All Forum Posts by: Aaron Murphy

 Elise Thank you, I appreciate it. That makes sense that long term the score will come back up. I am starting at about 715 so it seems like halfway through the year i could be under 700 and have a harder time getting approved for the next loans.  It seems like there  isn't a good way to avoid this. 

I am planning to buy between 4 and 6 properties using conventional investment financing 20-25 percent down fannie mae confirming loans over the next 12-15 months. 

I just completed a refinance as a prelude to that and I will be purchasing a house hack within the next several months prior to this plan as well. As expected I noticed that my credit score took a hit 8-11 points following the refi. 

I am now concerned that every time i buy a property as i carry out this plan ill take another 8-11 point hit wich could lead to losing almost 100 points over the course of the plan. I understand that if i buy the properties with the same lender and within a 90 day period i wont take multiple credit hits but is there any other way to avoid this problem? 

I have been searching online around this issue and haven't found much that is helpful. Thanks in advance everyone. 

I am attempting to BRRR a property and as I have become more and more educated on the process involved with the remodel I have run into a decision that I had not expected to.

In this market people seem to either do bare minimum improvements and operate homes at the lower end of the rental market or they do a complete remodel where they open up the floor plan and upgrade everything to sell. Because of this there are'nt very many comps for a more moderate rehab (i.e. upgrade of all fixtures refinishing of walls and re siding of house but without structural changes like removal of load bearing walls re-framing of roofs etc ) . Because we don't have comps for this level rehab it seems that to feel confident in recovering or capital through the refinance we will need to do a more extensive renovation where our ARV is in the similar space as the homes that are being flipped.

The rub is that the homes we would be renovating are extremely old generally older than 1920 and have been modified with unpermitted work over the past decades leading to all types of issues. for example we have encountered roofs framed with 2 by 4's rather than 2 by 6's and where the frame has been carrying extra load from sloppy roof layering. Upgrading them to be competitive with the flip market seems like it will be only slightly less expensive than doing brand new construction in the area. 

for example a home purchased for 30k may take 85k in rehab to bring in line with the flip market with an ARV of 160-185 . However new construction for the same property may cost 10k for a lot and 130k for the ground up construction. meaning that the remodel is 82% of the cost to build and have a brand new property which can have higher value

If anyone has encountered this or has thoughts on it I would really appreciate it. below are some of the questions that I have 

1. in some ways doing brand new construction feels more controllable than a remodel(because costs could balloon depending on what we find in the walls) . Would it be easier to do this as first construction project than a rehab/remodel? either way would be using a GC to manage the contract 

2. it seems like there is a way to accomplish something similar to BRRR using the new construction. I am thinking we could build the new property, sell it, 1031 exchange the proceeds into two rentals that dont need renovation and then either refinance or place helocs on those properties to pull out the capital to do it again. Its not exactly BRRR but on each cycle of this process the generated equity from the new property would be converted into equity in traditional rentals which create cash flow. Does this process seem logical and reasonable or are there reasons i am missing that this is less preferable than traditional BRRR

3. we have considered doing the moderate level rehab even though there are'nt comps. Thinking that we could speak with local appraisers to determine how they would evaluate this type of rehab without comps. Has anyone done a rehab like this in a market where there are'nt comps and how did it turn out? 

Thanks everyone in advance for your help. Feel free to ask any clarifying questions if this is unclear. 

Darian,

I did not end up solving the problem that I was trying to. I did end up moving forward with a second deal and then a third. I purchased the second deal using 20% financing by looking in a less expensive market that is around 1.5 hours driving from the first house. I purchased the 3rd deal using a Land Contract which seems to be a form of seller financing. This Land contract route seems like it will be the best avenue for me to get around the ways the lenders I have spoken to evaluate income but I from studying them I believe they carry more risk if the individual providing the land contract has a risky financial outlook.

I did not find another loan product that solved the issue but was able to purchase more deals by going outside the owner occupant financing structure that I originally intended to.

Hope this helps

@Carl Fischer Well that's not what I had hoped but if that is how it is I understand -- Thank you for your help!

@Carl Fischer

Thank you for the detailed response. I want to make sure I am understanding you.

Are you saying that if I have income from a rental property and then offset that income using expenses-- its likely that the lender will apply the mortgage as a debt in my debt to income ratio but because I have reported net income as say 0 because of expenses and depreciation they will not give me an offset for the rental income that I bring in?

so in an example 10k in income and a loan of 100k dollars and a monthly payment of 600. That 10k will be reduced to 7500 then if I show 7500 in expenses they will count the 600 as monthly debt and not provide me any income to balance against it?

I am looking for some help to clarify the way that income reported on my taxes will affect my debt to income ratio?

It is my goal to minimize my income as much as possible using legitimate  expenses and depreciation etc. However I think I may be confused about how my lender will view that when they decide my debt to income ratio for future loans.

If I report a net loss from an income perspective will my lender interpret that negatively or will they utilize the reported rents as the offset to help my debt to income ratio?

for example if I earn 15k in rents in a year but show a net loss of income of -2k will my lender use the 15k in rents as a positive for my debt to income or will they use the net number and use that house to decrease my borrowing power?

Thank you all for that clarification that is very helpful!

Any thoughts about the remaining questions?

Hello,

I have some questions about how to get bank financing for my second home purchase.

I am currently house hacking in a 5 BR house. I purchased the property with an FHA loan. I would like to now move to a new home that I purchase with home owners financing and house hack again while managing the other home as purely a rental property. It is my understanding that I cannot have two FHA loans at the same time. However from speaking with my lender I have the ability to purchase a different home using a conventional personal residence loan product. He said that I can do this while still keeping my FHA loan. While I can utilize the rental income from the home that will purely be a rental to offset some of my debt for the debt to income ratio I am frustrated by the price limitations that the inability to count the entire signed leases as offsets against the mortgage. I have heard it said on the podcast many times that bank financing can be used typically on up to 10 properties and I am having trouble seeing how to use it for 2 let along10 so I feel that I may be thinking about this the wrong way.

are there certain loan products that I am missing that would allow more flexibility for income offsets? Does the 10 properties idea merely apply to extremely high income individuals? Are the rules different if I am buying outright as an investment property instead of as a house hack scenario? I have also considered going the route of a NACA loan since it is based on monthly cash flow instead of the rigorous 2 year figures that banks require which would let me utilize more of my income for the projections. Any insights from the community would be much appreciated.

for context the first house cost 340k , the monthly payment I can qualify for on the second home is ~1800 . My current income is around 98k however because I work in sales and they require a 2 year average I demonstrate an income closer to 76k.

Outside of what the issue is for this property I want to understand the mistake that I am making in general so that I can begin to plan for the 3rd property after this one and the ones that follow that.

Hey everyone. I am looking at purchasing some condos to operate as 1BR rentals and am working through some models to see how they would cash flow.

When working on my CAPex assumptions I had the thought that perhaps the expected maintenance may be lower because the Condo Association handles the exterior maintenance for the property.

the idea that the CAPex calculation should be different for condos vs SFR's incorrect? If not what is a good rule of thumb to use for calculating it.