All Forum Posts by: Tim Roberts

Yes, you have two payments but most likely having a HELOC on your primary residence and a CONV loan on the new investment property your payment will be similar to the FHA payment. Not to mention, you are leaving equity in a house that can be used to buy more properties.

Let's say you are buying a $350,000 with an FHA loan program. You like this possibility because of the limited cash you need to purchase the house. $12,250 down payment plus closing costs. Will estimate closing costs @ $7,750 including pre-paids/escrows. Total cash into the deal is $20,000 to buy this house.

Your FHA loan balance is $343,660 because an upfront cost charged in FHA loans of 1.75% in the financing. Based on current interest rates @ 7% your payment is $2,286 (principal & interest) + $75 (homeowners insurance) + $198 (property taxes) + $157 (mortgage insurance) = $2,716 a month. Like others mentioned above, you would need to move into this house for 12 months as your primary residence and rent your other home out possibly covering the new FHA payment which limits your mortgage outgo.

Now let's use Ryan & Zach's strategy...

You are buying a $350,000 house but you get better financing terms with $87,500 down plus closing costs like above but closing costs are now $5,900. Total cash into the deal is $93,400. Financing $262,500 @ 8% your payment is $1,926 (principal & interest) + $75 (homeowners insurance) + $198 (property taxes) = $2,199.

You are not paying the additional costs in the FHA loan of the 1.75% that was financed and there is no mortgage insurance. The monthly payment is $517 less on the investment property you just financed.

Take a HELOC out on your primary residence for $93,400 to cover the cash to buy this investment property. Borrow the $93,400 @ 8.99% interest only the payment is $690. The two payments slightly more than the FHA loan but you just financed the investment property 100%.

Use the $20,000 you were going to bring for down payment for renovations on the house you just purchased.

By taking money from the equity of your home you have more flexibility. You can rent the house on a 12 month rental, short term rental, fix & flip the house and pay back your HELOC and you don't need to move into the house if that was not your plan.

Pay down the HELOC balance over a period of time, similar to how you paid off your house in the first place which decreases the monthly payment so you cash flow better. Once the HELOC is paid down, you can use the same strategy to purchase another house to add to your real estate investment portfolio.

Having a small loan on your current house and the larger down payment on the investment property gives you the ability to pivot if something happens and you need to sell. You now have choices because you can sell either property depending on preference. Where if you are financed on the FHA loan you will need to keep that house because your loan amount is too close to the purchase price.

When I talk with my clients I look for the most flexibility to protect their portfolio and give them exit strategies if somethings unforeseen happens in their life.

Tim
 

** I would encourage you to take out a bigger HELOC say, $150,000 to $200,000 but only borrow the $93,400 or what you needed to make the purchase happen. The additional access to cash gives you the ability to buy another property or pay for a repair you may not have recognized in the purchase. **

Are you in a negotiation with the buyer for repairs on an investment property you are selling? At the end of the day, an expense is an expense and would be taken away from your gains. It is best to talk to your CPA or accountant to verify your tax liabilities.

From a lending stand point it really depends on what the repairs might be? What type of loan your buyer is using to finance their purchase. It's better to give the lender credit towards buyers closing costs. This reduces your buyers cash to close. Then they can fix the repairs themselves.

The other issue is some lenders will not allow an escrow unless it is seasonal; ie, snow on the roof and you cannot repair. When you give an escrow holdback the lender may require you to get three bids and add 150% of the highest bid to be set in an account for the repairs to be paid. After the repairs are completed the seller recoups the money not used in the escrow account.

FHA and VA loans can be the hardest to deal with the escrow holdback.

Give the lender credit because it's a cleaner transaction if there is traditional lending involved.

Tim

The DSCR loans are based on the property itself and the cash flow it creates. This loan does not look at your income or your debt to qualify you. The cash flow needs equal the monthly mortgage payments or be better. Based on the higher interest rates you most likely will need more money down to make the property cash flow correctly. Downside to these loans are higher interest rates than traditional lending and prepayment penalties that lock you into the loan for several years. This can limit your ability to refinance if/when interest rates go down to improve future cash flow.

There are good reasons to use this loan program but it may be better to get with a Loan Officer and share your long term goals in building your real estate investment portfolio. There are other ways to finance properties depending on your risk tolerance.