All Forum Posts by: Lumi Ispas

@Garren Frazier, That's a great question that I hear from almost everyone entering the Real Estate Investment arena. 

There is a clear distinction between owner-occupant (house hacking loan), conventional loans, and commercial loans. When you buy with conventional loans, the lender is requesting that you personally guarantee the loan, or with other words, you'll be responsible to pay the mortgage, and if you don't pay it, the lender will come after you.

When a property is purchased in the LLC, the banks can go only after the asset or assets in that LLC, not the owner himself, therefore, the only way you can buy in LLCs is with commercial loans, private loans, and hard money loans!

Of course, you'll hear that after purchase you can deed the property into the LLC, which some investors do, however, the lenders have a clause in the mortgage called "due on sale", meaning if they find out you changed the title from your name to your LLC, they'll request that you pay the loan in full, so there is a risk involved. I advised you to speak with your Real Estate Attorney/ Estate attorney to discuss titles, however, for now, your owner-occupied property will have to be purchased in the name of the person on the mortgage.

One advice I can give you is to not buy the property in both your and your wife's credit and names if only one can qualify for the loan, this way one of you will have no liability for that mortgage.

Good luck to you!

@David Davis, you are in a great position! I will say start by buying a 3-4 unit building through house hacking, meaning living for free. To use leverage, take an FHA loan with only a 3.5% down payment, and if the property needs work you can use a 203K FHA renovation loan, meaning you are borrowing from the bank the money to fix up the property too in the same purchase loan. So for example, if the purchase price is $400,000 and the renovation loan $100,000, total will be $500,000. You'll need to put down only 3.5% of $500,000 only $17,500 and the closing cost you can either negotiate the seller to pay them or bring them from your pocket. The trick to remember is that 75% of total rents have to cover 100% of the mortgage, tax, and insurance!

Buying a 3-4 unit will help you lower your monthly expenses as you'll pay no more rent and get a lot of depreciation/tax deductions while building wealth as the moment you become a landlord the IRS sees you as a small business. When you buy owner occupant, as you probably already know, you'll have to occupy the property for at least one year, after that you can purchase another property with a conventional loan, 5% down, which could be a condo, townhome or single-family home that after you move out will also give you positive cash flow. 

Meanwhile, as you are building your savings and positive cash flow you can start buying properties with the BRRRR strategy, meaning Buy - Remodel - Rent - Refinance - Repeat.

So buy a property that needs work at a discount, remodel it with the strategy that when is fixed up the value is at least 30-35% more than what you owe on it including the downpayment you already used. When refinancing pull the cash that you used as down-payment back out and then start again with the next property. 

If you have more questions about these types of loans, you can reach out to @Jesse Byrer, as he's an expert in Chicago. 

Good luck to you! What great timing to buy in this market at a 3% interest rate!

@Alleia James, as long as you are W2, you can buy a 3-4 unit building FHA loan with the letter of employment. You just have to have a paystub before the closing. I've had multiple buyers buy this way over the last few years!

If you are 1099 the situation is different and you'll have to talk to your lender to see if you can get away with one year of income or if you need two or if you can get a cosigner and still buy immediately! Someone like @Jesse Byrer  would be able to look at your individual situation and answer for question for sure!

@Joshua Vanderzanden, I agree with @Eric Johnson, you start with 3-4 unit owner-occupied, house hacking, bought with 3.5% down to leverage your money and keep growing your savings for the commercial lender. Then you learn to manage, chose tenants, handle tenant requests and contractors through rehab, and the skills you'll build up you'll get to use all your life in commercial and residential. 

What's great about you is that you are already thinking big, which means you can accumulate a great portfolio over time.

Chicago and Suburbs - 100%

I have awesome tenants, extremely responsible and responsive!

You make your money on the rent when you chose your tenants! As I worked for a very successful property management in Chicago 20 years ago, I learned from the best how to qualify tenants, which is what I teach my clients and investors now. Everyone I talked to until now, every one of my house hackers and investors has received 100% of their rents!

Hi @Alleia James, I will be happy to send you the information of my attorney which is also a CPA, and an educator. I think as an accountant you'll really enjoy talking to him and use his services. Regarding analyzing deals, your Realtor is the person that will help you the most, so make sure you get one that has the area of expertise in investment properties and knows the rental laws in the area you are buying!

You can also network with other investors and discuss deals. Just see in your spere of influence who you know that is already an investor, you'll add another dimension to your conversations, let's just say that. :)

@Zulf H., you call the tenants back, explain to them that you are not allowed not to pay your mortgage, property tax, insurance, and utility bills and advise them to call 311 as the city of Chicago has a program to help the people affected by the Virus. They'll have to provide documentation that they lost their jobs of course and apply for the relief with the city and the city will help them pay their rent.

Also, hopefully, they are receiving soon money from the government, that money is also given to help with their rent and bills.

The problem with pushing rent payments or mortgage payments for 3 months is that they are all due the 4th month all in full, so how will they pay in month 4 - 4 rent payments?

Good luck to you!

@Daniel McDermott, with an FHA loan, which is an owner-occupied loan you can't have an LLC. The property has to be purchased in your name or in a trust. I will send you a message with my attorney's info in case you want to call him and discuss how to take the title of the property. I also have a good house hacking off-market deal in Evanston.

The most important is to know that for the numbers to work you'll need to buy 3 or 4 units, as with 2 you won't make any positive cash flow. Also, with the 3-4 unit, the property will have to pass the Self-sufficiency rule, meaning, 75% of the income of the building has to cover 75% of the building's expenses (PITI - principal, interest, property tax & property insurance).

Lastly, if you want to build quick equity and increase rents, you might consider taking a 203K renovation FHA loan which you can use to fix up the property and to add features and benefits to the units that will ensure an increase in monthly rents.

@Jesse Byrer is an expert in BRRRR in Chicagoland. Can you answer better @Mike Marino question? 

@Blake McFarlane, I believe you should go ahead with your plan. I just read an article about the Chinese Real Estate market and it came back to them like an elastic. What you have to understand is people have lives and they'll need to move: for school boundaries reason, to downside, to go to new colleges, there will be newly formed households, also with people in close quarters they'll observe that maybe their accommodations are not good enough, too big or too small. 

So, really after the quarantine, I expect everyone to jump in the market and as the inventory is low - there will actually be multiple offers. Also, as there will be a lot of mortgage applications, the interest rates will go up. 

If you buy right, meaning the property you are buying will give you great cash flow, or if you do house hacking at a low-interest rate - you shall jump at the chance of buying it, as you are buying for the long term. Even if it turns out that the price drops a bit - it will recover quickly and you'll be in a property with positive cash-flow paying it down month after month and getting depreciation and tax deductions so you'll lower your IRS bill.

Good luck to you!