All Forum Posts by: Account Closed

Hi Charles, my understanding is that some lenders can use projected rents from the place you would be vacating to qualify you for the purchase of a new home. Typically, they would only use up to a certain percentage (I've heard 70%) of the market rents towards your income, but if that is enough to offset the mortgage payment on the place you'd be renting out, then at least your DTI might still be able to qualify you for purchasing another place.

Rosalie, are you working with a realtor? If so, perhaps either having a more in-depth conversation about what you're looking for is in order, or perhaps finding another realtor who will really be your eyes. If one of your criterion is that a property be essentially move-in ready, it seems that the property you were under contract for should not have even been sent your way. 

Hi Charles, from what you've provided, you are correct that typically an individual can only have one FHA loan at a time. There are exceptions, one of which has to do with re-locating for employment and another for increasing family size. Since those options for a second FHA are limited, perhaps you could consider some other options:

Depending on how much equity you have, could you refinance the condo, thereby getting rid of PMI, and possibly making an FHA loan an option again?

If you have substantial equity in the condo, could you consider a cash out Refi or HELOC to provide funds for your next down payment?

Could you work with a lender to use projected rental income from the condo to qualify you to purchase another property?

@Celine Crestin has a good alternative point: If the right deal were available, you might conceivably buy a property in all cash (using the HELOC) and then refinance most or all of your money back out. This is a bit more involved option, so I also like Celine's point about learning in stages.

Hello Lane, the upside to a bi-weekly mortgage is that you end up paying extra towards the loan over the course of the year, with more going towards principal. With 52 weeks in the year, you make 26 payments which are half the amount of a monthly payment, meaning you make 13 full mortgage payments in a year. Over time, that additional amount paid can have a significant positive impact on the balance you and the time it would take to pay off the loan. In essence, a bi-weekly mortgage obligates you to pay more towards your loan.

The downside, which you might have guessed, is that you end up paying more over the course of the year, i.e. you have to come up with more money towards your loan. 

Hello Mo, feel free to take or leave my advice: I would tend to agree with @Michael Baum that you should think about using the HELOC to provide the down payment on several properties. As long as you are carefully considering the #'s to make sure that they work, then it seems like you'd be doing yourself a favor by not tying up all of that equity on one deal you maybe purchase in cash.

Consider an oversimplified example: With that 185k, let's say you bought one STR in cash. Without a mortgage, maybe you are able to earn $1500 month in net cashflow. Alternatively, let's say you use your HELOC to buy 4 STRs with a 20% DP. Assuming that your PITI is around $1000, and that each of the other places was performing the same as the all-cash one would have, then you're left with $500 per property for a total of $2000. To be fair, purchasing and running 4 properties is a lot more work, but you also benefit from appreciation and equity over time.

I have a HELOC which I have utilized to buy 1 duplex and co-purchase 2 STRs. I would always advise caution, but you mention having reserve funds and W-2 jobs, so it sounds like you are prepared to leverage the debt carefully.

Joseph, the advice might depend on which of the options you mention is your priority. If you were ready to buy a new primary residence, that might be a different approach than if you were just looking to fund RE investment. 

I had a good amount of equity in my primary and obtained a HELOC. So far, I have been able to use that HELOC to help me buy a duplex and co-own two STRs. Some advantages of the HELOC are that you are only paying interest when you draw from it (as opposed to a cash out refinance) and that during the initial draw period, you are only responsible for interest payments. I'd also caution that only paying interest can be a risk if not planned for. Some disadvantages might be the variable interest rate, effects on your DTI, etc.

Each option might have different pros and cons.

Travis, I think you are correct that 6 months is usually the lower end of when a lender will consider a refinance. Many lenders may require 12 months of rental history or that the rental income shows on your tax returns. If you contact lenders in your area, you might inquire if they would accept a lease or projected rents, but I tend to doubt that a lender would refinance at 3 months.

Another thing to keep in mind: Unless you purchased the property well below market value and have done significant rehab to it, it is unlikely that there is enough equity to be able to pull out significant cash in a Refi since most lenders would only be willing to do up to 80% LTV (possibly only 70% LTV on an investment) on a cash out refinance.

Hi Luke, considering your situation, even if a lender were willing to look at the work you've done as contributing to increased equity, it sounds like you'll need to find a lender who can do a high LTV HELOC for it to be worth your time. Many lenders would not go above 80% LTV on a HELOC which really wouldn't create much in the way of funds that you could use towards future purchases.

If you could find a lender willing to do 90 or even 100% LTV on a HELOC, that might start to give you some options depending on the value of the place you're getting the LOC on. You might need to look past the big banks at credit unions, local lenders, etc.

As long as you're accounting for using the HELOC for the down payments, I will say that it can be a viable strategy. I have a HELOC which I've used towards down payments on some properties.

Travis, tons of people do run STRs in markets they don't live in. Since some of the main areas for STRs are vacation markets like the Smokies or Gulf Shores, I imagine it is a pretty low percentage of owners who actually live local. I run two STRs across the country. My experience so far has been that it is very possible to run from out of the area. 

I think you have a good point about having a cleaner and maintenance in place. If you're looking at an area where there are STRs, I suspect it wouldn't be that difficult to find the team you need. It might require some networking, etc. I would recommend trying to find a handyperson or cleaner who is able to go and address minor issues. If you do run an STR, you'll likely have small things that need to be repaired or addressed. As an example: Awhile back, a toilet at one of our cabins needed the float replaced. If I had just called a plumber, they might have charged me $200 for the service call, but instead, our handyman was able to pick up the part, and complete the job for way less.

If you really think it's something you want to jump into, you want to avoid hiring out the management typically. A management company is likely to charge 20-30% of gross, so once you account for that, your STR is no longer generating the extra cashflow which would have made you choose it over a long term rental.