All Forum Posts by: Dean Engel

This was a very interesting discussion and a few conversations with mortgage broker, commercial RE broker I think I have found a few key items...

1. Residential Mortgage brokers can write on 4 mortgaged units before they run out of the ability to sell the mortgage back to Fanny/Freddie.

2. You cannot write a residential mortgage to an LLC or other version of business (must be written to a person)

3. To get mortgage 5-N on residential you can talk to the Bankers "Business Loans".  There is no cash out option.

4. Private money lenders do not have the same restraints.

5. Commercial RE will not loan to SFH or any unit with less than 5 units on same property (or mixed use). (right now they are happy to loan up to 80%)

In summary: My model is functional up to 4 SFH purchased(under mortgage). 5 to N purchases this model will not work. there is no functional model to leverage Commercial RE loans unless there are over 4 units in a single property.

 Mark,

  I think you are right, at least with the discussion I had with my residential mortgage agent.  

It would be interesting to see why this rule is in place.

@Upen Patel Is the "6 month" window based on difference between purchase and first option for new appraisal, or is this based on some mortgage rule?

I have heard of the issues of #5 mortgage, so have considered moving into an LLC and moving to commercial loans after 4. already reviewing the Commercial loan model.

Background:  have 2 rentals purchased in the 90's, looking to start investing again. I am interested in buy / hold (or buy and flip if right property) properties. 

Financing strategy question.

I have the assets to buy properties Cash, and thinking this is an advantage in buying properties at a good price.  Intention would be to buy, rehab and then rent.

Strategy discussion: 

  Upon completing the rehab, I would then take a Cash-Out mortgage to return liquidity to my portfolio, and then likely purchase next house with that cash.

Help me understand if I am missing something in this model?  do others do similar?

Example: 

 Buy property for $200k.  Rehab $50k. Cash.  AFV $300k.  Assuming  25% down.  Refinance would pull $225k of $250k invested.  costs: 2 title costs +  1 finance closing costs (vs 2 title, and 2 finance closing)

The alternative is to buy with financing, and then cash out financing later (or leave $50k down + $50k rehab investment in property)