All Forum Posts by: Beau Benjamin

I am a relativley new investor and now have 3 properties cashflowing.  My question is what to do with the money.

One property is my first house that I used to live in right out of college and it is still 10k until I am under the PMI. Ideally I would like to pay it down so that I increase my cashflow. However, I also want to save up enough money to put a down payment on my 4th property as soon as reasonably possible.

Is it better to save the money up as a cash down payment or what other ways are there to use the money but still creatively invest it into a future property?

I will able to pay down or save roughly 2400-3000/mth.  So my plan is to get to the 20-30k mark and then invest again for a 4th mortgage from a traditional lender.  (I still feel too new to start all of the creative financing (and I haven't finished Brandon's book yet)).

Ideally I would just pay that much down on my 1st property, removing the PMI and building equity and then open a HELOC against it in which I could use that money for a future down payment. However, after speaking with my bank (Fifth Third) they explained that I can't use a HELOC to put the required 20% down on a new investment property. I can only use a HELOC to pay for a new property in full. Essentially you can't use leveraged money to pay for the 20% down I'm learning? Does anyone dispute this or can explain it more clearly?

I guess this is my learning evolution into why people use creative financing, but the waters are still a little muddy for me.

Thanks for anyone who might offer the best way to put my cashflow to use to re-invest!

I live in Indianapolis and invest in the Northern suburbs (Carmel, Noblesville, Westfield, Zionsville).  Let me know if I can help at all.

+1. Count me in.

Hi Sandy!  Fellow newbie here in Carmel.  Let me know if I can help in any way.  

I wanted to finish this post off with what happened.  After speaking with a real estate lawyer and financial advisor, I was able to get the advice I was seeking.

For anyone that runs across this in the future, I want to tell you that regardless of other people's opinions, performing a short sale and/or foreclosure are VALID tools that are part of our financial/legal system.  There will always be moral parts of these decisions and how you layer your moral obligations on top of the decision is perfectly fine, but just don't let other people's opinions force you to do something that doesn't work for you.  There is nothing wrong with using the system in which we live to help you get out of trouble, especially if you aren't doing it deceitfully.

Now, my original question was what is the BEST financial decision in this scenario.  Let's revisit the options.

1. 1.  Loan Modification - This scenario essentially cost ~12k up front plus 12k in repairs for a total cost of 24k but it saves my wife's credit from long term damage since it will immediately start improving once consistent payments show up and the bank takes the loan off of a behind status.
2. 2.  Short Sale - I continued to have my wife's bank tell me this was possible between spouses with a waiver signed by the bank, but the problem was that I never found a bank that would waive the arm's length clause that was spoken about in above posts.  Thus while this still might be an option, it seems as though it would have been a dreadful one to complete and probably not work the paperwork/time.
3. 3.  Foreclosure - This was a serious option up until the meeting with the financial adviser.  The financial adviser spoke to us about how the long term effects of this on my wife's credit, but also added the scenarios we might face in the future.  If we want to move to a larger house to support the growth of our family in the future, just using my income but having to list all of our combined expenses would cause our free cash ratio to be weaker.  However, adding her income would not be possible without adding her credit.  Thus we are setting ourselves up for a difficult financial road for up to 7 years using this option.  The financial adviser pointed out that 24k is a lot of money for any average family to swallow short term, but looking back a year or two later it will dissipate into the larger view of things and everything will be better off for having went with the loan modification.  (I think this was what @Bob E. was trying to say above, just didn't come off that way)
4. 4.  Deed in lieu of Foreclosure - This was an option that had not yet been discussed on this post.  However, this is a very good option for people that are just trying to cut bait and move on with their lives!  I learned of this option through speaking with a real estate lawyer.  They recommended it if putting the 24k up front just wasn't an option to do the loan modification.  This saves the credit from being hit with a foreclosure and also sets the loan account to even and closed, thus no more late account reporting on your credit.  Banks will sometimes do this to save legal costs if they think the property is definitely going to go to foreclosure.  It saves ~6mths and lots of legal costs and paperwork so it is usually a better option for all involved.  This usually just works for people who have another way to live as it obviously would be difficult for someone that was living in the house and had no other place to go.

My wife and I were able to go with option 1 - Loan Modification and her bank even worked with us and split up the lump sum payment into 2 chunks ~4 months apart to make it easier on us.  There was nothing about any of this that was easy, but we are very excited to be on the last leg of it and getting life back to normal.  Thank you to everyone who posted and I hope the post helps someone else out in the future that might want to know more about these property/bank options that are available.

Thank you,

BB

Thanks Bob. Sharing your opinion and showing your internet muscles helps tremendously! Does anyone have factual thoughts about the best financial decision/outcome? This really is a question of credit so I might be on the wrong forum/website. My wife doesn't care about her credit rating since I'll be handling everything going forward, so the question is from a financial decision should her credit rating factor into which of the three options we pursue? My credit is over 820 so and I make enough money to not need her income on any loan apps in future, so I'm wondering what makes the most sense going forward?

Thanks for the replies everyone.  I'm not sure if the intention was to actually help or rub my face in it, but thank you for the replies nonetheless.

Yes I married someone that lied to me.  Thanks for pointing that out, it definitely helps me to know that going forward.

I believe in forgiveness.  My wife isn't good with money and we've had extensive conversations on this topic.  Since this isn't a relationship forum, I'd prefer to stick with the details of how to get out of the mess.

This is a loan modification.  She has been behind on the payments prior to the pipe burst, but that is what "broke the camels back."  She fixed the pipe and paid to have all of the water removed, but there is still damage that remains.  Hopefully, that makes more sense, although I'm not sure it really changes the decision at all.

Her lender and I have been working together and they actually stated that I should pursue a short sale and that he has personally seen their exception department make husband/wife exceptions numerous times, so I'm not sure who to believe when you state, "it isn't an option."

This really come's down to where to invest my money.  I think that there are still 3 options on the table, but I still can't garner which is the best from the feedback thus far.

1.  Put money towards the modification and repairs.  ~$24k (up front contribution + repairs); Best option for her credit

2.  Attempt to buy the property from my wife via short sale (assuming lender exception granted) and then repair.   $36k (down payment & repairs);  2nd best option for her credit, but not as bad as foreclosure.

3. Walk away and use money for new investment property; Worst option for her credit, but does that really matter at this point, since it has already taken a hit?  Can our credit ever really combine?  Will this hurt my credit going forward?

I recently got married and upon the final details found out that my spouse's condo was behind on payments because she had accidentally let the insurance lapse and a pipe burst.

I was just beginning my real estate/rental journey, listening to pod casts regularly and reading forum posts.  I have some money saved up to put a down payment on my next property, but now I have all sorts of questions about my family's current predicament.  

Current options: 

1. Pay $12k for a loan modification in which my wife's lender will set the loan back to current.

2. Attempt a short sale (lots of questions coming below about this) in which I buy the property from my wife.

3. Let my wife's lender foreclose on the property.

We currently live at her property now, but have other options if we need a place to live.  I currently rent out my house that I owned prior to our marriage.

So #1 is kind of a crappy option because it will take my savings for my next rental property, plus I will have additional costs to repair the water damage.

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I'm interested in #2.  If I can buy the property on short sale, then my wife is free and clear of the debt and from a credit standpoint it is better (even if barely) than having a foreclosure.  

The stats are as such:

Loan owed - $150k

Property value - $133k

Property value with water damage - $121k

I would like to get a loan for $97k put down $24k (20%) and make a short sale offer.

Questions:

1. Who offers these type of loans?  I've called some traditional banks and it seems that nobody likes this plan.  Plus most state they'd have to get an exception for the husband/wife thing. (Note - Title/Loan is in my wife's name only since she owned it before we got married)

2. What else do I need to be aware of other than this may take a long time to complete?

3. Does this option make sense, or should I just use my money on a totally new rental property and utilize our ability to live elsewhere in the short term?

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Questions for 3rd scenario (foreclosure)

1. If my wife's credit goes in the tank for a foreclosure, does it affect mine now that we are married?  Obviously I wish we could avoid this, but from a financial perspective, if I know I can use my great credit going forward and will be handling all financial items, do I care about using my savings to dig out of this hole, or just go forward with much easier loans, which I can get approved for with much less hassle.

Thanks @Brett Young I will definitely reach out to you once all the dust settles.  As soon as my two owned rentals are steady, I want to start researching to purchase a 3rd rental (definitely interested in rehab to rent).

Thanks Ashton!  I'm so excited.  I wish I could "matrix download" this whole site into my brain.  Appreciate the tenant screening guide tip!

Are you currently renting or any other type of real estate deal?

My biggest goals are to figure out how to market my rentals, screen the tenants (thank you again for the tip) and price them correctly.