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A licensed commercial real estate broker for over 20 years, David O'Shea assists investors purchasing short sales and REO investment properties by helping them run their numbers and prepare loan request packages. He also puts together major real estate deals for commercial enterprises. It wasn't until the market began slipping a few years ago that he considered investing in it himself. Since then, he's done four deals: a single family, two two-families, and one three-family.
David gives his hard-earned advice about investing - and surviving - in today's market.
ForeclosuresMass Monthly: David, at the last Turning the Key meeting, you mentioned that you hit a glitch with the three-family you recently rehabbed. Can you tell us what happened with that deal - and how you resolved the problem?
David O'Shea: I purchased the property in Dorchester using a hard money loan from Capital Trust and rehabbed it in 60 days. When I went to refinance it through conventional methods, the lender wanted one year in reserves plus closing costs - which I didn't have due to carrying costs and having my money tied up in other properties.
I hit this snag is because banks have flagged Dorchester as a declining market. On top of that, conventional lenders aren't crazy to lend to investors right now, so I had a double whammy. I had to really scramble to come up with the $27K the bank wanted.
So that is my first piece of advice to investors - have short-term financing available should you need it. I was able to get the short-term loan I needed, got the conventional loan for the property, and then paid off the hard money loan plus the short-term $27K loan.
FMM: It sounds like you're saying people should develop relationships with lenders before they need the money.
DO: That is correct. I have two lenders whom I trust completely: Dan Burke at Capital Trust, my hard money lender, and my mortgage broker, Mary Griswold, Senior Loan Officer at Seacoast Mortgage.
Even though you'll pay one point or so more in fees when you go conventional financing, I recommend that investors use a mortgage broker versus a single bank or direct lender because you're open to more possibilities.
The main benefit of using a broker is that this person has all your information on file and can shoot out your application to 50 different lenders in minutes - something that would take you days if you did it yourself.
Brokers use an automated system - they aren't calling banks individually. The bank computers then kickback the applications that don't meet their guidelines. I can know in a relatively short time which banks will consider my loan request - saving me a lot of time. Time is what kills deals.
FMM: Do you have any advice about finding a broker you can trust?
DO: Look for companies that have been in business for while. You want companies with established names. I also advise you work with brokers who have real street front offices - not those working out of their living rooms. And, you want companies that have their own in-house processor. This person will tell you if your deal is viable before you move forward on it - which saves time.
FMM: What are you seeing on the street with regard to deals?
DO: Six to twelve months ago, you could flip a property knowing its value would decline somewhat while you rehabbed it and then tried to sell it. Now, however, the property can decline 15 - 20% during this time, so the value isn't there anymore. If you decide to rehab a property in order to flip it, consider doing a "light" rehab so that you can sell it, fast.
This market makes it imperative that you run your numbers before you make an offer so that you still make a profit. This is why it pays to have a line with a mortgage broker or hard money lender. You want to buy the property for low enough LTV so that even if the market goes backward, you have enough equity or cushion to wholesale it.
FMM: What is your investing strategy right now?
DO: Right now I'm buying and holding. It looks like the market is almost done falling. I don't do major rehabs, either. If a property has more than 60 days worth of construction work needed, I don't buy it. I stay away from gut jobs! And, I don't pay more than .50 to .60 cents on the dollar for a property.
FMM: Do all your properties have positive cash flow?
DO: Yes, they do. I haven't made big money, but I've purchased $2 million in property in the last couple of years, and I do have equity. I've been taking out second mortgages in order to fund the purchase of the next property.
FMM: Do you have any final advice for real estate investors?
DO: Yes, find lenders that are competent and that you can trust, be prepared just in case the lender(s) might change their guidelines and throw a wrench in your deal at the 11th hour, and have a clear exit strategy.
I hit this snag is because banks have flagged Dorchester as a declining market. On top of that, conventional lenders aren't crazy to lend to investors right now, so I had a double whammy. I had to really scramble to come up with the $27K the bank wanted.
So that is my first piece of advice to investors - have short-term financing available should you need it. I was able to get the short-term loan I needed, got the conventional loan for the property, and then paid off the hard money loan plus the short-term $27K loan.
FMM: It sounds like you're saying people should develop relationships with lenders before they need the money.
DO: That is correct. I have two lenders whom I trust completely: Dan Burke at Capital Trust, my hard money lender, and my mortgage broker, Mary Griswold, Senior Loan Officer at Seacoast Mortgage.
Even though you'll pay one point or so more in fees when you go conventional financing, I recommend that investors use a mortgage broker versus a single bank or direct lender because you're open to more possibilities.
The main benefit of using a broker is that this person has all your information on file and can shoot out your application to 50 different lenders in minutes - something that would take you days if you did it yourself.
Brokers use an automated system - they aren't calling banks individually. The bank computers then kickback the applications that don't meet their guidelines. I can know in a relatively short time which banks will consider my loan request - saving me a lot of time. Time is what kills deals.
FMM: Do you have any advice about finding a broker you can trust?
DO: Look for companies that have been in business for while. You want companies with established names. I also advise you work with brokers who have real street front offices - not those working out of their living rooms. And, you want companies that have their own in-house processor. This person will tell you if your deal is viable before you move forward on it - which saves time.
FMM: What are you seeing on the street with regard to deals?
DO: Six to twelve months ago, you could flip a property knowing its value would decline somewhat while you rehabbed it and then tried to sell it. Now, however, the property can decline 15 - 20% during this time, so the value isn't there anymore. If you decide to rehab a property in order to flip it, consider doing a "light" rehab so that you can sell it, fast.
This market makes it imperative that you run your numbers before you make an offer so that you still make a profit. This is why it pays to have a line with a mortgage broker or hard money lender. You want to buy the property for low enough LTV so that even if the market goes backward, you have enough equity or cushion to wholesale it.
FMM: What is your investing strategy right now?
DO: Right now I'm buying and holding. It looks like the market is almost done falling. I don't do major rehabs, either. If a property has more than 60 days worth of construction work needed, I don't buy it. I stay away from gut jobs! And, I don't pay more than .50 to .60 cents on the dollar for a property.
FMM: Do all your properties have positive cash flow?
DO: Yes, they do. I haven't made big money, but I've purchased $2 million in property in the last couple of years, and I do have equity. I've been taking out second mortgages in order to fund the purchase of the next property.
FMM: Do you have any final advice for real estate investors?
DO: Yes, find lenders that are competent and that you can trust, be prepared just in case the lender(s) might change their guidelines and throw a wrench in your deal at the 11th hour, and have a clear exit strategy.
David O’Shea is the President of Northeast Property Network based in West Roxbury, MA. He can be reached by phone at 617-325-7670 or by email at imspublishing@gmail.com. Dave has also written several articles for REO investors and offers visitors to his Website a FREE guide, “How to Purchase a Bank Owned Property,” which can be downloaded at www.mysuccessguides.com.
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