they are as the optimal way to live out their remaining years, housing inventory has tightened nationally. According to the report, for people between the ages of 67 and 87, homeownership rates dropped by 11.6 percent for previous generations but only 3.6 percent for the current (leading edge) generation of seniors, identified as having been born between 1931 and 1941.

New advances in information technology may be the culprit, as well as accessibility to better healthcare and education, with the report crediting those advancements as “boosting and extending” housing demand among seniors. The result? The current senior generation has become much slower in transitioning out of homeownership than prior generations. Reverse Mortgage is another retirement tool being used to keep seniors in their home. 

The U.S. Census Bureau says lost units will need to be replenished at a rate of 350,000 homes per year in order to bring the market to a “well-functioning” status. “Vacant homes increase liquidity in the market, enable prospective buyers to find a match, and give prospective sellers confidence to list their home for sale,” the Freddie Mac report states. “Vacancy rates are an important indicator of housing market vitality. Too high a vacancy rate reflects a moribund market, while too low of a rate reduces the efficiency of the marketplace.”

While this does not bode well for home shoppers, it will boost spending on renovations, according to Chief Economist Sam Kater. “We believe the additional demand for homeownership from seniors aging in place will increase the relative price of owning versus renting, making renting more attractive to younger generations.” If that is true, however, those in a position to purchase the limited number of homes available may well see their property values increase more quickly than anticipated.

Thank you for visiting my blog, please leave me a comment and let me if you like my blog and the information I post. 


Roxy Redenbaugh, Broker
Sr Mortgage Consultant
Residential and Commercial
The Greatest Compliment I Can Receive Is A Referral From Friends, Family, and Business Associates,
NMLS#269926 Company NMLS#1930219

Source: Realtor, Reversemortgagedaily, FreddieMacTBWS