Any Lending Questions you have about Investing ?

Question

If you have any questions feel free to response to this and I can provide an answer to your question or can find the answer for you soon.

Albert Bui · Answer

HI Aaron,

To go from 5-10 the fast as possible you'll have to acquire, create, or force equity by buying at 70-75% of ARV so that you can refinance and get all your money back out since you cannot cash out in the technical sense. There are a couple ways to cash out with conventional financing from 5-10 with out buying the property cash or using portfolio loans but that will be beyond this topic.

From 5-10 financed properties the max LTV you can refinance is 75% on SFR and 70% on 2-4 multi's.

For 11+ you should talk to your VP of commercial or business lending at your local community bank as this will probably be the title of the person who can offer you unlimited financed properties with 20-30 year terms, 5-10 year fixed usually, with rates around 4.75-5.5% generally, and sometimes pre payment penalties or not.

Are there mortgages that allow you to buy with 0% down?

Yes and No, not 0 down going into the deal but 0 down or 0 personal contributions after you refinance your money back out yes, if you buy right.

If you get a property + rehab + closing costs + pts +interest/fees = 70-75% of ARV then yes you could use a private/hard money lender to lend up to 90% of cost or 75% of ARV. This would allow you to bring in as low as 10% down which they would hold as a "collateral assignment," while they lend your "entire" purchase price, rehab, closing, and pts.

The value of this is that when you go to a conventional lender after to refinance if the value is appraised where you estimated it to be then you could refinance the entire project cost consisting of the acquisition cost, rehab, points, fees, interest and all while getting back your original 10% collateral assignment.

Now obviously if you thought the appraisal was 300k but it now comes in at 275k you might not get all of your collateral assignment back because to be at 75% of 275k might require you to keep more "money," in the "deal." This happens sometimes and its a risk a real estate investor takes. Its also another reason why some of the private lenders I know dont want to lend to people who have just enough for the collateral assignment. They are generally flexible though and will let you cross collateralize your other assets if you dont have the cash but theres pros and cons with that as well. They like to see that you have reserves in most cases.

Aaron Montague · Answer

@Albert Bui

What is the best way to go from 4-10 mortgages while minimizing my costs?

What should I do for 11+?

Are there conventional products that would allow me to enter a mortgage with zero money down in any way?  I.e. all of my closing costs and down payment are covered by an amazing LTV?

Albert Bui · Answer

HI Jason,

Good question do you file this income on your Schedule D - capital gains and losses or do you have your own scorp to do your active trading ?

Where you file may make a difference but in general its the 2 year average of your gains if the most recent year and year to date show an upward trend in "net income." However, similar to self employment income if your current 2014 year to date income is lower than 2013 then we'll be using 2014 average to qualify you.

The advantage of using an scorporation to trade atleast from an income qualifying perspective is that you could technically use 1 year tax return instead of 2 year which would be required if you filed on your schedule D. (loophole)

This 1 year tax return is helpful because if 2013 was a great year and 2012 was not then you would elect to use 1 year tax return because you dont want 2013 to be averaged in with 2012 resulting in a lower income for qualifying purposes. With 2013 only divided by 12 months you will have a much better qualifying income.

There are many strategies you could employ just make sure you get the right advice.

Jason Eyerly · Answer

One of my professions is an equity trader. My income is not set in stone, but rather a percentage of profit that I make in my firm account. How would I be able to use this as a source of income, in addition to a regular "salary/overtime/commission" type job?

Albert Bui · Answer

Self employed borrowers and REI borrowers income is just a tad bit more complex than a typical salary/overtime/bonus/commission type of "employee."

In order to properly be prepared for a loan its best to get the below areas reviewed WAY in advance of ever needing the financing (12+ months in advance):

- Schedule E (rental properties and passive income)

- Profit and Loss - year to date - to make sure trending income is same as prior year and or higher otherwise we'll be using "worst case income year to date / total months to date"

- corporate tax returns (1120 c corpporations or 1120s s-corporations)

- underwriter will review the balance sheet to make sure there are no short term liabilities that will come due that could affect the "cash flow," of the corp or LLC/entity because if it does it means the borrower may not be able to pay the obligation thats being applied for etc.

This is the reason why there is a need for stated programs is because most lenders are people persons and sales people not financial analysts. Very few lenders I know can sift through a cash flow, P&L, and balance sheet and know how it all relates to a persons financial situation accurately.

Past tax returns and financials are scrutinized so by reviewing and planning in advance a "self employed," borrower can in essence set themselves up to ensure they qualify when need be.

Dawn Anastasi · Answer

I've seen several people post about being self-employed and wondering about getting loans.  Maybe you could talk some about this and what criteria do you look for with this?

Any Lending Questions you have about Investing ?

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