All Forum Posts by: Luis Silva

@Mason Osborne I would say that is pretty solid after accounting for all those expenses. Couple things.. do you have fixed rate debt? Have you spoken with a property manager about rental rate to confirm they can rent the home for $2,500? Might also want to consider having a reserve fund for the rental upfront (ie. 4-6 months mortgage payments- or a dollar amount that would help you sleep better at night in case something unexpected comes up). If the property is in good shape and does not need anything major, your Capex and repairs may end up being a little less but it's always better to underwrite conservative. To me, seems like a great first rental 👍🏻👍🏻

@Bei He if you are self managing, I would consider talking with a PM and asking about this. My PM has brought info to my attention that I would most likely not have found out on my own.

@Alexandra Widowfield lenders will view a short term rental as an investment home. To be a true second home, it usually will need to be more than 50 miles from your primary home and either near a tourist attraction, lake, near family, etc. Many times the lender will require a letter of explanation to confirm its use/occupancy. You will have to intend to live in it for a period of time over the year.. but the rental income that you mentioned to them will most likely make them say it will need to be reclassified as investment home.

FYI- loan level pricing adjustments on second homes are changing April 1st this year which means rates are going to go up on a second home (pretty dramatically actually). If you search FHFA second home, you should be able to locate the announcement.

If the market is super competitive, then paying cash may be a great option to secure the property and then, as @Chris Mason mentioned, using delayed financing to secure a 30yr fixed rate mortgage after closing would be a great option. 

If the market is not super competitive, then financing the property upfront and tying up less cash may be better. Run the numbers both way and see how your cash on cash return looks. 

Yes that is not bad considering the loan size and that it is a rental home (at least from what I am seeing out there). Pricing adjustments occur for things like loan-to-value, occupancy, and even loan size (ie. pricing improves on bigger loans because the margin is higher). Plus, rates have gone up the last few business days so I would say that is fairly competitive. 

are your current loans using fixed rate debt (ie. 30yr fixed mortgage)? If so, you did a great job locking in those rates!!!... I would imagine it would be hard to secure anywhere close to those rates right now (they have gone up recently) even on your primary home. If you hold a 15yr fixed mortgage, you may be able to get close to that depending on the fee structure.  

You may also want to consider how far out you would be extending the amortization schedule again (ie. if you pick up a few hundred in extra cash flow, but the loan is extended another 5yrs, then it may not be super beneficial). 

lastly, you may also want to chat with your CPA... I believe that deducting interest expenses on a primary home does not work the same way as it does on a rental.. from a tax perspective, it may be better to keep the two loans separate. 

hope that helps a little..

HI there, 

you can google "car form lease" and a lease agreement from the california association of realtors should be listed at the top.

Hi Tom, 

The rental income calculation works slightly different than what you described. Lender/underwriters will allow you to use 75% of the rental income to qualify (ie. if you have $1,000 in proposed monthly rent (or signed lease agreement) the lender will allow $750 as qualifying income on the proposed property). The reason they do not allow 100% of the rental income is because they assume 25% will get eaten up with maintenance, repairs, management, etc (they are effectively accounting for your properties operating expenses) 

With that said, they place a cap on the qualifying rental income at your PITIA (principal, interest, taxes, insurance, association fees). Meaning, if your PITIA is $650 per month, they will only allow you to use $650 of rental income on the subject property even if the 75% calculation is higher than that amount. 

Last note... once you have owned a property and the income is reported on your tax returns, the underwriter will only allow you to use the income reported on taxes. 

Hope that helps! 

I had a similar situation with a water bill.. it was the leaking toilet that caused the issue... from what we could gather the rubber flap was bad. Anyway, we replaced the toilet since it was so old and the bill went back to normal after a billing cycle. Perhaps it is something similar. 

@Lena Hanson HI Lena, I think you already had your question answered but typically a CA purchase agreement has a 21 day loan contingency... so its impressive that you were able to get 30 days in this market. With that said, it's typical to remove all contingency prior to close of escrow, but to be clear, the moment you remove your all contingencies your deposit is now at risk. The contingencies are designed to cover you through your due diligence period for inspections, appraisal, and the loan. I would highly recommend reaching out to your lender and confirming where you are in the process and if there are any issues that would prevent you from closing.

Also, it is common that their are delays, however, the contract clearly outlines the timeline and even though you can ask for an extension of time, the seller does not have to agree with it and they can even submit a notice to perform.

Hope that helps, good luck!