All Forum Posts by: Julee Felsman

You're welcome!

Hi Sameer, 

If you're open to financing in your name initially and transferring to the LLC later, you should be able to secure the best of both worlds... Fannie Mae loan terms with LLC protection. Done correctly you also won't trigger a due on sale clause.

Happy to share more if you have questions.

Julee

Hi Shonari,

It is possible to to get conventional loans both directly in the name of an LLC or in your name, with the ability to transfer to an LLC after closing. The latter offers better loan terms (standard conventional loans can be had). The former are portfolio options that tend to carry higher rates (but not as high as HM) or may only be available as adjustable rates.

Good luck!

Julee

Hi Aaron! 

The best path forward could involve any/all of the options you outlined. As Jaysen mentioned, you'll need to share more details about the properties you acquired, their values and your goals.

Refinancing means paying a full set of loan fees, but will likely have the lowest rates of all of your options. You can refinance rentals with cash back at up to 70-80% of their value (the more you want to borrow, the less favorable the loan terms tend to be.

Credit lines/Seconds are another option and usually carry lower costs, but expect rates to be a good bit higher.

Business lines will based on the property cash flow... without a bit longer track record of income and expenses you may have a little trouble securing a business line.

Hope that helps a little!  But getting into the weeds with a lender is probably your best move. I assume you've been working with a lender as you made these acquisitions... reach out to them. Or if they don't seem well equipped to handle your questions or inclined to help you solve puzzles, reach out to a lender on BP.  

I'm happy to throw my hat into the ring. I'm licensed in MN and could help out, if you decide to enlist new help beyond your current lending team.

Either way, congrats and good luck!

Julee

Hi Jason!

Your question can only be answered by getting a look at your tax returns. It could be that your reported income and expenses simply don't support enough loan to buy the property... or it could be that the lender(s) you've talked with aren't well versed in self-employed income analysis.

The silver lining if it turns out that you are a little short on the required income:  it's late October.  This time of the year, I talk to a lot of my hopeful homebuyer clients who are self-employed about positioning themselves to buy next year, once this year's taxes are file.  (Although that might not work timing-wise for the home  you've found.)

Another resource I can offer (even if you don't want to take me up on looking over your financials) is this blog post: 

http://workshopmortgage.com/blog/blog/2019/01/10/mortgage-mastery-for-the-self-employed/

it outlines, in detail, how lenders view self-employed income and analyze tax returns.

I'm happy to answer any other questions you have too!

good luck!

Julee

Hi Evan!

Hi Evan!

It’s a little strange that your first lender would invoke the delayed financing rule when telling you six months of seasoning is required. The whole point of the delayed financing rule is to allow a cash back refinance for a property purchased for cash within the first six months after the purchase.

I am in my car right now, but can post a link to the Fannie Mae guidelines… Or perhaps one of my other BP lending colleagues will do so before I get the chance.

 I am in my car right now, but can post a link to the Fannie Mae guidelines… Or perhaps one of my other BP lending colleagues will do so before I get the chance. (or they are very googleable.)

You should take the guidelines back to your original lender, and they should be able to fund the loan with the appraisal they have.

You will be required to show a few things:

 You will be required to show a few things:

1) that the property is owned free and clear.

2) the source of funds used to purchase the property. Prepare to show HELOC and bank statements with the draw of funds used to close.

3) you will be required to pay back any borrowed funds out of escrow… But that's OK since paying back your HELOC is what you want to do anyway.

God luck! 

Hi Chris!

Fellow investor and loan officer here... also in Oregon.  I started my career as an investor by moving out of my own first home, keeping it, and moving into a duplex. That was a long time ago (20+ years), but I can say, with the benefit of hindsight, that it was the best thing I did to set myself up for the future.  

Future me thanks long-ago me for taking the scary plunge. Future you will do the same!  :)

Putting on my loan officer hat for a minute, there are a couple of things you should talk to your loan officer about:

1) When you refi a place, to get the best terms, you will need to sign documents saying you intend to stay for a year before you move out. Make sure you are comfortable abiding by that timeline or ask about the loan options for refinancing your place as a rental.

2) If you plan to buy your next plex with an FHA loan (a great option as it allows 3.5% down), make sure you can qualify without rental income from your current place. FHA has a rule that forbids counting rent on a "departing residence" unless you are moving 100 miles or more.

3) FHA has some rules around 3 and 4 unit properties you should understand. They require that you have 3 months of payment in savings after you close and that the property pass a 'self-sufficiency' test -- 75% of the market rents (per the appraiser) all of the units (including the one you are going to live in) must equal or exceed the new payment (loan, taxes, insurance and mortgage insurance). Appraisers have to use entire buildings as comps, and there are often a limited number of comps from which to chose (especially 3-unit properties).  Duplexes don't have these extra rules

You might want to see if you can qualify for a Freddie Mac program called "home possible" that allows you to put 5% down on up to 4 units. The income limits for the program were just significantly reduced, so it's harder to use now. but if our income (including the projected rent from the other units in the building you are planning on buying) are below the limit for your area, it's a good option.

Good luck to you!  Feel free to PM me any questions you have!

Julee

Hi Bryan! I have quite a few condotel financing options. I'll need a few specifics to determine which program is the best fit for this project... I'll reach out to you privately! 

Thanks, Neal!  Glad to hear my notes pass muster with someone who knows what they're talking about!  :)

Releasing earnest money to cover the expense for the seller is a strategy that makes good sense. I never like to see a client release earnest money until we've received a underwriting approval and the appraisal.  

I can get my clients a fully underwritten pre-approval before they even find a property, so that part of things is not a concern for timing. 

Getting the appraisal back prior to releasing earnest money could add a little more to the timeline. Appraisals are taking 1-2 weeks to come back right now. I would generally want to allow the long end of that timeline for a multi-unit property. They're just a little more complex to complete.

And Neal, 100% agree with you... a lot of the real estate community (really great brokers even), do not quite have their heads around SB608 and how it intersects with Portland ordinances.  

As a buyer, I would want the seller to handle all notices. As a seller, I would want the advice of a landlord-tenant attorney or to retain the services of a  property manager. 

Speaking of expert property managers... Amy, Neal is a great property manager. :)

Hi Amy!  

First... I love that you're thinking of living in a plex.  I lived in a couple of duplexes (my second and third homes) and still own them. Buying them, living in them and keeping them was one of the smartest financial moves I ever made!

It is possible to buy a plex with an FHA loan, but you and your seller -- and your respective realtors -- need to collaborate to carefully navigate the timelines.

I can confirm that the timelines you mentioned above are accurate. The 90 day notice cannot be given until the seller has a bona fide offer from a buyer who intends to occupy the property.  Some of these rules are peculiar to Portland.

Here's how things work out in the real world:

You write your offer on the property you want to buy. You should include with your offer an addendum stating that you intend to occupy the property. That will give the seller a document that contains no additional information they may not wish to share (such as the price) with their renter. I would (personally) ask them to obscure my name on that addendum when sharing it with the seller. That protects your privacy -- the renter doesn't need to know who's buying the place.

Upon acceptance of the offer, the seller could give 90 days' notice to their renter (they now have a buyer who intends to move in). They may not want to do so, howover... they probably don't want to give formal notice until you've done your home inspection, reviewed leases and the title report and navigated any resulting issues in connection with the property. Historically, sellers have often been reluctant to give up rental income until they know they have a buyer locked in.  (Caveat: this may change now that these rules are in place... some sellers may like the excuse to give notice.)

Once you've firmed up terms, the seller gives 90 days notice to the renter in the unit you wish to occupy. The seller will also have to pay a relocation fee to the renter at this time.

If you are comfortable taking on the renter, you can close 30 days after this date.  

When the renter moves out in 60 days, you can move in, per the required terms of your loan. 

Working through that initial due diligence period usually takes 10 business days, so you would need to have a 40-45 day escrow period.  A little longer than the norm, but not beyond the pale.

If you are not comfortable taking ownership with the renter in place (what if they don't move out), you would have to negotiate quite a long closing time frame.  I have a client closing next week who did just this... they really didn't want to close with the renter in their new home, so they negotiated an extended closing with the seller.

Be sure you talk to your real estate broker and lender. And if you want to work with a lender who has some experience navigating this stuff, hit me up.  :)

I am, of course, a lender and not an attorney or property manager (although I do have my own collection of rentals), so take what i say with a grain of salt... but I'd be happy to hook you up with experts who can answer questions with a little more authority!