All Forum Posts by: Ellie Narie

" and I also drill holes into the walls and ceilings to install cameras (can't live without my security, lol)."

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@Ellie Narie I believe what you are struggling with is a matter of perspective.

Here is what I suspect you are contemplating: I have the opportunity to buy a house that would be a good rental property. I don't have enough money to put a 20% down payment into a traditional investment mortgage. If I could buy the house as my primary residence, I only need to put 5% down, live there for maybe 6 months and 1 day, then refi it rent it out and start making cash flow. I assume the equity will be such that I don't have to add any more money into the property, just own it as an investment.

I believe you are using the perspective of a buyer who assumes the traditional approach is the only way to go. 

Just hypothetically imagine a rental property that you have already owned for a few years and you have a mortgage balance of $150K. You bought the property for $165K. You believe the current value is at least 25% higher. You estimate you could sell it for about $210K right now. You go to a lender and tell them you want to refi the house. They send an appraiser and it turns out you were right. It appraises for $210K. The bank is willing to give you 80% of the appraised value. That means you will get $168K. As part of the refi, you pay off the old $150K mortgage and keep $18K in your pocket. That's a very typical normal refi for an investment property.

Now take your deal. If you are right that it already has 25% equity and you can show (using Rentometer or similar tools) that you will make a good amount of rent from the property (recommended 0.7% of appraised value for monthly rent), you can get a performance/no-doc mortgage right away. These mortgages/loans look at the value and the reasonably expected lease/rent and if the ratio is sufficient your own documented income is not the driving factor to give you the loan. Same as above your leader would send the appraiser, the value including your expected 25% equity is confirmed and you get 80% of that amount as your loan. Sounds to me like you can pay the seller with that money and start renting right away.

Instead of buying it as your residence and then trying to get out as fast as possible, you could change your perspective and turn it into an investment purchase from the start using a different loan product. That way the minimum occupancy for FHA does not even apply and you can make money from the property much sooner.

If you are planning on refinancing in 6 months to convert it to a rental, why not just purchase it as a rental now?  Refinancing costs and in the current market, I'm not sure you'd be able to get a property that has 25%+ equity from the start (unless you put 25% down in which case you don't need an owner occupied loan).

@Ellie Narie

The reason not to do it is because the statute of limitations for bank fraud is ten years. You're going to have ten years of looking over your shoulder because what you've done will be patently obvious to any investigator. Whether it's technically legal or not really matters a lot less than whether it looks shady as hell. That is a hard lesson to learn when dealing with federal law enforcement. I definitely didn't learn it because someone told it to me. I had to experience the glamour myself.

The feds can definitely rope you into trouble over this, some cleancut young agents and an assistant US attorney looking for an opportunity to advance their careers, and you'll have all kinds of fun trying to explain your loopholes and technicalities to a federal grand jury, most of whom will, of course, at least dislike landlords and think their activities should be more carefully regulated, as most non-landlording Americans do.

Buy hey, paint that target on your back, go right ahead. And by the way, this conversation will remain in the public record for anyone who googles "Ellen Narie" for at least the next ten years.