All Forum Posts by: Andrew C.

Try Aimloan.com.  They have done 5 refi’s for me at the same time last year, so obviously they don’t limit to only 4.  True Mortgage aka Sign on the Line (SOTL) Mortgage was another one that just did 5 refi’s for me in Sept.  I’m not affiliated with either company, just reporting companies that have come through for me with great rates and competent staff to handle multiple simultaneous loans.  

PM me if you want direct lender contact for SOTL, I can refer you to the loan officer who did my loans. 

Not so simple answer, yes and no.  For a conventional mortgage (Freddie/Fannie) not likely, though you could borrow 75% of your purchase price, so cash out $75K minus any associated costs/fees.  Research “delayed refinancing” which generally requires 6 months of seasoning (ownership) in order to use appraised value vs purchase price (plus improvement expenses). 

Private money/Commercial lenders who are not bound by Freddie/Fannie rules often will let you borrow right away with little or no seasoning (often 1-30 days after purchase) and borrow 75% LTV of appraised value, but rates are often more like 6-9% vs about 4-5% for conventional financing (Freddie/Fannie backed loans).

I hope this helps. I’m just an experienced borrower who has done a lot of shopping rates, fees, and terms.  Feel free to private message me for additional discussions. 

Andrew
 

Cost and Credit are two opposing things.  I’m assuming that is a $1532 lender Cost.  I am not a lender or broker, but I watch and shop rates quite a bit, and that sounds like a very reasonable and good cost and rate.  One of the most transparent sites to gauge good rates/fees is www.aimloan.com.  I am not affiliated or anything, they just have a great website and very competitive rates and fees, and their anonymous quote system is very quick and easy to use.  

Their site is quoting 3% for $2675 in lender fees and points (plus additional for title/closing, etc), so assuming the remaining costs are the same, then its a pretty good deal. The other poster is right, you can ask for a HUD-1 type statement showing all fees, which is what aimloan's website will show you for each quote under "details".

Another great lender who recently did my refi was Owning.com. Ask for Will Wilke.  He was great and they closed in 3 weeks!  Again, I have no stake in these companies, just my honest experience with them as I have used them both.  

Thanks!

Andrew 

Kevin the original question you posed is a very great question and one I learned the hard way a few years ago. I believe it is an advanced strategy to continually monitor and consider the effect different options have on your DTI as it related to future borrowing power (for conventional loans/financing).

I totally disagree with Eric in the premise that you should always take a deduction regardless of the impact to your DTI ratio that future lenders will base their lending decisions on.

The other posters were correct in that lenders should Add the depreciation expense back into your final DTI calculation, therefore depreciation expense should NOT affect your DTI ratio.

Having said all that, and where I mainly disagree with Eric's premise, I believe you are Very smart to consider what effect claiming expenses on your taxes will have on your DTI. Consider if you had $1200 in maintenance expense for a given year. If you include that as an expense (write-off) on your taxes, then you have just reduced your net income by $100/month, which WILL have an effect on your DTI ratio. If you are right on the border to the DTI max, it could make all the difference.

If qualifying for a refinance or another property purchase will likely have a Larger impact on your income and net worth, then perhaps the smart move is to NOT claim a given expense as a tax write-off, and ensure your DTI will qualify you for that refi or purchase.

Real Estate investing comes with great tax advantages, and my premise is that most RE investors with a handfull of properties pay relatively low taxes. So, if not claiming an expense ($1200/year in example above) on your taxes raises your taxes by $240/Year (20% tax rate), but that keeps your DTI within an acceptable range, that potential refi or new property purchase would only have to net you a savings/income increase of $20+/mo in order for it to pay off. I'm also guessing that not many investor (who are seeking cashflow) are buying another property for a mere $20/mo cashflow, but are likely netting positive cashflow of several hundred dollars per month per door/property. So, in that example, choose to pay an extra $240 in taxes (once, and re-evaluate deductions again next year), but gain another property (or refi) that will Net you much more cashflow than $20 per month, seems like the ninja-move to me. Pay the minimal extra Tax, keep your DTI low (enough) and keep adding to your portfolio. Reminder: This scenario does not pertain to depreciation versus actual out of pocket expenses due to lenders adding your depreciation back in when calculating your DTI.

Even on a larger scale, with multiple properties, you may get to the point of paying an extra couple thousand on your taxes for a given tax year, but if that allows you to acquire another property that Nets $500/mo indefinitely (gaining $6000/year), isn’t paying $3000 once in extra taxes Well worth the tax expense?  

Put another way, if a particular property you wanted to buy had a $240 mandatory fee or the sale would not go through, would that mere one-time fee stop you from the deal?  I would guess not.  Pay the fee/tax, gain the additional property, and add to your net wealth and cashflow - the smart “Ninja-move”.  

** Disclaimer: I’m not an accountant or tax attorney and anyone should consult them for any tax or legal advice. 

(edited for typo). 

Oh yeah, another thought, if monthly cash flow is not an issue, and $22K will make a difference toward your new purchase, assuming you have a car or two paid off (or low balance owed), consider doing a cashout refinance of your auto loan(s).  Many times auto loans are the source of some of the cheapest borrowing you can do.  Fixed rates, and right now you can easily get 3-4% for late model cars.  

A few years ago I had 3 cars paid off (don’t generally like or carry any consumer debt), so I did cashout loans on them and sourced about $50K cash on them at like 3-4%.  Great way to get cash for investing.  That $50K got me into additional properties making way more than 4%.  

Food for thought. 

Andrew

Thanks, glad to help. The good news is it is still building equity and hopefully cashflow. Most people in general know about ROI/Return on Investment. One thing to also consider is your ROE/Return on Equity, which typically tends to diminish over time as your equity grows. So if you have $80K equity now, and say the principal balance on your loan gets paid down $3K+/year, next year (assuming no valuation appreciation or depreciation) you will have $83K in equity.

Basically ROE is your opportunity cost. That is, how else could you invest that $83K to get a larger return/ROI? So instead of only looking at how much return/ROI you get out of your cash invested, you may consider what are your other options for that $80K. "If I sold, and after closing costs, maybe net $75K (simple round math), how else could I invest that $75K to get a larger return?"

If you can put down $35K each on two new purchases of $140K and pay a total of $5K in closing costs, you have $70K equity, but maybe a higher ROI than the one condo produced; maybe not though. If the condo is only producing $300/mo, but your reallocation with new assests produces $300/mo each, you have essentially doubled your cash-on-cash rate of return. (9% on $80K vs 4.5%).

Food for thought, like an under performing stock, all assets should be evaluated.  Yours may be performing well, I’m not saying it doesn’t, just thoughts to provoke some analysis.  There’s also potential tax implications (capital gains taxes, etc), but the basics hold true to analyze your best return and options.  

Also consider another adage, that you should invest where the money makes sense, and buy OR RENT where you want to live.  If you have the option to live in an oceanfront/beachfront home for say $5,000/month, but that home would cost you $10,000/mo to buy, maybe you are better off with a long term tenancy and invest the other $5,000/mo.  Big numbers in that hypothetical but the logic makes sense. 

Andrew 

Many lenders don't do HELOCs on investment properties, but some do. Assuming typical financing ratios on investment properties, you're capped at 75% LTV, which would allow you to cash out up to $22K ($220K * .75 = $165K - current balance of $143K = $22K cash out poss; some only lend to 70% LTV which would only net you about $11K). If you can find a lender who does NOO/Investment HELOCs, that may be the way to go. You would poss pay a higher interest rate, but generally no closing costs. Being a relatively small balance the difference in interest rate and ability to pay it off sooner may negate the downside to the higher rate (typically tied to prime rate).

Another option is a cashout refi of the rental property/condo. You did not mention the terms of your current loan (rate, how many years into the loan, current payment amount, etc), but cashout refi on Inv properties can get costly on the fees. Aimloan.com has a great pricing quote system that doesn't require any personal info to be submitted.  I just checked that site, with 760+ credit score, $165K loan, 30 year fixed, $4502 in fees/closing costs, at 4.125%, payment of $799.67. In this scenario, you would be paying about $4500 (plus interest) to borrow $22K, netting approx $17,500 (fee analysis is 25.7% up front cost to borrow $17,500; plus regular interest).  

For the above scenario reasons, I suggest a HELOC if its an option. If however your current loan has some crazy high interest rate, or some other reason you were going to refi anyways, then you might consider paying the $4500 and refi.

As far as lender requirements, they are pretty standard DTI 45% generally, and you'll probably have to show up to 6mo cash reserves for the loan. In general, if the property cashflows for you, and you will still cashflow with the new loan, and you have decent credit, W2 income, etc you should be fine with either refi or HELOC.

I received the following message recently and thought I would share it since my response may assist others:

My response:

For conventional financing (Freddie / Fannie loans), there is something called delayed refinancing which means if you refinance (including cash-out), you are limited to the purchase price plus improvements. If you season the property for six months+ then you can go off the appraised value. Conventional lending is done in your personal name, but I'm told you can then deed the property to an LLC if you want. 75% LTV max on the loan.

However, you can put the property into an LLC and get commercial financing for the property. With commercial financing they don't follow Freddie/Fannie guidelines so some lenders don't require as much seasoning, some only require 24 hours to then use an appraisal for valuation vs original purchase price. Commercial financing generally requires title held in an LLC and the loan to be to an LLC (though some still require personal guarante on the loan). Lenders will generally loan up to 75% LTV.

Commercial loan rates will generally be much higher than conventional financing (say 6-8% vs 4%) for 30 year fixed. Commercial lenders sometimes have prepayment penalties for the first 3-5 years of the loan.

Andrew

I'm not a mortgage broker or lender, so if any professionals in this field find error in my statements above, please set the record straight.  The above is based off my experience in talking with many lenders over the years and obtaining about 25 loans (purchase/refi/etc) over the years.  

I hope this helps others.

(Note: I too was a little confused by the numbers stated in the original message, so tried to respond in general.)

I’m not really sure how you are going to get a signed lease prior to owning or legally controlling the property. Maybe I’m missing something?  

Also, most (not all) lenders have minimum property value requirements  (often $75K-$100K+), as well as minimum loan amounts (typically $50K-$100K), so finding lenders under these limit amounts tends to prove difficult, though not impossible.  PM me and I can give you some likely leads.   

With relatively limited funds, my suggestion would be to buy from a wholesaler, using some Hard Money, self-fund the rehab, rent and do a cash-out refi. Basic BRRRR method, but target properties with $80K to $100K+ ARVs since your cash-out refi Lender options (loan amounts of $60K-75K; 75% LTV) will increase significantly. Under that gameplan the idea is to cash-out each property with your cash being recovered (mostly or poss even a cash-out profit), then do it again. I suggest, start with one, learn along the way, then repeat, indefinitely.

If you want to discuss further feel free to contact/PM.  

Andrew

Well said, Jason.  As someone recently told me, "Good Decisions come from experience...but where does experience come from?...Bad decisions."   You've must not be afraid to make decisions, reflect and learn from them, try not to repeat them and make good/better decisions in the future.  We generally learn more from mistakes and failures than from successes, which makes sense because we tend to rethink failures and try to avoid repeating them.  Have you touched a hot stove lately?  hahaha.  

One of MY favorite sayings/expectations for my team, "I expect reflection, not perfection".  Make good decisions, learn, and grow.

Andrew