All Forum Posts by: Albert Bui

Perhaps that particular bank can't do a 2 unit home on a 1 unit lot(R1) on their portfolio program. Have you asked them about conventional guidelines? Generally what happens is the appraiser will appraise it at its highest legal use or in this case a SFR based on the zoning for value purposes.

Generally partnership and LLC transfers can be transferred at the current basis so it shouldnt be taxable but I would still check with an accountant if it has any other implications involved since LLC's can be taxed in various different methods.

Since you've had the property now for nearly 8 months the cash out would be subject to the lower of appraisal value or purchase price up to 50% of market value since there is current financing on the property and your time on title aka title seasoning is less than 12 months.

Its important you consult with a mortgage professional who can advise you correctly on your specific situation.

For instance you could just wait till the 12th month to obtain up to 85% of market value which could be a huge difference of 35% more in cash proceeds available to you.

There are many ways to gauge whether you should sell or hold. One of which is return on equity that is the potential total return on the equity from all sources (cash flow, amortization, appreciation potential, tax benefits) you would have in the event you were to "sell," this property.

You could look at the market comparables for your triplex - closing costs - your current loan balance = your net proceeds or net equity.

If the income you're making relative to the net proceeds (equity) or return on your equity is high enough and the prospects of appreciation are strong relative to your other options you may want to keep it but, if you're making a total return of lets say 15% but prospects for 25% return can be obtained safety in abundance then you may want to consider to grow your money quicker by selling your property.

Additional ways to gauge value or whether to sell:

cap rates

gross rent multipliers

comparable sales of similar triplex's fourplexes

sales price per unit

1% or 2% rule on comparable properties or alternatives

and more...

At the end of the day you can use emotional decisions or factual and logical/financing methods to determine if you should sell or not because it involves all of the above. It just depends on what's most important to you.

Personally I take a financial planning approach and I put most of the decision weight on financials.

My two cents -

@Dion Depaoli - well we would hit them for their rent obligation where they are living however my scenario to my head UW was assuming Jason is living rent free with a relative or parents whether that is true or not its just a hypothetical.

With respect to your scenario above if a borrower is to purchase a NOO property we're able to use 75% of gross rents to "offset," the debt service PITIA payment.

If the income using this formula is positive its added to income if the net is negative its considered a monthly obligation and added as a liability to qualify for in the DTI.

Fannie Selling guide is public you can find it on page 347 of 1319 where it talks about the treatment of income or loss when dealing with rental property.

trading income can be claimed but it has to be considered consistent and stable usually evidenced by 2 years of self employment tax returns.

It also depends on how you claim it Whether on Schedule D (capital gains) or Schedule C (self employed). If you qualify as a "trader/dealer," status you may be subject to self employment tax as well so I would consult with your tax advisor regarding the day trading activities.

However on the lending end we generally can only use income for qualification purposes if its considered consistent and likely to reoccur.

Message me if you had additional questions or specifics.

I guess one could argue that the use of 45-50% debt to income is to help factor the cost of normal living expenses since we will not lend higher than this ratio of debt to income.

It's around 55% for FHA back end ratio (owner occupied only).

It's around 46.99/57.00% max for VA veterans financing however I've seen the backend still get approved above 60% dti before it's crazy but there's more make sense underwriting for vets.

technically it's 100 % cash out and by VA but most lenders out there limit their risk I believe at 90% cash out.

I can do a rate and term refinance to 100% or purchase to 100% as well.

Ahh I think I got what you're trying to say it is different how rental income is calculated when the subject property is owner occupied or non owner occupied, explanation below.

To clarify:

For rental income on a Non owner occupied property (which I believe this is)

right 800 income - 800 liability is $0 to make the borrower qualify for and you divided it by 0 because he has no other income so the ratios are 0/0 if gross rent was 1066.67.

The 800 Income after being discounted by 25% is netted against the 800 PITIA = 0 effect plus or minus to the borrowers scenario.

For rental income on a primary residence:

What your implying is how rental income is calculated if the subject property is a primary residence then yes it would go as you had mentioned because the guidelines do not allow the borrower to net the income against the monthly obligation so income would go in the income category and PITIA would go into the expense category similar to what you mentioned 800 / 800 = 100 DTI (debt to income ratio). He would not qualify in this case. He would need more income or to lower the expenses to get the ratios to be atleast 45-50% DTI max depending on assets/credit.

The VA has no title seasoning requirements in order to cash out using market value.

This is a huge difference from conventional 1-4 lending because there are many restrictions for title seasoning (how long you have to wait after you acquire title to property).

So how this could be utilized is if you were a veteran looking for a home and purchased a property for 70% of market value with cash (has to meet VA standards/owner occupied only) you can immediately cash out to 90% of market with proceeds going back to the borrower.

Just a quick way that a vet who is also an investor can leverage their equity potentially in other investments to meet their goals and or financial freedom objectives.

This would allow the veteran to obtain money around 4.5% (6.08% Annual mortgage constant) If you could reinvest at or above 6.08% annually then the vet could end up being able to live for free if the other investment cash flows sufficiently.

Chris front ratio is the total housing expense divided by your qualifying income

and

back ratios are the total housing monthly payment and other monthly obligations (car/credit cards/etc) as a whole divided by your qualifying income.

For instance you make 10,000 per month and DTI max was 38/43

this means you can qualify for a max housing payment of 3800 per month "all in," and 4300 total obligations.

Since the difference between 4300 and 3800 is 500 dollars it leaves you a gap of 500 dollars for car payment, credit card, and other obligations you may have.

If you had more than 500 other obligations a borrower would have to pay it off or pay it down prior to close otherwise the qualification might be in danger.

The solution to reduce the front ratio for a housing payment would be to:

- find a lower sales price

- lower your loan amount

- find a less expensive property tax area

- find a home with less HOA or other assessments

- buy down your rate to reduce your payment to make the cut in terms of maximum qualifying ratios

etc-