All Forum Posts by: Andrew Kiel

@Ken M.- If you purchase a home with a VA loan by using an Agreement for sale / contract for deed that is the exception. I believe the code says "if a veteran holds legal title to a property secured by a VA loan but does not possess equitable title, this situation is considered 'not a disposition."

As far as the insurance claims, I've had many.  A couple of Roof claims due to storm damage in Tucson, and we had several sub-to deals in Oklahoma when grapefruit size hail decimated a big section of the whole town.  We actually had 13 insurance claims from that one storm.  If the insurance isn't done properly, it's on the edge of impossible to cash the check because it's made out to the lender, my company, and the seller(s).  Getting the proper endorsements is a real joy.  

@Donald DiBuono@Ken M. - I completely agree with Ken on this. With one small exception on VA loans, there is no getting around the due on sale clause. As mentioned, we "openly and notoriously" record the deed for the world to see so there is no hiding things from the bank (which could be construed as fraud not to mention poses many other risks for creditor liens, etc.) The rule of thumb is, if you can't handle the potential call from the lender, don't do the deal. Loans can get called. I love sub-to deals and have done many of them as well, but there are risks and they need to be done with all the proper docs & paperwork. If you want to find out if someone really knows what they're doing, ask if they've ever handled an insurance claim on a sub-to (I've had many and was always able to cash the check).

The posts above have some good insight and advice, and just would like to expand a couple of thoughts.

1.  We have a saying with owner financing.  "Balloons are for clowns."  I've seen a lot of investors taken out with untimely balloon payments.

2. Cash flow is king and appreciation should NEVER be counted on.  Anyone that thinks they have a crystal ball is full of it.

You need to adhere to the terms of the current lease if there is one.  When you renew, you can add a pet deposit with the new lease.  As the new buyer, I would assume you walked the property and are familiar with how the "long term" tenant keeps things up.  The better question is do you really need to get a pet deposit based on this?  While a deposit is almost always preferable, you should make a common sense business decision based on the circumstances and condition of the property, in my opinion.

I've run into this on several occasions where the seller wanted to buy a new house and the old loan was still showing on their credit. We were able to overcome it by providing proof that we paid, and were completely responsible for the loan and had recorded documentation to prove it (letter to lender attached below - (side note this was for a VA loan so we used an agreement for sale in this case). In some cases we were also required to provide our bank statements as proof (which we did). As I understand it, the lender should not count the entire PITI of the loan against the borrower in this case, but 25%. IE. if the loan is $1000 per month, $250 will count against their "back end ratio" in calculating the their debt to income. This would be very much like a borrower having the property rented at break even.

So in short, a LO simply saying "he wouldn't finance" without running full credit and verifying income would be short sighted, in my opinion.

July 3, 2022

To Whom It May Concern,

On November 14th, 2018 one of our holding LLCs, [LLC Name Redacted], entered into an agreement for sale on the property at [Address Redacted]. As such, we are responsible for and have been making payments on loan number [Loan Number Redacted] currently in the amount of [Monthly Payment Amount Redacted] per month (PITI) with an original balance of [Loan Balance Redacted] to [Lender Name Redacted]. It will continue to be our responsibility to make all future payments for the life of the loan. Feel free to contact me directly if there are any questions.

Thank you,

as @Jay Hurst mentions, why you can't get a conventional loan? For this purpose I'll assume you already have 10 loans and can't get more. I've run into that problem (it's a good one). The 2 best options I've found are DSCR loans and/or a local lender that does not sell the loan (they hold their own paper). I would also plan on a maximum of 75% loan to value with either of these products, so if you get your $325,000 appraisal, plan on a $243,750 cash out. You can find 80% LTV products out there but I've found the higher rate to be rather prohibitive.

I'm not seeing any great options here, yet. Combining the loans isn't likely to yield any savings, and more likely would cause additional problems (commercial/business loans have more "harsh" terms than residential). A DSCR (Debt Service Coverage Ratio) loan may be an option; certainly for the one that cash flows, and possibly for the other based on lender and rate at the time. Let me expand the thought - most DSCR lenders offer a lower rate in exchange for a 3 or 5 year prepayment penalty. With your equity position and based on credit you may be able to get into the mid 6% or so range now. If rates come down a bit more, this would likely be an even better option.

as @Chris Seveney points out the recent opinion by the CFPB may make owner financing more difficult.