All Forum Posts by: Joseph Nguyen

Hey Joseph. 

Jasper had some great points and I agree with almost everything he posted.  My wife and I have 24 locations in Colorado and Arizona.  21 locations are larger residential properties (up to 16 residents) and 3 are commercial communities.  Both smaller RALs and larger commercial communities rely on word of mouth and local reputation to fill rooms, but we haven't had much luck with local health care providers.  Most health care providers say that they don't give referrals because they don't want any liability from making the referral.  Usually, they will refer to a placement agency who will tour the resident and family through at least three locations they think are the best fit for their client.  Placement agencies also advertise quite loudly that their service is free for their clients, which means that they receive anywhere from 75-100% of one month's care revenue from the senior care provider.  Placement agency costs are one the highest expenses we have and it takes a while to recoup those costs.  Consequently, we do our best to bring in organic leads through our web and social media efforts.  Our goal is 50% of our residents coming from our organic leads but we have yet to reach that goal.

Hey @Joseph Nguyen,

I’ve got some firsthand experience on this, especially in the context of residential real estate investments. What you’re describing, often called Residential Assisted Living (RAL), can definitely be a lucrative and rewarding strategy if done correctly. It's becoming more popular for investors because of the increasing demand for senior care and the fact that you can provide a more personalized and higher-quality living experience compared to larger facilities.

Here are a few key insights to keep in mind:

1. Regulations and Zoning: Each state has its own set of regulations for assisted living. It’s critical to understand what your state allows, especially around occupancy limits and caregiver-to-resident ratios. Some areas are more lenient, while others can be pretty strict, especially in residential zones.
2. Liability Insurance: This is a must, and it’s different from typical landlord insurance. You’ll want specialized coverage that accounts for the fact that residents are receiving medical or custodial care on your property. Make sure the policy covers not only accidents on the premises but also any potential caregiver liability.
3. Staffing: Staffing can be both your biggest challenge and your greatest asset. Finding caregivers who are not only qualified but also compassionate is essential. Lower turnover means happier residents, but it can also translate into less operational stress for you.
4. Max Occupancy: The size of the home and local regulations will determine how many residents you can house. Some investors opt for larger homes with more bedrooms, while others convert existing residential properties to fit more people comfortably, ensuring they meet safety and accessibility standards.

One thing to consider—smaller operations like RAL often rely on word of mouth and local reputation to fill rooms, so community engagement and relationships with local health care providers are key to success.

PS: Fun fact—by 2030, it’s projected that more than 20% of the U.S. population will be over the age of 65, which makes senior housing a high-demand sector for decades to come.  Definitely something worth exploring if you're thinking long-term!

Let me know if you want more info on specifics!

Best,
Jasper Juhl

Hello Joseph!

This is mostly correct. Fannie Mae will allow you to count Boarder Income if you are purchasing a new Primary home, have had renters living with you for at least 13 months, have proof of receiving rental income for at least 9 out of the last 12 months, if you qualify for Fannie Mae's HomeReady program (which is an income limited program, you do not have to be a 1st time homebuyer to qualify for this program). In that instance, you can only count up to 30% of your income as boarder income. 

As far as purchasing a new home as investment, you are allowed to rent that house as Longer Term whole house, Rent By The Room (usually called SRO for Single Room Occupancy, CoLiving, or PadSplit model), Mid Term (30+ day rentals), or Short Term rentals.  Fannie Mae will use 75% of the Projected Rental income based on a long term rent model when purchasing that home to help you qualify for this new mortgage. Until this property is on taxes for 12 months, Fannie will continue to use just 75% of the lease agreement to help you qualify for future purchases.  

Purchasing a new home with seller financing does not change how Fannie Mae would qualify your income on the next application. 75% of your long term lease agreements (to a single family or to individual renters in your property). Some lenders may have an "overlay" or may not be comfortable with SRO rental income on a newly acquired property, but I have done transactions using SRO lease agreements.

Typically speaking, if you qualified to purchase your primary residence, and you have not increased your debts or had a decrease in income, you should qualify for an investment purchase assuming you have a 25% margin on projected rental income vs the mortgage payment. Sometimes you may need to put more than the minimum of 15% down, or buy your rate down to help get numbers to qualify depending on what your debt to income is. 

As far as DSCR loans go, many lenders do not like to work with 1st time investors but many lenders have no problem with this!  Working with a Broker who represents a wide variety of lenders will allow your Broker to find a lending partner that fits your situation. You can do as little as 15% down on a conventional or DSCR loan, but rates/fees will always be higher than when you put 20 or 25% down.  Multifamily (2-4 units) properties often times require additional down payment (Fannie/Freddie require 25% down), but there are a few DSCR lenders that will allow 15% down on 2-4 unit properties as well. If your lender told you that you need 2 years of experience, you are certainly working with the wrong lender!

Last, for your 2nd question, DTI works the same as described above but wanted to clarify that true seller financing, the seller would typically NOT maintain title or name on the mortgage. True seller financing would be provided by a seller that owns the property outright. 

When you purchase a property under a "contract for deed" (sometimes known as installment land contract, a land contract, or a land sales contract), that is when your name does not go on title. Be careful with these transactions and get advise from a knowledgeable real estate attorney who works with these to make sure all steps are taken to property protect yourself. 

When you purchase a home "subject to" the existing financing, that is when a mortgage stays in the sellers name. You are going to take over the payments of their mortgage. It is best to establish a 3rd party servicing company to oversee these payments as you do not want to send this money directly to the seller as they may not actually make the payment and then you could see your house foreclosed on by the lender. Having a 3rd party servicing company handle these payments can be a way to help ensure payments are made directly to the mortgage company and provide proof to both you and the seller of the property. 

You can combine "subject to" transactions along with "contracts for deed" transactions to have the title and mortgage remain in the sellers name. 

If you are doing either subject to or contract for deed transactions, please make sure you have your own representation in those transactions to protect yourself!

Let me know if you have any other questions, or if you want to talk further about traditional or DSCR lending!

Quote from @Joseph Nguyen:

Quote from @Patrick Roberts:

1st question: If you buy a new property and rent by the whole house, then yes, that income would be counted at 75% of the gross rent. The rental income would offset the PITI of the new property to $0 (assuming the rental income was high enough to do this). If you rented by the room, then no - Conventional typically does not allow for boarder income in properties that have not yet been placed into service (meaning you dont have rental income history on a tax return for that property). If you were to parcel out one of the rooms as a legit ADU, then you could possibly lease the whole house and lease the ADU separately and count rental income from both (75% of gross rent for the house, 50% of gross rent for the ADU). There are a lot of tricky rules around this, and I believe Freddie either just changed or will be changing very soon to require 1 year of property management/landlord experience in order to count future rental income when buying a new property.

2nd question: All debts in which you're obligated, regardless of whether they report on your credit report, are considered in DTI. One of the questions you'll be asked in the application process is something to the effect of "do you have any debts that are not disclosed in this application?" If you purchase via seller financing, then you have a debt and will need to disclose it, and it will be added to your liabilities for DTI. Same goes for DSCR loans - even if theyre not on your credit report, if you PG'd the loan (which is almost always the case), it will be included unless there is a justification to exclude it (such as it's been paid by your entity for at least 12 months and is included in a business cashflow analysis).

If you're finding good deals and have cash for downpayments, but are hitting DTI roadblocks to acquire more properties, then DSCR loans are likely the answer. They will be a little more expensive that Conventional when compared apples to apples, but would probably be worth it.

Thank you for the response! I didn't know about conventional not counting boarder income for non-serviced properties. So, the residential property would need to be traditionally rented (whole unit/house) for at least a year before rent-by-the-room income would count towards gross income? 

Also, thank you on the insight about the 2nd question!

I looked into DSCR and spoke to a few lenders, but it seems I need to have 2 years of rental property ownership before I can utilize; I'm only approaching my 1st year of renting by the room, so I assume I'd need to wait another year before I can look into DSCR. Which is why, it seems my only options are conventional investment loan, seller finance/assumable, 2nd home loan, hard/private money?

Sort of. If you are getting a HomeReady mortgage (for Fannie), then you can count boarder income as long as the boarder has been living with you and paying rent directly to you for a year. If all of these criteria arent met, it becomes hard to use boarder income. Conventional is not very friendly to boarder income in general.

For DSCR loans, the requirements vary by lender. Some require you to have experience, some require you to own a primary residence, some don't require either under certain circumstances. You could probably find a DSCR loan now.

1st question: If you buy a new property and rent by the whole house, then yes, that income would be counted at 75% of the gross rent. The rental income would offset the PITI of the new property to $0 (assuming the rental income was high enough to do this). If you rented by the room, then no - Conventional typically does not allow for boarder income in properties that have not yet been placed into service (meaning you dont have rental income history on a tax return for that property). If you were to parcel out one of the rooms as a legit ADU, then you could possibly lease the whole house and lease the ADU separately and count rental income from both (75% of gross rent for the house, 50% of gross rent for the ADU). There are a lot of tricky rules around this, and I believe Freddie either just changed or will be changing very soon to require 1 year of property management/landlord experience in order to count future rental income when buying a new property.

2nd question: All debts in which you're obligated, regardless of whether they report on your credit report, are considered in DTI. One of the questions you'll be asked in the application process is something to the effect of "do you have any debts that are not disclosed in this application?" If you purchase via seller financing, then you have a debt and will need to disclose it, and it will be added to your liabilities for DTI. Same goes for DSCR loans - even if theyre not on your credit report, if you PG'd the loan (which is almost always the case), it will be included unless there is a justification to exclude it (such as it's been paid by your entity for at least 12 months and is included in a business cashflow analysis).

If you're finding good deals and have cash for downpayments, but are hitting DTI roadblocks to acquire more properties, then DSCR loans are likely the answer. They will be a little more expensive that Conventional when compared apples to apples, but would probably be worth it.

Quote from @Joseph Nguyen:

Hello! I wasn't sure where to post this, so hopefully this is fine. 

I'm a new investor in Dallas, TX! Hoping to connect and learn from others! I recently purchased a SFH (4 bed/ 3 bath) in Plano via First Home Buyer/owner occupied conventional loan and am renting by the room. I currently rent out 3 of the 4 rooms (all MTRs) and keep 1 for myself. However, I'm also a travel professional and am usually away from my home months at a time for each contract that I do. I originally thought I had to occupy one of the rooms (it being owner-occupied), but I've heard people say that they were in the same situation and would just sleep on the couch. My question is:

For the time that I am away, would I be able to rent out the 4th room as a MTR as well? 

As for HELOCs, how does one use one? I know it's a line of credit, but would I receive a card / account number? Wondering how I would access it.

Also, looking at opening a HYSA with Sofi or Ally for when I get more properties. I was seeing if anybody had experience using either one? Wanted something for easy transactions for rent collection, bookkeeping, etc. 

Thanks in advance for any advice!

 Hey Joseph - it sounds like you're already off to a great start! House hacking is so smart and you absolutely can offer your room for rent as well. Your lender doesn't care where you sleep ; ) You are technically supposed to use your home as your primary residence for a defined amount of time according to the terms of your loan. However, circumstances change and people do sometimes end up using it for something other than their primary. As for rent collection, bookkeeping, etc I recommend you go through some online demos of different products to see what works best for you. I used several before I landed on Baselane. For me, it's a great blend of banking, bookkeeping and tenant management software. It's quick to set up, has a very intuitive interface and has a lot of flexibility. It was designed specifically for real estate investors BY real estate investors, which is one of the things that differentiates it from other banking and bookkeeping platforms and why I think it serves its purpose so well. It's also free and considering how much other programs are charging, this is a huge plus. Check it out!