All Forum Posts by: Albert Bui

 I've used the strategy on real estate for the past 10+ years and worked with clients as well who have used the strategy to acquire and build/balance their portfolios as well. The premise sounds all great and all but it all assumes they have you have sufficient positive cashflow to constantly keeping your daily balances low (rents/invoices/receipts/etc coming in through out the month).

How has your experience with the strategy been? It comes in many names like pay check parking, mortgage acceleration, banking something or other, and other moniker's and names.

I use this on real estate specifically with lines of credit. Its important the line calculates interest on 365 day basis and gives you a nice period of time or grace period to pay after the period ends (usually 1st -30th of a month) meanwhile the general game plan is to keep deposits regularly coming in throughout the month to lower the "daily interest," calculate thereby effectively utilizing/earning interest savings on all dollars that enter your financial system so you can pay down debt quicker (or accumulate equity/capital quicker/more efficiently).

@Matthew Kwan @Carlos Valencia

 nice and WA has no income taxes too so being retired that probably helps your cashflow as well for higher standard of living. The downside is I notice prices for the same food and gas are pricier in WA than so cal, CA.

the only caveat is potentially the fha 100 mile rule if he moves out of one of his SFR or triplex currently to use FHA to buy the new property. This might be a debt to income or DTI issue for him but properly planned its nothing that he cannot get around (hopefully).

@Matthew Kwan@Carlos Valencia

 exactly this is what I meant in my other post, the min I've seen (real loan files closed as a lender) is you'll need 6+ months in that new apartment, your parents house, or another location living there. 

I was able to get 3/10 underwriters to accept less than 6 full months a couple of times but the probability of success under 6 months at the new address was so low that we do not use that in our mortgage planning any more. I now recommend clients use 6+ months as a min time seasoning period of living in the new apartment or address before the FHA app to purchase.

For context, this is to use rental income offset from the prior property that you're leaving (the SFR in your original post) otherwise you'd be hit with the 100 mile rule from FHA.

@Matthew Kwan@Carlos Valencia

Its because on conventional standard (non home possible freddie mac) its 5% down for 1 unit property, 15% down for 2 unit, and 20% down for 3-4 units owner occupied freddie mac (25% down on fannie mae). Freddie takes the 5% LTV or less down payment advantage over fannie however freddie has some "other," downsides as well when compared to Fannie mae's 3-4 unit guidelines.

There are other programs like freddie mac home possible that can do 5% down up to 4 units but you're income restricted to 80% of the AMI (area median income) so you're in parts of town where it might be less favorable to owner occupy a 3-4 unit house hack as the OP @John Smith wants to buy in.

@John Smith to get around the FHA 100 mile rule you may have to move out of your current SFR first, lease it out fully, and time season it for 6+ months. Assuming he doesnt have or isnt going for a 2nd FHA mortgage, he can now use rental income on the SFR to offset that monthly payment (PITIA). As with prior, if he vacated the SFR during the new purchase FHA will not let him use rental income offset because you would have elicited the FHA 100 mile rule. This is just a work around, around the rule.

@Matthew Kwan

@Carlos Valencia

Credit unions have their own proprietary guidelines for their FTHB/first time buyer programs so they can arbitrarily make up guidelines that state upon move out of a primary we wont let you use rental income to offset the PITIA (monthly mortgage payment - principal/interest/taxes/insurance/assessments - PITIA) such that a borrower will have to qualify for not only the new property in full, but also the property they're vacating or leaving from at the same time.

On the west and east costs or higher cost metros in the US like los angeles, miami, seattle, Austin, or other areas this can be the kiss of death for a deal even if you make 250G's a year (20.8k a month X 50% DTI = max 10.4k mtg payment) because housing is so pricey that even most high income earners will max out at 1-2 properties if they dont strategically manage their DTI or debt to income.

In the OP's scenario above @Armando Montrond I would not touch my FHA mortgage since he says its at an absurdly low rate of 2.25%. If he were to use a 2nd FHA loan he'd subject to a series of rules that would be onerous (such as 25% equity requirement on the current fha property, and he needs to meet 1 of the 4 exceptions outlined by FHA to use a 2nd FHA loan simultaneously, and possibly the FHA 100 mile rule too).

Chances are, in the OP's position, its only been 1 year since he bought the triplex so hes not going to have 25% equity (from min 3.5% down FHA prior) probably.

If he uses conventional financing he can get 5% down on 1 unit property and 15% down on standard conventional 2 unit duplexes/properties. With conventional you Can use rental income offset upon moving out of the triplex (3 leases X 75% - monthly payment or PITIA). This is calculation offset could look like 5000 X 75% = 3375 - monthly 3900 PITIA = -525 per month negative. The impact of -525 from prior -3900 is a huge net improvement of borrowing power by nearly $420,000 more and now @Armando Montrond can potentially buy again.

@Matthew Kwan @Carlos Valencia

 Good reply Lawrence,

I see many potential issues that might come up on this move out, rent out, and buy with FHA on 3-4 unit house hack:

- 100 mile FHA rule

- FHA SS self sufficiency rule potentially unless hes in a high rent to value ratio area like mid west, on the west/east coasts its extremely tough to make this rule pencil out when utilizing FHA financing on 3-4 unit properties (this rule is not REQ on 1-2 unit fha properties but still FHA 100 mile rule might still apply if hes moving out of his primary during the purchase of the new subject property or future property.

The solution around the FHA 100 mile rule is move out of your primary residence right now and give it 6 months of time seasoning before you apply to buy your FHA 2-4 unit house hack. In my experience that's the min amount of time in general that an underwriter will not consider the house / property that you're vacating to be a "vacated primary." Recall that the trigger that elicits the FHA 100 mile rule is the fact that you're vacating your primary during your purchase. So to avoid this rule you move out first (solution) till the rule no longer applies to your situation then you engage your purchase and sale agreement (make your offer) or PSA and do your FHA loan after.

@Matthew Kwan@Carlos Valencia

@Naseem Razek

2. usually you can but this is FHA and if you use FHA to buy when "moving out of another primary," he will be subject to the FHA 100 mile rule (aka a rule where you cannot use rental income offset to qualify for another property so you have to carry both mortgage hit's simultaneously). There are ways around this rule when using FHA if planned for ahead of time (or he can go conventional which is why he mentioned 25% down on multi-family 3-4 unit properties owner occupied.

@Matthew Kwan

@Carlos Valencia

 Hi Niehsa,

DTI (debt to income) is not static and the way one lender reviews your DTI is not the same as another so its important to get a potential second set of eyes on where your DTI is now, how to improve it by either lowering expenses or adding more income or recalculation or figuring our how to structure more income to be viewed by the underwriter in order to get your goals achieved.

The question I see above is, what is your DTI currently? What is your DTI upon vacating your primary and leasing it up for X amount (X 75% net rental calculation) ?

Also, what remaining borrowing power will you have after you have vacated, then you will know how you can proceed after in terms of making an offer or what you can purchase up to.

@Matthew Kwan @Carlos Valencia

The 2nd note or taking HELOC's idea on your other rental or current primary residence (duplex) is a partial solution but I doubt there is enough "equity," to harvest that would allow you to complete your entire construction of this new raw lot SFR + ADU's or units by it self, solely.

However, it never hurts to prepare and have lines of credit on other properties just incase the construction loan on your new build is short or behind on funds to complete your project.