All Forum Posts by: Kevin Romines

So its a way to assure that you are generating enough cash flow to make it work? Typically you want to see enough cash flow that it makes it worth it at the minimum down payment requirement for that property type. If you cant cash flow to an acceptable level until you put 50% down, this tells me the deal is not a good deal for the average investor. Investors also look at their cash on cash return rate.

Take you projected cash flow per month times 12 months divided by the amount of money it will take you to cover the down payment and the closing costs, this will give you the cash on cash return. Most investors want to see a rate of return of 10-20% on their money. If you cant hit that mark, then it means that you can put your money elsewhere and get a better return on your investment. 

I hope this helps?

Hmmm, there is some key info. missing to determine the correct answers. Are you saying you want to use an FHA to get a low 3.5% down payment on a multi-family unit that you don't plan to live in? If so, that is a hard NO!!! FHA is strictly owner occupied, and don't even think about cheating the system saying its going to be owner occupied when it wont be.

That said, you can have 2 FHA loans out at the same time, but only if the 2nd property is 100 miles away from the 1st property or more. FHA allows this in cases where you are relocated for work or other reasons. You are not allowed to have more than 2 FHA loan out at any time.

Is 70K enough to get started in investment properties, the short answer is yes, but it depends on the purchase price and how many units? Conventional loans require 15% down on single family and they require 25% down on 2-4 units that are rentals. Non-QM can go 20% down on 1-4 units, but the interest rate will be higher. 

I hope this helps?

@Keetaek Hong You are correct, these are for non-owner occupied loans. A vacation home is considered owner occupied even though the borrower must only occupy the property for 14 days of the 1st year. On vacation home loans, the borrower must qualify for the full amount of the mortgage without any rents, as this is considered a 2nd home and rents wont can cant be counted. That's not to say that it wont be rented out, it most likely will be in some cases, but they just cant count any income from that type of source when qualifying. 

Your prior experience as a property manager wont really be considered on most of these loan types. 

DSCR loans have been around a few years, not all lenders have done them or embrace them. I do more of these loans as my model is designed to cater to the real estate investor and my company has these products as party of our standard offerings. Some lender do them, some don't, but I suspect more and more will be doing these loan types as time goes on.

I hope this helps?

The issue that you will have for the next 2-3 years is that you must show enough income on tax returns to qualify for the loans. The lenders will take a 24 month average to determine your income. In the mean time, (as mentioned above) you can do DSCR loans. These loans compare the rents to the PITI mortgage payment. The rents must be 75% to 120% of the PITI mortgage payment. No income and employment is put on these applications.

Also mentioned above was a BRRRR, this wont satisfy the lack of qualifying income, however it will give you instant equity when you refinance. The goal being that you force enough appreciation that when you refinance, you get all the cash back out the deal that your originally put in. By doing this, you can then do multiple deals. Your refinance will be a DSCR loan until you can show enough income on the taxes to qualify for a Conventional loan with Fannie Mae or Freddie Mac.

I just co-signed for one of my loan officers for a new primary residence. He didn't have enough income to qualify on his own, so he borrowed my income and credit to be able to qualify. He will refinance out in 1-2 years and all will be good at that point. 

So there are a few ways to get this done. 

I hope this helps. 

Purely commercial only. You can get long term fixed or 5/1, 7/1, 10/1 ARMS.  

Nice game plan, however there are some glitches I'm not sure you will get around. Private money / Hard money is not intended or can be used for Owner Occupied homes, this is violation of RESPA. That is not to say that a private lender wont lend on a owner occupied property, but most private lenders only work with rentals, so it could be a hard lender to find.

2nd, while a seller carry back is advantageous in some ways, not all 1st mortgage loans allow it. Fannie Mae and Freddie Mac allow them, so long as the interest rate is at market rates or above, no below market rates allowed. However each lender that underwrites to Fannie and Freddie guidelines may have overlays that prevent that lender from allowing the seller carry back despite Fannie and Freddie allowing it. So again a potential issue when lender hunting.

3rd, when doing a farm purchase, most lenders (as crazy as this sounds) will not loan on a farm that has farm income, so you must qualify for the total mortgage on your own income without counting any farm produced income. Also the lender may not lend if there is farm produced income, so keep that in mind on your lender hunt as well. 

That said, there are lenders that will do all of what you are hoping to do and one of the best is USDA farm loan programs, so I would look there first.

I hope this helps. 

Pen Fed FCU is a great HELOC lender that will do HELOCs on primary and rentals as well.

While it can be good to work with a real estate attorney that is skilled in creative financing deals to do the legal aspect, what you really need to be looking for is a lender that is skilled with the creative financing aspect. Focus your efforts in finding that person, then only if the attorney is even needed, will you consult with the attorney.

I hope this helps. 

Okay, I'll open up the mystery box for you to uncover what can seem as hidden truths. 

Lenders do give credit to a buyer that is buying a rental for market rents when the property is vacant at the time of the purchase. They do this via the appraisal. The appraiser will always show 2 values on the appraisal for a rental property. The current market value of the property and a comparative market analysis of the rents. It is this, that the lender will plug into their calculations to help offset the mortgage debt and help keep the DTI or Debt Ratio lower.

When buying rentals, it typically wont move the needle much as far as adding to the debt ratio or adding to income. You can literally buy your long term wealth so long as you have the down payment and closing costs, have a debt ratio that is workable to start with and have a decent credit score, usually a 660 or higher. 

That said, even if you plan to do the short term rental kind of thing, they will still use the long term market rents as offsetting the PITI mortgage payment. The calc is Gross Rents X 75% minus PITI = If a negative number, it adds to your liabilities, if a positive number, it adds to your income.

Once you have tax returns showing the revenue and expenses for the short term rental, they will use that income or loss to determine your debt ratio.

Can a DSCR loan work, yes, its specifically designed for that kind of loan type, but as a loan officer, I would want all the income docs to first determine if I could do a standard conventional loan as these will give you better rates than a DSCR. only if I'm having an issue qualifying because of the debt ratio, will I then move to a DSCR loan.

I hope this helps. 

Flipping is a job, that is taxed the highest of all investing. Long term wealth is in buy and hold along with great tax breaks. You have a perfect opportunity to do both right now. I would maybe pare back a little and choose which to hold and sell the rest. Build your portfolio of BRRRRs and get the cash flow and appreciation. When you sell, you can 1031 exchange as needed to move all your profits into the next deals without having a taxable event.

I hope that helps?