All Forum Posts by: Steve Wang

was it episode #301? 

first, yes you need a lender who can do this, and they are sorta rare. 

also know that Delayed Finance can only be used with YOUR funds, you can't use outside loans to do it 

the rule is 75% LTV or 100% HUD-1 whichever is LOWER. so your ARV on the project really matters if you want to get out your entire investment. Basically you need to create 25% equity or greater for this to work

you have to pay for both the rehab and the purchase at the time of closing. Once you close, HUD-1 is set and won't be changed.

You get the reno costs on the HUD-1 by giving your closing attorney (or title) an invoice from the contractor who is going to do the rehab, then they will add it to escrow disbursements.

hope this helps ;) 

@Steve Wang. The podcast guest owns a company that offers they type of loans you want... you should contact that company.

@Steve Wang thanks for the kind words.  I'll attach the original questions here just for ease of answering them:

1. When you do the Refi cash out, is it via a conventional loan such as a Rate and Term loan via Fannie? - This is a Fannie/Freddie method.  They would deem this a "Rate and Term" loan under their guidelines.

2. who could help me create a loan from my LLC to myself for this purchase? is this something that I could do via a lawyer or LegalZoom? Would the IRS view this loan as a Dividend or Distribution and tax me on it? - Ah, now creating a LLC...probably a separate discussion entirely....but I just go to the Secretary of State and create one on my own.  It's pretty simple, you aren't doing anything else with it so not a lot of structure needed.  However, there have been lots of other investors that use their existing LLCs to do this too.  I have spoken with the IRS directly about this method (but as always, consult your CPA, etc.) and they have said if a sole-proprietorship is lending to an individual then a 0% interest rate can be used.  That way, no income is generated, thus no income to report, and no taxes to pay.  However, if you are using a S-Corp or C-Corp, you DO have to charge a "fair market rate"....and that's why I teach the LLC method.  Accounting measures would need to be documented properly if you are keeping books (which I would highly encourage you to do so) so "cash injection" followed by "loan" would be the proper methods to use if you are taking your personal funds and giving them to your company.  NONE of this matters to the refinance though.  All that Fannie/Freddie care about is that a lien was filed.  Hope that makes sense.

3. "You file the deed for that loan at the county courthouse". I'm in CA but I'm investing in Indiana, would I be able to hire someone else to file this deed? - Sure, and the right person to hire is a title company.  Most title companies will even draft the documentation for you to use if you want.  Usually a nominal $100-$200 fee and if you do it when you close on the property, they are already filing everything with the county courthouse anyway so it's pretty easy for them to do.

4. Has a lot of people had success with this method? or is this state specific or perhaps frowned upon by some banks? - Yes, lots and lots have used this method.  This is not state specific at all.  Now, banks...yeesh, yes some banks have a hard time with just ANY loan and investment properties are not what most banks focus on.  So make sure you are using an investor friendly lender.  How do you know if they are investor friendly?  I put together a series of questions to help you identify if they are friendly to us or not:

Questions for Lenders

1. When do you start using rental income to help me qualify? (the answer needs to be immediately)
2. When do you start using “After Repair Value” on my property?
3. How long do you need me to be on title to refinance? (this is important if you do need a short term loan to purchase then refinance out - and the answer should be 1 day...very important that it is 1 day on title is all that is needed to refinance)
4. What is my minimum down payment required? (if they only require 15% down on a single family home that is usually a good sign that you are working with a flexible lender)
5. How many loans can I have with you?
6. Can I change title to my LLC?
7. Do you sell your mortgages?
8. What is your loan minimum?
9. Can you explain to me what your reserve requirements are?

Feel free to ask anything additional if you need.  Thanks!

@Steve Wang, I think this strategy was only for conforming Fannie/Freddie type loans. If you look to a community bank or credit union, they will likely let you refi out out with a valuation based on purchase price + rehab costs before their seasoning period and it likely doesn't need to be stated on the HUD Closing Disclosure just documentable costs.

If you talk to a local community bank go to their commercial lending people. They will likely be the ones who can help you. 

@Steve Wang I wrote a post on this topic and you can find it HERE.  Since you are familiar with the problems with this method, just skip to the solution phase in section 3.  Let me know if you have any other questions on it.  Thanks!