On the show today we talk… with ADRIAN CHU on How to Get Conventional Lenders to Love You.
Listen on: iTunes | Stitcher | Google Play
Show Links:
– House Hacks on Facebook
– Admin on WAREA on Facebook
– Brokering, Lending, & Investing w/Adrian Chu – Ep. 64
– https://vip.vba.va.gov/portal/VBAH/VBAHome/condopudsearch
– https://entp.hud.gov/idapp/html/condlook.cfm
Show notes with Adrian Chu
The Vantastic Life is…
– in Moab Utah getting ready to go mountain biking
Broker, investor, developer, loan originator Adrian Chu. He also has Facebook community House Hacks.
If a Facebook group asks you questions, you better answer those questions or you’re not going to get in.
How to get conventional lenders to love you. Adrian is the perfect guy to talk to about this.
Make sure you get opinions from other professionals in the market before you buy stuff.
Somethign that Adrian said is, that with the recent market shift it’s important to create a standard for yourself.
What are you up to right now?
Adrian
I think that it’s really important to have standards for yourself, and multiple exit strategies.
One thing is to have good conventional financing, which we’ll go into later on.
I’m doing some projects in Seattle, and building the services that have one stop shop for investors.
There’s a concept in tech called full stack. Basically you have all the different tools to have what the client needs.
I love working on ALL of the tools that every client needs.
I just want to hangout an do real estate! Rather than travel or whatever.
Julie
What are you current goals for yourself, and have they shifted since 2018?
Adrian
I don’t really set any quantitive goals because the market can shift so quickly.
This year the newer things are the Seattle rezone, which has been a 2-3 year process.
Julie
Are you excited about RSL zoning?
Adrian
It’s an opportunity to do something interesting, just not as high density.
Back in 2016 and 2017 the land prices kept going up, so developers tried to pack units into land. Up to 8 units on a small site.
In 2018 one of the segments that took a hit is the small townhomes.
Part of that is because the condos started coming up again. And people just had more choices at that price point.
Julie
Let’s say that an investor wants to flip a condo. Do you do those at all?
Adrian
I started out doing condo flips. I think they are good for an entry level starter home in the city.
FHA/VA loans have to get a special approval. You can find that info online. You’ll need to make sure.
One last thing with condos is recently the lender can go through limited review or full HOA review. Depending on the type of review there are different requirements.
If you can go through limited review you can still get the loan to go through.
In the past this would only work if you were going to occupy the condo, but this is loosening up for investors.
Julie
Investors focus on the best deal and they are cheap asses! But we love you!
How you structure you deal depends on rate and term refi’s?
Adrian
Rate and term you already have a loan and you’re getting a new loan to match the existing loan.
Cash out refi is if you want more money above the original loan amount.
The interests rate is usually more for a cash out refi.
Julie
How do you structure your buy and hold yourself?
Adrian
There are a few ways to do it. If you buy all cash, you can use delayed financing within 6 months. With this you can get more than what you would have gotten when you bought the property.
If you get a really good deal… it’s possible to get 100% financing one day after closing on the property.
If you have to use hard money… within 6 months, you would do the rate and term for the amount of the hard money.
If you want to cash out with hard money… you have to wait 6 months.
Purchasing with cash is really interesting if you can pull it off.
You could do this if you had a HELOC on another property. The delayed financing.
Julie
Let’s jump into HELOC’s.
Adrian
I mainly use them for when I need to use them for accusations. It’s basically a credit card with a huge credit limit. The rates are usually better than credit cards.
Julie
When would a HELOC get called?
Adrian
I’ve heard about this in the last big down turn, but it’s unusual.
Some people’s strategies are to get the HELOC’s and pull the money out as an insurance policy. Then puts the HELOC in a CD. Even if he’s losing money.
Julie
It’s sounds like a strategy for someone that got a spanking before.
Do you use HELOC’s off of your rental properties.
Adrian
Yes, and it depends on the situation.
I like using credit unions for HELOC’s. BECU, and First Union.
Julie
Who are your favorite out of state conventional or HELOC lenders, for those listening?
What are typical rates?
Adrian
4, 5, 6, or up to 7% for HELOC’s. There aren’t any federal guidelines.
Julie
What’s a quick explanation on primary vs. non owner occupied guidelines.
Adrian
Primary means that you’ll live there for at least a year, and non owner occupied means what it means.
Julie
What’s the best bank for debt to income?
Adrian
50% is pretty much what they look for.
Income
The best way to show this is to have a W2 job.
Julie
The guru’s preach to quit your day job, but we say don’t do it!
Adrian
Totally! Don’t quit your day job!
If you’re going from W2 to self employed it will take 2 years of tax returns to show what you’ve made. And they will use the NET income, not gross.
If the 2nd year is higher than the first, they will average your income. If the 2nd year is lower, they will use the 2nd year.
If you start your business towards the end of the year… you’ll have to throw away that first year.
Julie
How does passive income play into that for borrowers.
Adrian
That will offset your income for a mortgage. They will take 75% into account from your rental properties.
The perks of having a W2 job. In most cases you can use new income right away. You don’t have to wait.
Julie
Is there any setup or strategy for self employed.
Adrian
Have at least 2 overlapping years.
Show your W2 for 2 years while you’re doing the real estate (self employed) business.
Then do the handoff.
Julie
These are all things that need to be learned from the beginning.
Adrian
Absolutely! I even needed to learn this.
You need to figure out how to conform to the guidelines that are set by Fanny and Freddy.
Julie
What about looking for a partner that has a job?
Adrian
That has different variables.
That person is carrying the loan, and taking all of the risk.
Julie
I always ask new investors, what do you bring to the table?
You will have some skills (broker, contractor), or you have money, or you have hustle. Those are all worth something.
You can also bring a day job to the table.
Adrian
Yeah, not even money, just the day job.
This would definitely work.
It does create some complications because you add a new partner to the deal.
Julie
Totally! All of these things should be thought about beforehand.
Let’s jump to house hacking.
Adrian
Well, the best way to do it is to get a multi unit property that you will occupy one of the units.
There are two very good lower down payment options. It’s possible to buy a property with 3 percent down.
Normally if you buy one is’t 25% down.
And you can collect rental income from the other units.
Julie
Let’s talk about loan terms.
Adrian
Interest only was a big thing back in 2006-2007. Then you had a balloon payment.
With 15 years your interest rate is lower, but your payments are higher.
I like to have the 30 year loans because you get opened up to having more loans, and buying more homes.
Some people think differently.
Julie
It could come to cash flow as well.
Adrian
Totally, some people might not want to buy 100 homes.
There is a limit to 10 conventional loans, but some lenders have overlays. But generally you want to avoid lenders with overlays.
Julie
Co-living. How is that for income vs. market rents?
Adrian
You can get a premium renting buy the room. It’s also more Managment.
I haven’t found a property manager that would work with a co-living setup.
Julie
What about financing though?
Adrian
If you have a single family loan, you can have multiple leases on that home.
You are limited to what the appraiser says the property is worth.
Julie
Is the appraisal effected by co-living?
Adrian
They don’t care about the possible income you can generate.
For a rental peropty you are limited by the appraisal.
The appraiser will base it off of market rents, not the premium rents.
Julie
If someone knows any hacks for this, let us know! Secret strategies.
Do you think rents are stable right now?
Adrian
It depends on the segment.
There are some spaces with a lot of vacancy.
Julie
How much vacancy do you build into your underwriting .
Adrian
I don’t even build out spreadsheets when I buy my properties.
I look at them and if it covers the mortgage and is in the appreciating area, that’s what I look for.
I don’t have a minimum cash flow number.
Julie
And these are all personal choices.
Adrian
Yeah, totally. I prefer to stay close to Seattle as possible.
Julie
When someone adds a mother in law, that could be a good strategy right?
Adrian
It depends on the land use zoning. Sometimes it’s not supposed to have one.
Julie
How do people get caught?
Adrian
Usually if neighbors complain.
Julie
We don’t condone breaking rules.
Personal financial hacks that you can share?
Adrian
I do use a lot of credit cards, and depends on what you’re trying to do… do you want travel, or certain goals, or hotels. It’s all different.
Julie
What do you use your credit cards for?
Adrian
I try to pay everything with credit cards to get the pointes.
Julie
Do you use any kind of other little things?
Adrian
I do like digital wallets. Samsung pay is really great!
Julie
That’s one of my strategies for getting my meal paid for. Hahaha!
Adrian
Having that is really convenient if the place accepts it.
Don’t drive without your wallet.
Julie
What do you listen to or read?
Adrian
For Seattle – Puget Sounds business journal. Day journal of commerce
Seattle Investors Club podcast!
The nuts and bolts of real estate investing.
Julie
You’re an eater… What’s your favorite restaurant?
Adrian
Barolo in downtown Seattle
Julie
You’ll have to come down to one of our Tuesday meetups!
There’s new people coming every week.
We were trying to keep it small because that’s the magic. But you should join us whenever you can.
We are the Seattle Investors Club, but our message applies nationally.
Every Tuesday at the Elliot Bay Brew House and Pub. Search MeetUps for Seattle Investors Club! 12pm to 2pm.
Great for all experience levels. Investors, brokers. Bring all of the problems and questions.
Adrian
Find me on Facebook, Google, Adrian Chu at Horizon Real Estate.
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