All Forum Posts by: Jay Hurst

 In my experience, and this will not be terribly popular here, but no you should not buy out of state if you cannot visit the area before you purchase if. And no again if buying a rehab project and if  you cannot visit during the rehab process.

My experience I am mentioning? Well it is doing loans for folks who bought sight unseen and trusted contractors/turnkey providers who sell the dream but in the end do the absolute min in rehab work (even though charge for a much better job) and/or sell a buyer on a class B type neighborhood that is  reality a class D neighborhood in an already low income town. Values are almost much lower then promised with tenant qualify also being much lower then promised. Are there folks who do not operate this way? of course, but you are taking that chance with your hard earned money. if you cannot afford or do not have the time to make a few trips out of state investing is just not a good idea  for many reasons.  

 If you are not well capitalized, meaning you can not pay off the loan if called, stay away from sub to. 

 Non conventional just means the loan will not be sold to Fannie/Freddie so they do not have to follow those rules. I do not lend in NC so I cannot help but I have several options with 20% down on a 2-4 unit. I would suggest going to the find a lender tab here on bigger pockets to find a local lender who has the same products. 

 Conventional loans do require 25% down on an investment property. Those rules are set by Fannie/Freddie NOT your lender, or any other lender in fact. Also, conventional lending will NOT allow you to get gift funds OR borrow unsecured funds to help fund a down payment on an investment property. You can borrow against a 401k or another property you own for example, but that would a secured loan. You also cannot use a second mortgage (from HML/private lender) for a 2-4 unit non owner property. The 25% has to be your funds.

Now, there are non conventional options that would be a bit more flexible but even most of those programs will require at least 20% down with no second mortgages filed on the property. 

 @Daniel Tanasa   Unfortunately that is not correct when it comes to mortgage debt. (and it does not matter if their is a servicer involved) You are correct for any other debt like for example a car loan. If you can show that someone else has paid the loan on-time for 12 consecutive months you can exclude that debt from the debt to income calculation. BUT, for a mortgage the party making the payments has to be obligated on the debt. So, in the case of a sub to transaction like this one the OP is the party making the payments BUT is not obligated on the debt. The below comes from THE word on the subject, the entity that will be buying and insuring the loan, Fannie Mae.

https://selling-guide.fanniemae.com/sel/b3-6-05/monthly-debt...

There is no law against getting a second lien either fixed or as a HELOC in Texas (as many believe), as we do them every day. However, your issue would be lack of equity. You generally have to leave 25% equity in an investment property. So, based on your numbers you could borrow up to 243,750 on property A, but owe 220k, so that would only be 23,750 in borrowable equity. Most min loans amounts are going to be 50-100k, so an issue there. Property B you already owe more then 75% loan to value before borrowing.

The common mistake here is that not ALL your equity is borrowable on a property and even more so on a investment property then an owner occupied property. 

Quote from @John Friendas:

Quote from @Jay Hurst:

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Quote from @Patrick Roberts:

If you are on the note or personally guarantee the debt, then it will affect the liability side of DTI, regardless of whether the lender reports the loan on your personal credit. You will be asked to disclose this during the application process, and not doing so is concealing a debt and would be fraud. Depending on the loan product, you may be able to exclude business debt once the business has paid the debt directly for 12 months.

The income and losses related to the operation of the entity will affect the income side of your DTI (like Jay explained) if you own 25% or more of the entity. The distributions and allocations on your K1 will dictate what is attributed to you.

 What would be the best way to go about it then? I make about 70k a year from my salaried job and my friend makes double that. I'm trying to make it so I'm on the deed/title and not the mortgage.

I know the income side would be effected with the dti I was just wanting the debt side not to be. The net rental income should be about 65% more than the mortgage.

If the above is true, the income will offset the debt in the DTI calculation, so who cares?

 I would be thinking about future loans as I plan to do purchase another property soon after. Whereas he would be good with this for a while. What I'm aiming for are turnkey rentals and trying to max out the amount of conventional, lower interest loans.

again, the DTI income ratio will be IMPROVED if the property shows cash flow. Improved, not made worse. So, you are not at limiting your self when buying a new property. This is 100% the most misunderstood aspect of rental income.

I think I misunderstand DTI for rental incomes.

My DTI goes up with a cashflow positive rental ($2000 expense and $3,500 income). I used the 75% rule on the income and added it and my DTI without the rental goes from 24% to 38%.

Or does it just allow me to just take the net profit of that rental and add it to my rental?

Just using your numbers above, 75% of 3500 is 2625. That 2625 would completely offset the entire 2000 payment. In fact, you would get 625 of income over and above the 2000 payment. So, not only does your DTI not go up, but it would go DOWN.

Now, there is a little more to it then that if the property is on your tax returns but the math is still the same in how cash flowing properties HELP dti not hurt. 

 See the find a lender tab above under "build your investing team". 

 @Jordan Kaylor @Jeanette Land    Seasoning requirement is a industry term for waiting period. For example, if you buy a home for 100k, and then improve the property and now it is worth 200k.  So, you say will I want to take some cash out using the 200k value but most programs will require you to wait some period of time from 3 months up to 12 months for conventional before you can use that 200k value to pull cash out.

This seasoning does NOT apply to delayed financing as I mentioned in my post above.  

 @Ryan Mcpherson 100% financing with no MI so I assume a VA mortgage? Is that corect?