All Forum Posts by: Albert Bui

FHA 100 mile rule doesnt apple to only FHA to FHA loans, it applies any time a borrower leaves their primary residence currently and tries to use FHA to buy another primary residence.

Luckily the OP doesnt have a 100 mile rule situation because the property has been rented by tenants for over a year so its already classified as a rental on paper.

You can use the rents on your rental to offset your monthly conventional mortgage on that rental property. The rental income a lender will use is most likely taken from your tax returns. There are some cases where an exception is warranted to go back to the lease agreements. Depending on the numbers, one calculation might be better than another. I would have to look at that situation to see which options are available.

The issue of why you dont qualify is probably due to DTI or debt to income. So we'd have to look at the income to see where the DTI ratio is currently at, as is today and help you plan your next purchase going forward.

One way to look at it is to compare the rents you’d get to a normal long term tenant on the open market with what this sorority will end up paying you to see if the juice is worth the squeeze or not.

If the premium above market makes sense in your situation then you could proceed with the sorority just make sure you have a ironclad lease agreement drawn up with some potential out clauses in case the tenant doesn’t turn out how you had envisioned it within the confines of the local laws of course. 

Hope that helps. 

 Also remember that if she lives with him, the boyfriend, that the BF's rent each month is considered boarder income or room mate income and cannot be used. However, if the Boyfriend pays rent and she moves out entirely and he has a proper lease agreement signed to her as an owner, then that rental income can be used to offset the monthly mortgage payment and help her qualify for another property from a "lending perspective."

This may matter she she wants furture flexibility of buying more properties and not getting stuck to just one property in her RE investing career.

It may also be beneficial if she doesnt want to get bogged down with a partnership or legal battle over the property by following Rick's advice of only keeping the boyfriend as a legal tenant versus having him on title.

Best of Luck -

 One route Robert is to use a bank statement product for the boyfriend to help qualify with your daughter on the purchase agreement.

A more strategica way to do it is if they've leased from you for over 12 months is to do a lease + option contract to buy. This gives them optionality but not obligation to purchase however the advantage if the property appraises sufficiently, they could purchase the property from you with as low as 0% down, you could give them rental credits towards their closing or down payment which could make it truely a zero cash out of pocket affair. This option takes a bit more of planning and documentation (documenting the 12 months of rents received).

The other option is if the boyfriend has been in the industry for 2+ years and has atleast 1 year of filed tax returns we could utilize his income on a full doc conventional loan as well. This does require us to document hes been in the industry for more than 2 years (IE business license, trade license, or other documentation) with 1 year of tax returns with sufficient income to qualify.

Lastly if hes been in the industry for 2+ years ( like W2 employee prior and Self employed for 1 year) he could potentially utilize bank statement loan programs as well to qualify to purchase from you.

There are many ways other than waiting for a full year through 2025 and filing 2025 taxes before you can qualify, however this option works too.

The "real life," cashflow for me has been a decade + journey especially when you're referring to consistent predictable cashflow spanning an accumulation of purchases of apartment units. 

I never really made any money in excess of capital contributed such that I would deem it any decent rate of return ( IE I have min criteria of 8% cash on cash and I was making less than this) till about year 2-3 or after on each real estate property. These were mostly 2-12 unit properties so smaller MFR's. The initial year of each purchase was always a series of capital contributions to get it up to speed or get it going. Of course there were properties which cashflowed day one albeit a lot less than my proforma but I would still have to do lots of work.

I would preface I was buying class C to B- type of real estate 1900-1980's product. The older the product the more the capX generally required to get it up to speed from studs out renovations to basic cosmetic upgrades.

The OP posts that getting into real estate for cashflow is "wrong." To which Id say it depends on when you bought, how you bought, what you did to the properties CapX wise, and how you managed. Depending on where you purchased the properties a different strategy or approach might be needed to buy for cashflow. 

I would also agree a business is much better for cashflow (stabilized, operating well, for on going CF).

Real estate does cashflow well but it wasnt overnight and requires many units stabilized and maintained to keep cashflowing regularly. However "regularly," is not regular either because it can waver up and down quite a bit too depending on how many move out/unit turns you have per month too. I've experienced swings where its 50% less cashflow than the prior month due to a month of multiple apartment turns all hitting at once versus a stabilized month. 

In Summary, I would say cashflow works its not easy and may take a lot more capital contributions than you think. However, is cashflow wrong and dangerous for most ? Perhaps, but nothing of value was ever obtained easily otherwise it would simply not be such, valuable.

 The question is mostly a personal financial planning question and it depends on your preference and what balance of risk and access you'd like and would be comfortable with. Some people only want 10-20% of their outstanding lines/debt balances available while the other 80-90% to be in fixed rate notes. Some who are more entreprenuring folks might say 60-40 or 50/50 it all depends doesnt it?

It depends on what rates these lines are, what are the margins + index rates at today ? What index are your heloc's based on ... ? (probably prime but who knows might be TCM) and how much availability do you have right now? is it enough to carry you into your next projects while maintaining enough access to keep your current real estate operating smoothly?

Where are your fixed rate notes at and their respective monthly PITIA payments ? Where are your scheduled gross rents and effective rents so far in the last T12 months so we can figure out offense and defensive strategies.

These would be the questions we'd go through in planning your steps ahead.

having a HELOC to have an emergency line is smart since if you really need it in a crunch you could draw funds within 1-2 days or less in most cases. If you were limited in cash reserves atleast you'll have the HELOC as a 2nd or 3rd back up source of funds to weather storms. In real estate its messy and there are always repairs and capX projects that seemingly pop up from time to time. Its always nice to be prepared.

 To Sum it up, its a good idea if you can exceed the cost of capital (higher rate than your cost of debt) with what you earn on your heloc/debt you pull out and invest.

The question is how much gains above is enough to substantiate the risk of your variable interest rate, well thats up to your personal investing criteria. Some people need 2% above the borrowing cost (8% cost of hELOC you gotta then make 10% + etc) and others will want to double their cost of capital or 200% so it depends.

Everyone's going to give you their anecdotal experience or what their preferences are so its good to hear it all and determine your own.

 You can still qualify so long as you have verifiable income. You're still considered US citizen for qualification purposes not a foreign national. Most of the FN moniker is for folks with no nexus or residency/citizenship to the US. Since you're a citizen but you live and work abroad you'd still qualify mostly for second homes occupancy or investor non owner occupancy (primary is hard to claim if your job requires you to be physically next to the office as an example so an underwriter isnt going to readily believe you unless you can get HR to write you a letter to state you're remotely capable of earning this income/job duties anywhere).

Hopefully that helps let me know if you have further questions into mortgage planning.

 What do you file for this "income overseas," do you file SChedule C self employed on your personal 1040 tax returns ?

If so you may have some full doc options which have the best rates typically and terms.

Like others have mentioned you have DSCR loans too but this only allows you to purchase non owner occupied properties (not primary residence or second home occupancy type properties). Great if you want to add rentals or non owner occupied properties to your portfolio but not so great if you wanted that winter log home in big bear CA or Mammoth lakes, CA.

The good news is you're from TN so you have no earned income tax from the state on wages only interest and dividends in certain cases so thats a pro right? (in terms of pros and cons).

You can also use rentals to provide additional borrowing power if your rental currently cashflows from a tax perspective.

Hopefully that helps your scenario advance forward in terms of what to ask and think about.