All Forum Posts by: Patrick Roberts

Good to see another local investor in Charleston. Based on your question, you have two core decisions to make, and they may conflict with one another - where do you want to live, and where do you want to invest? 

In answering the where to live question, things about the quality of life things that are important to you and work backwards from there. Some regional cities that I personally would consider are Savannah, Beaufort, Wilmington, Columbia, Greenville, and Charlotte. This will be heavily driven by whats important to you, though. 

As far as where to invest, this will be driven by the kind of investing you want to do and your long-term goals. Do you want to buy and hold for long run appreciation, do you want day 1 cashflow, are you wanting to flip and stair-step into higher value properties, the list goes on. 

Both of these questions will be answered more clearly by nailing down and defining your goals and what youre trying to accomplish.

Personally, I will not be leaving Charleston unless this area drastically changes for the worse. Investing is tough here because its popular and saturated, but there are still good investments to be made. Life is about as good as it gets here, which is why it has become expensive. House hacking will provide you with an onramp, though, and make it much easier to get started. 

If youre not already attending the local meetups, that would be an excellent place to start. REI Central is Thursday night of this week (2/6), and there are a few other local meetups as well.

Happy to help any way I can. Reach out if needed. 

20% down is available, 25% down will bring significantly better terms in a lot of cases. 

It works just fine if the operator knows what theyre doing and structures it correctly. In the example you outlined and in the case of what a lot of people are doing right now (super high LTV underlying, negative equity on wrap, 100% financing for the buyer, low note rate, etc), then no, this wont work, primarily because whomever created the wrap note is either an idiot or a fraud.

Im not sure if you're referring to Up-Front Mortgage Insurance Premium (UFMIP) or the mortgage insurance that is paid monthly, just called MI (Mortgage Insurance). FHA loans have both.

All FHA loans will have UFMIP, which is 1.75% of the loan amount. This premium works exactly like points, but can be financed into the loan. Additionally, FHA loans also have MI paid monthly in the mortgage payment, which is usually either 0.5% or 0.55% of the loan amount (annual basis). It will depend on the amount of your downpayment/LTV at funding.

For FHA loans with less than 10% down, the monthly MI is permanent - it lasts the life of the loan, no matter the LTV down the road. If you put down 10% or more, the monthly MI can be cancelled after 11 years. Otherwise, you have to refi to get rid of it.

To answer your question - yes, you can refinance later on get rid of the monthly mortgage insurance by changing the loan type to conventional or something else. You will not be refunded any of the UFMIP if you refi unless you refi into another FHA loan, in which case you will receive a partial credit based on how long it's been. If you refi into another FHA loan, you will still have monthly MI.

Another point - FHA loans cannot be used for investment properties - they're for primary residences only. If you're househacking, it will work just fine in most cases, including a multifamily up to four units. If youre trying to buy an outright investment property, you cannot use an FHA loan.

Welcome! Charleston (in my biased opinion) is one the best places to live in the country. Im sure you'll love it here. 

The CHS market is still fairly hot and active, although it has a slowed a little in recent months. Home price appreciation is still trending up, but cashflowing rentals are difficult to find for the most part. The entire region is growing rapidly. 

The REI community here is very active. There are several meetups and networking events every month. Check out REI Central and the CHS Circle.

Let me know if I can help with anything. Happy to provide insight or whatever. 

 Yeah, when all of these eventually blow up and a bunch of consumers have their credit and finances wrecked and lose homes, my guess is that more regulation will come down to effectively ban Subto for residential mortgages

 @Jay Hinrichs I know of one person who is buying high LTV preforeclosures Subto while theyre off market by paying the owners around $10k-$15k to walk away, quit claiming them into an entity, then seller-financing the entity holding title to the property to owner-occupants under the pretense that it's for commercial purposes on interest-only balloons at inflated values. He pockets the downpayment to cashout what little cash he puts into the deal and then makes the spread between the two loans. As much as I hate government and regulation, this kind of BS is why we have it.

 @Ken M. if the Morby's subto wrapper cant payoff the underlying 1st position loan when it's accelerated because of the sale, then he/she would have to liquidate the wrap note (by selling the note) to generate the cash to payoff the underlying. Hopefully they structured the wrap note well and it sells for enough to payoff the underlying. If not, there will be big trouble. 

To your final point, though, my guess is that we will see a bloodbath before too much longer with the poorly structured Subto/wrap deals. I know of a couple people who are doing this very unscrupulously at the moment and have seen how they are structuring their deals. Basically unsellable wrap notes, blatant violations of Dodd Frank, borderline fraud, the list goes on. It's a ticking time bomb.

 Pay off the underlying with cash if you want to keep the wrap note in place, or sell your wrap note so that some of the proceeds can be used to pay off the underlying. A competent note buyer will direct that the underlying be retired at closing during the sale anyways. Hopefully you sell if for enough to be able to walk away without a loss.

This would be an owner-occupied property, so you will need to show the ability to repay. On top of that, FHA has very strict and particular rules around income. Long story short, any owner-occupied property loan will require the borrower to show income that the lender can determine to be stable and predictable in their good-faith effort to confirm the ability to repay. 

If you do not have job or another sufficient source of stable, reliable income, then you'll need a coborrower with good income to be joint on the loan with you to bring the income component to the table. Also, HomeReady/HomePossible (Conventional loans) can be just as favorable for househacking but also bring Conventional Conforming income guidelines to the deal, rather than the more restrictive FHA guidelines.

Another thing to consider would be a multifamily property so that you could use the other tenants' rent payments as income. You'll most likely still need a coborrower at first, but may be able to refi them out of the deal in a year or two once you have qualifying experience and operating history - then you can likely use all of the rental income towards your gross income.