Closing A Deal (With Finance)

[Tim C.]

Hi guys,

I'm about to close on a deal on a HUD home I purchased and I'm trying to see how I can get financing for it. I'm a foreigner with no social security number in the USA.

I've got good relationships with my banks here in my home country and I've been working with them for the past 2 months: Citigroup and HSBC. They have a vacation rental package where they can finance 70% if you treat the home as a second home.

It's a nightmare of a management situation and I'm trying to work out how finance this deal properly. This is my current plan please let me know your thoughts on this and where the potential holes are.

1) I close the property in cash. The title deed HAS to be under my personal name otherwise they will not lend (they don't lend to a LLC).
2) I get it renovated in a month and request a refinance.
3) I submit for a refinance with my banks (They said within 3 months of closing is fine although it will be the closing price valuation not after the repairs).
4) I move the property into an LLC AFTER financing is done so I have asset protection (I understand it's a quit claim deed)
4) I put the tenant in AFTER the bank has approved the loan to try and run the risk of breaching the loan's terms.

I figure if I get caught worse case they will call the loan (I dont' think it's likely in my experience once banks grant the loan and I make payment they dont care). Worse case I pay back the loan which is the same as me closing the deal in cash.

Method #2:

1) I close the deal in cash in a 3rd party LLC my dads. Deal closed at $80k USD. I put $15k renovation cost in and "flip" it to my personal name for a semi inflated but reasonable price say $105k so it passes bank checks.
2) The advantage of this is I basically get my repairs financed too I get 70% of $105k instead of 70% of $80k as in the first method.

The downside of this approach is the 3rd party LLC has to pay capital gains tax but I"ll have to pay it eventually when I sell the place anyway.

* The goal of this really is to try to think of creative ways to leverage my capital so I can buy more and not just pay cash for properties (highly inefficient).

Would welcome any comments on this I've been up all night talking to US banks try to get my financing sorted!

[Bill Gulley]

Breaching loan terms is one thing, saying you will buy as a second home and then putting title in an LLC (which you probably don't need for liability protection) and then renting it is pretty much mortgage fraud. And if you are in country with some visa after they nail you they may escort you to the airport! :)

[Tim C.]

Fair enough :)

I think with real estate it's about creative financing where you can & weighing up the risk / reward.

But I'm new to US and unfamiliar with how things are done there so will take your feedback into consideration.

[Simon Campbell]

In my experience, once you have a mortgage in one owner's name you cannot sell or transfer ownership (i.e. into a LLC) without the mortgage being due in full. That is unless you have an assignment clause in your mortgage.

In the USA, it is not necessary to place a property in a LLC - especially if you are running into funding issues. Just make sure that you carry good liability insurance, get a good property manager and write strong lease agreements as protection and you will be find.

[Bill Gulley]

Consider this Tim, creative financing does not ever include lying to a lender, that's not creative, it's fraud, bank fraud and it is a serious issue in this country. While they say there is no due on sale jail, there is a bank fraud jail. :)

BTW, my definition of creative financing is: The creative use of assets that may be utilized along with other financing means that concludes with meeting a financial object through legal and prudent means.