Northern California Investor with Some Questions

[Daniel Erdman]

Hello BP,

My wife and I are looking to secure our financial freedom through Buy and Hold investing. We have been researching real estate investing for a couple of years now and recently joined the BP forum after the recommendation from a friend of ours. 

We have been devouring the guides, pod casts and perusing the forums as much as possible. After soaking in all this great information, we have some questions:

Currently, we are looking for multifamily units in the Central Valley (Sacramento, Stockton, Modesto, etc) and there appear to be some rentals that cash flow nicely. Does anyone have any experience with this strategy in these areas? 

There seems to be quite a bit of podcasts and forum posts about folks buying multiple (even tens) of rental units a year. I have noticed that most of these folks are buying in the Midwest. Is this realistic for investors in California?  How are these folks managing to purchase all these rentals?

Thanks all!

[Jerry Padilla]

@Daniel Erdman

Do you own your own home? If not, an FHA mortgage can be a great starting point, up to 4 units. If you do own your own home with a mortgage history, than 75% of the potential rental income will count as income until the property appears on your tax returns, which will then be used to calculate income. I have many clients that have large retirement funds and are pulling money from that account to use as the down payment on property.

Here is some more info on financing and down payments to help you get started;

You can borrow for up to 10 conventional mortgages. You have the option of a 15, 20 or 30 year term.

For A Fixed Rate Purchase, Investment properties, Mortgaged property 1-4;

• A SFR requires a LTV of 85%
• A MFR requires a LTV of 75%
• A minimum credit score of 620

For A Fixed Rate Purchase, Investment properties, Mortgaged property 5-10;

• A SFR requires a LTV of 75%
• A MFR requires a LTV of 70%
• Minimum credit score of 720

Here are some answers to FAQ as well;

1. For all 1- to 4-unit investment property transactions, cash reserves equal to six (6) months PITI for the subject property are required.

Cash Reserves Required For Other Properties Owned by Investor;

• If the borrower has 1-4 mortgages, an additional two (2) months for every other SFR investment property and second home is required and additional six (6) months for every other 2-4 unit investment property and second home
• If the borrower has 5-10 mortgages, An additional six (6) months for every other investment property and second home.

2. Gift funds are not allowed on Investment property transactions.

3. Escrows for taxes and insurance are required unless otherwise approved by the underwriter.

4. Loans for investment properties are not eligible if the transaction includes non-arm’s length and/or at-interest characteristics

5. Investment property transactions cannot close in trust.

6. Maximum 2% sellers concessions is allowed!!

Maximum loan amounts for areas that are not considered high cost are; (high cost area financing applies to primary residence only)

1 unit - $417,000

2 unit - $533,850

3 unit - $645,300

4 unit - $801,950

Fannie Mae/Freddie Mac High Cost area limits are the same as FHA for 2015. VA is the same as FHA for 2015.

Here is a link to look up maximum conventional financing limits.

http://www.fhfa.gov/DataTools/Downloads/Documents/...