All Forum Posts by: Michael Dunn

This is a question , that I am for sure going to need to know the answer to , before I proceed any further with this particular Investment Property 

My Question is ............  Will a Portfolio Lender let me " Add into " the Total purchase Price , the costs that I have already estimated that it will take, to repair and renovate this Property  (  $20,000  )  , AND THEN  " Take out "  that  $20,000 once I purchase the property , to begin the renovations and do the Repairs to it ? 

I don't have in Cash , the money to do the Repair work to this property 

But I am going to get such a great deal on this property , that even after they Finance it at 80% LTV , and even after Closing Costs, Pre-Paids, the Price I'm paying for the Property in General ........... There will still be around $20,000 - $25,000 in CASH left over, of which I was hoping I could use to repair the property

How then , would I be able to get this $20,000 or so ? 

Would the Lender lend me the Money for Everything , with a Clause stating that the $20,000 had to go towards the repairs , and that I had to have the work completed in a certain amount of time  ( 6 months ) ?

Or would they  " Front "  me the $20,000 , with a Contingency being that the Repairs would have to be Completed FIRST , and then they would Finance the Property and just add in that $20,000 to the Overall loan ?

So long as the Seller as ok with everything , and they sign off on whatever the Lender is willing to do , should there be any issues ?

And lastly .......... Would the Lender likely allow myself and my dad to do most of the repairs, given that we have both been Contractors for 10+ years each ........... What kind of proof would they likely need ?

Thank you so much for the time and the help 

Sarah Ottesen , 

Thanks so much

If you have a HELOC of $20,000

When a Lender goes to look at my DTI ....... How will they look at this, as far as it being a Debt/Expense to me and them factoring it into the DTI for me getting approved for the loan ?

The minimum payment right now  ( for the next  4 and a half years  )  is  $48 a month 

So if I were to try and get a Loan for a property in the next 3 - 6 months , would they just use the $48 ( minimum payment ) that I'm paying on the HELOC as a monthly Expense ?

OR 

Would they assume I have a Higher Monthly Expense , since the HELOC is only good for the Minimum Payment for 5 years ( 4 years and 6 months left ) before the Principal Payment kicks in , which will be around $400 a month

The HELOC is for $20,000 , of which ONLY $7,000 has been used

Thank you for the help 

Pay the HELOC off in it's entirety , via doing a Cash-Out refinance

I currently Have a $20,000 HELOC on my Primary ( opened it , as of March of this Year )

I have $13,000 left , and am planning to use the remaining $13,000 for the Downpayment on an Investment Property ( at 15% down ) in the  $50,000 - $60,000 range , with around $4,000 - $6,000 left over for repairs and Upgrades  ( me doing most of the work/labor )

My 2 questions are:

1. If I were to get a Loan for an Investment property in say the next few months, and a Lender sees I have this $20,000 HELOC ( $7,000 being Owed back on it ) with a $40 a month Minimum payment ( for now ..... first 5 years of the loan ) , how will they intere

t this HELOC / Monthly Payment I have on this HELOC , in there calculations of my DTI ? Will they use the minimum payment of $40 in their calculations in regards to my DTI ?

2. With the Purchase of my Next Property , I want to get " Out from Under " Having this HELOC and thus " Free Up " the full $20,000 , to use for the DownPayment on the Next Rental, and then do the same for the Next rental, etc. ( i realize I will likely pay a Pre-Payoff penalty )

So will I end up using any Money I get each time that I go to do a Cash-Out refi. , and use this money to Pay off what I owe on the HELOC , thus Freeing up this HELOC to use on the next property ?

Does a HELOC work in that , each time I payoff the balance owed in full ( during the 5 year " Minimum Payment " stage , that it recalculates and gives me another New HELOC that I'll be starting out with , or do I keep my Current HELOC as it stands with it's current terms, and JUST MAKE SURE hat by the 5 year period, I pay off the HELOC in it's Entirety ..... to avoid paying the High Monthly Payments that will occur after the 5 years time is up ?

Thanks very much, for any and all help 

I very much appreciate it 

Derrick Dill  and  Linda Weygant  , 

Thank you very much for your reply 

So to clarify and make sure ....... When that $10,000 is added to my overall Income, I will pay taxes on it , just the same as I would on any other Income from ... my actual Job ?

But then, when I Wrote off things on that Rental property such as the Interest, Insurance, Taxes and Depreciation this year for it , I ended up with a " loss "  of  $4,000 

I am trying to make sure, that before I submit my taxes in and file it this year , that when a Lender Goes to look at this year's taxes sometime this year  ( When I hope to purchase another Investment Property  ) , that they will NOT see that  $4,000  " Loss "  and thus not use the $10,000 I made from Rent money , as part of my Overall Gross Income for last year ??

As to the use of  75% of the Rental Income , and the Use of Rental Income as a whole....... I have been told by multiple Lenders, that the use of  75% is the standard, as they account for Vacancies and Maintenance Expenses accounting for the other  25% ?

What I am wondering is ....... Since this is my First Rental , I have been told that it has to be shown on 2 years worth of Taxes, before they ( lenders ) will use the Rent Money I made as part of my Overall Gross Income .

If this is the case, then do Rental properties number 2 , 3 ,4 , 5, etc.  Will these also all have to go through a 2 year Period of being shown/filed on my Taxes before they will use the Rent received from these Properties as Part of my Gross Income ?   

OR 

Is the First Rental Property you have, the ONLY one that has to go through this 2 Year cycle of being shown on your Taxes, and then any Rentals you aquire from there after ........ The Lenders will use the Rent Money you make on these Rentals Immediately, WITHOUT having to be shown on your Taxes for any Period of time...... So you could then have earned say  $3,000 on Rental property #2  over a 5 month period  ( from August - December ) and they will use this Rent Income as Part of your Overall Gross Income for that yer ?

Thank you both again very much for all of your help . Been a huge help to me as I try and understand the process and how it all works - Michael 

1. How does me Making $10,000 a year from Rent from one Rental property , come into play , via Taxes on this $10,000 ?

Can i keep all $10,000 of this as Pure profit and Pay no taxes on it via Writing off certain things ( Taxes, Interest, Insurance and Depreciation ) ??
But if I do this , and write off all of this , how then would this " Look " on my taxes, meaning...... wil it show me as taking a " Loss " on this Rental ?

I am trying to MAKE SURE I show this $10,000 ( or at Least $7,000 of it ) as Earned income / that it gets Included in the Total of my Gross Income for the year ( along with the Income I earn from my Job Job )

I am trying to MAKE SURE that when a Lender goes and looks at my taxes, that they DON"t see a " Loss " on this Rental , and thus they aren't able to use this $10,00 ( at least $7,000 ) in my Overall Income ( Gross ) total , for when then run the Numbers to determine how much Note ( PITI ) I can afford/Qualify for , as well as when they figure out what my DTI calculation # comes out to

2. If I started to collect Rent on one of my Rentals in February ,
and then come September I go to try and get a Loan for another Rental ....... Would a Lender use this 7 months of Rent I have collected , as Actual Earned Income I have made , and thus they'd add it in to my overall GROSS income for the year ?

3. If you start renting a Property in October , do you have to factor in and file all the Rent you have received for that Years Taxes ?

Thank you so much for any and all help

Hi! First off, please forgive me for my level of tax ignorance. That's what BP is for :-).

If I am  netting $500/month, what taxes am I paying? I know this is probably basic tax knowledge, but still trying to learn more.

Since I am needing to Show as much of this $500 a month ( $6,000 ) for the year as Actual Earned and Made Income on my behalf, to Increase and show a higher yearly Gross Income amount , while at the SAME TIME pay in as little taxes on this $6,000 as possible ?

Thanks so much 

Carrianne Mucho , 

Thank you very much for your reply 

I myself , as well as my father ( who would be helping me on all of the Repair / Renovation work ) are both Contractors by trade....... Him 30+ years and Me 9+ years 

Given this , what would he and I need to Show as proof to Lenders who use the HomeStyle Loan , that we are Both Able and Capable of completing any and all home Remodel and Repair work ?

And also, Given are Extensive years in the Contractor business....... Do you think we have a good chance of being allowed to do a good amount of the work that may be needed on a typical Renovation Project...... Replacing the Decking and felt the Roof, Lay all of the Flooring, Install all Cabinets,countertops,sinks, lighting,fans  , Paint the House inside and out , Replace all the Rotten wood ( inside and out ) ?  The Only thing I can see me wanting to hire out , would be to have the house Shingled...... Other than that, I'd like for he and I to be able to do the rest of the work , so long as we assure the Lender we will stay on Budget and on Their set time schedule, for when to have the work completed.

My Hope and thinking is, by doing the Work ourselves, is that I can get the House for a cheaper price, as paying for Labor can really add up to the Overall cost

Thank you so much for all of your time and help 

Chris Mason  and  Russell Brazil  ,

I just read through some of the Guidelines regarding the HomeStyle® Renovation Mortgage ,

It shows that you can use this Loan for Investment Properties ( at a 85% LTV )

And it also states that there's a   Borrower “Do-ItYourself” Work (  Borrowers can perform the renovation work themselves at the lender’s discretion, provided that:  The Do-It-Yourself financing does not exceed 10% of the as-completed value. Note: Inspections are required for all work items that cost more than $5,000.  The property is a one-unit owner-occupied home.  The reimbursement is limited to the cost of materials or the cost of properly documented contract labor (sweat equity may not be reimbursed). )

So if the ARV is $120,000 , does this mean that you can ONLY borrow a MAX of $12,000 ( 10% of the $120,000 ARV ) to use for the Materials to repair and renovate the Property..... and you do the Work yourself ....aka FREE Sweat Equity on your part ?

Chris Mason , 

Just want to make sure I fully understand the Fannie Mae Home Style loan ........ With this loan ...... Can you get the Repairs financed into this loan ?

Thank you again