All Forum Posts by: Mike Ry

I unloaded a couple of rental properties last year via owner finance.  I originally bought these with 30 year Fannie Mae mortgages, and the loans I extended to my buyers "wrap around" the Fannie Mae mortgages, which I continue to pay. 

I now have the chance to pick up another rental at a pretty good price.  I expect that if I tried to get a Fannie Mae mortgage on the new property, the loan officer will notice that--while the old Fannie Mae loans are current--those old properties are no longer titled to me.  And the result would be a prompt rejection of my application.  So perhaps a local credit union or community bank would be a better shot?

I'd be interested to hear from anyone who has obtained new financing with wrap loans on their balance sheet, or even attempted it.  Was it an obstacle?  If so, how did you get around it?

George, good point. The 401k protection you mentioned applies if you were in a car accident, for example, and someone wanted to pursue your assets. But it wouldn't help you if you bought a rental in the 401k, and the tenant decided to sue. In that scenario, all of the 401k assets would potentially be exposed, bc the 401k is itself a party to the transaction. Same problem if you are making owner finance loans from the 401k, and the borrower decided to sue the 401k as lender, alleging a violation of Dodd Frank or whatever. The purpose of introducing the Series LLC under the 401k is that each project is sealed off from the others, so that an unfavorable legal outcome on one project does not risk the other assets in the 401k.

Brian, Thanks for your reply. I understand your concerns about the Series LLC, but decided in favor that option, since I'm going to wind up with 8-10 owner finance loans under the solo 401k, and 8-10 individual LLCs seems cumbersome and expensive.

Considering setting up a (TX) Series LLC under my self-directed 401k trust. Has anyone done this? I set up a series LLC last year, to handle my rentals, where I am the sole member. I'm wondering if there are wrinkles specific to the IRA/401k context? Or is the procedure identical to setting up a regular series LLC, except that the 401k trust will be the sole member, instead of an individual person?

Bryan--Extraco does not appear to have a branch in Houston, but Omni does. I'll check with them, as well as Compass.

John--another investor I run into from time to time recommended the 15 yr product at Prosperity. I assume that's what you're using(?) Out of curiosity, did you arrive at Prosperity after talking to a lot of other lenders?

Sam--I called Amegy a couple months ago, since I've had some other (non real estate) business with them in the past. At least at that time, they didn't have any good products for investors.

I'm going to be hitting the Fannie Mae limit of 10 mortgages in the near future. I know that the next step is to find a local bank or credit union willing to do a fixed rate, 15 or 30 yr mortgage for properties #11, 12, etc. I'm sure I'm not the first investor to run into this issue. So before I start making calls around town, I figured I would ask here first: does anyone know of a Houston-area lender offering that kind of loan program to a well-qualified investor? Thanks in advance!

I'm just brainstorming, and this is my first post, so if this sounds crazy, I apologize in advance. Tell me if this could work:

1) We're all familiar with the advantages of buying properties for cash. The drawback is that if you own them outright, you can't do a cash-out finance for 6-12 months (the seasoning requirement).

2) On the other hand, there is no seasoning requirement if you are doing a rate and term refi (as opposed to a cash-out finance), i.e., if you use a mortgage to purchase the property on May10th, you can refi that mortgage on May 11th.

3) So here's a possible way to (almost) purchase for cash while preserving your ability to turn around and immediately mortgage the property:

a) You find a property listed for $60k. You offer seller $50k, with the sweetener that you can close in 15 days, at which time he will receive either (i) funds from your lender or (ii) your cash, if the loan does not come through (your offer is accompanied by proof of funds, etc. so he knows you're for real) If your offer were subject to approval from a conventional lender, seller would insist on $60k list price, but given a fast and certain close, seller accepts your offer of $50k.

b) You strike the following deal with lender: You (buyer) will post $50k cash collateral with lender. In exchange, lender agrees to issue a short term (say one year) $50k mortgage so that you can acquire the property, suspending the usual underwriting requirements. Lender is willing to do this, because he has two sources of recovery: the real estate, and the $50k cash bond you've posted. The lender faces no risk here, so he's willing to do the loan without a ton of closing costs.

c) Once you acquire the property, you immediately refi the short-term mortgage into a conventional loan. The conventional loan could be issued by the same lender who issued the short-term mortgage, or another lender . . . that's neither here nor there.

So can this work? are there lenders willing to do it? If not, why not? Is there a bank rule prohibiting it? or does it just so happen that no lender is doing this?