All Forum Posts by: Tim Delp

as mentioned above I think there is a difference between looking for a loan and looking for someone to go in to partnership with.

Not sure if you mean to say you can pick it up for 75 to 80% of value rather than loan to value and that is why you are interested in putting the deal together. Anyway one issue I would potentially see with you borrowing the money is as you mentioned that the first mortgage holder is typically not going to allow for a 2nd mortgage putting the Loan to Value at 100% of the purchase price. Even if there is equity in the property based upon an appraisal most lenders are going to go off the purchase price or appraised value, whichever is less for determining their loan to value. If you choose to take a private loan without collateral most lenders typically don't allow you to borrow money unsecured for your downpayment.

If the deal is that good from a cash flow or equity stand point I think finding a partner that has the credit and down payment available and either both of you going on the loan or just your partner going on the loan but both of you going on title.

You are allowed to depeciate the property each year. Essentially this will allow you to offset the rental income thus decreasing your taxable income. In the example you gave above you have decreased your taxable income to $141 whereas it would have been $7,273 higher had you not had the depreciation. The nice advantage with having the depreciation is that you are lowering your taxable income today and eventually when you do sell the property you will then be responsible for capital gains tax, so it somewhat allows you to essentially defer the tax. The other advantage you get with the deferral of these taxes is that when you sell the property you will be taxed on capital gains rates which currently are lower than the highest tax brackets (could be changing). Another consideration based upon how taxation is set up currently if you hold the property to your death your heirs will get what is called stepped up basis. Also mentioned above you have the option of doing a 1031 exchange where your roll the proceeds from a sale in to a new property within a specified period of time.

If you don't have a good accountant I would suggest you sit down with one that understands your particular financial situation, income etc and what you are wanting to accomplish and they can better explain how some of these tax rules will impact you personally.

I think there is more to the story and you are probably better not having her as a renter. This is pretty common practice so I think you are well within your right to protect your property and who you are renting it to. She sounds like she might have been high maintenance.

I think you can find a conforming lender that will allow the cash out transaction, it might only be 10% of the lenders out there but I'm pretty sure you can find one. Some of the other barriers that could impede you might be the loan amount and the length of time you have owned the property? Is it a small loan amount and have you owned them less than 1 year. If either or both of these are the case you have two more strikes against and that could add to your needing to broaden your search. The private mortgage might be an option as mentioned above. If you go that route I would confirm with the lenders they will accept that and not give you issues with it not having a mortgage on it originally. I wouldn't want you to pay for appraisals and when the title work comes back and the underwriter sees you've have the private mortgage for 3 months and still calls your loan a cash out and then you are out the money for appraisals.

I have seen some lenders be willing to do loans below those numbers although you will need to do your homework to find them. When you refer to deferred maintenance as mentioned above that will be a critical issues with any mortgage at any amount. If it is minor deferred maintenance you should be okay but if the house is not habitable (from lending standards) that will be a problem. I agree with the above post that if you are buying and making substantial improvements than it might be best to use hard/private money and get your loan, make the improvements and then refinance. Most lenders here will require that you have owned the property 1 year to go off appraised value, which would be what you would most likely want to do to get the most money out of the property. Prior to 1 year most will allow you to base your loan amount at 75% of your acquisition cost plus documentable improvements.
I've owned rentals going back about 10 years now and do know that you can get in to some rough areas. I did just recently buy my first property for $35,000 that is rented for $850 and it has gone very well thus far, I had to make no repairs and it was already rented. It is in a neighborhood I feel safe going to and have great tenants. I think in every city there is a point where prices continue going down but the rent for a 3 bedroom 2 bath home doesn't drop at the same pace as the home prices.
The key as with any price point is going to be to screen your tenants, I think at these lower price points you have to focus on their history of paying rent and their sources of income, not necessarily their credit. Or many times you can get a section 8 renter. The other benefit with these types of neighborhoods is if you take good care of the property and your renter they are more likely to stay long term in the property, not as likely to buy anything nor are they typically getting relocated for work like might happen with more expensive neighborhoods.

I have a friend who is a used car dealer and we regularly buy salvage title vehicles, make the necessary repairs, and get the dmv to issue a rebuilt title. I've personally driven these cars and sold them to people that are very happy with the car. I wouldn't buy these if you don't plan to drive them for a few years, most banks don't like to finance them and majority of people are unwilling to buy them even at 60 to 70% of kbb value.
You do need to do your homework as there are some people as you mention that do not do quality work.
Salvage vehicles work generally at most price points of vehicles not just the low end prices. Sometimes these cars get be fixed with aftermarket parts that are a big discount to the oem parts. If I'm driving a nice car and it has aftermarket headlights, hood, etc and I pay 30 to 40% less I'm happy to do that. When I pull up at the stoplight no one knows my hood is aftermarket.

Do your homework if you are pursuing this though.

I think you have to do first things first and get those first few rentals. Fannie Mae mortgages will allow up to 10 financed properties. The 4 financed properties you reference is a credit overlay most lenders impose themselves. Once you have 4 you will need to do further research in to finding a lender that can do up to 10 according to Fannie Mae guidelines, they are out there. Also if you are married and you and your spouse both can qualify on their own you can purchase them individually to acquire 20 between the 2 of you. The biggest issue for most people with your plan is the capital to put the 20 to 25% down required on the purchases. Fannie Mae requires 25% after 4 properties. If you are looking to take equity out of the properties to continue to buy more that is generally going to cut in to your cash flow.
Glad to see you are looking at real estate, I would suggest to not look at this as a get rich quick scheme, this is building wealth over time.

The fees that it might trigger most likely vary by state but you are probably correct that it could trigger some fees for changing ownership. Your mortgage note most likely has a due on sale clause and this transfer of ownership would mean you are violating that due on sale clause. I've never heard of a bank calling a note for this but with today's low rates and the probably rise of rates in the future this is something to consider should rates increase and rates increase substantially this would be an easy way for lenders to call in these mortgages by choosing to enforce the due on sale clause.

For traditional FNMA guidelines you are now considered self employed and will need a 2 year history. The fact that you are paying yourself a paycheck doesn't really matter since you own the company. In today's lending environment I don't see you getting it by an underwriter even if you have paystubs through a payroll company because they will want to know who owns your company.