All Forum Posts by: Zach Wain

@Mashal Choudhry - Buy, Rehab, Rent out the property, Refinance (cash out), Repeat (buy a new home).

The theory is that if you bought a home for $200k with a $160k loan, and rehab'd the property, the value is now $250k.  Then you do a cash out refinance and get 75%-80% loan to value on $250k, so a new loan of $200,000.  The new loan of $200k pays off your old loan of $160k and you get the proceeds (minus closing costs) and you take that money and reinvest into new homes.

This method was amazing the past decade.  But, it is getting more difficult right now.  

1) Values are not increasing at the same levels.  That helped a lot of investors out, when they rehabbed the home gained value but the market also jumped by 10% in that year so it made their values grow faster

2) Cash out refinances on conventional loans got more expensive and restrictive.  75% max loan to value on a rental property cash out refi.

3) Rates are up, which is not a show stopper but it makes things more challenging to cash flow.

BRRRR is still an option, but I think investors need to be more dialed in then ever.

@Hunter Nall - There are a handful of loan programs to consider for your scenario. A Conventional loan will give you the best rate/pricing buckets at 60% and 70% loan to value. If your home value is $250k and you only need $115k - you are looking good. There are bank statement loans and DSCR as well, but conventional should get you the best overall terms.

In general, rates are very high across the board.  Today I am seeing the highest rates of the past 20 years, even higher then Oct/Nov of 2022.

 This is important.  The Fed does not base policy off our Gov't Debt issuance, but it has to play a role in behind the scenes meeting, policy making, and/or the next Fed president

Hi Ana,

Local vs non local will not impact rates or pricing.  Each mortgage company from big to small sets their own profitability models and their rates are based off that.  I have the same rates for TX as as I offer in AZ, CA, etc.  Guidelines are the same as well.

What is 10x more important IMO, is to find a mortgage officer that you can partner with for the future.  Find someone with competitive pricing, but also market knowledge, experience, speed, customer service, and any other criteria you find important.

Hi Sam,

I can not find a Fannie Mae/Freddie Mac guideline on this, because its not a standard home ownership/financing structure. It may come down to underwriter discretion. But, if they find you on title they will at a min count Property taxes/HOA/and home insurance against you. If they see on your bank statements a payment being made every month to a mortgage company, they will ask what it is and then count it against you. Can you count rents to offset it, great question? Is there a lease with your name on it, or the previous owner? I think its underwriter discretion, 50/50 on counting rents.

@Brandon Nguyen - Welcome home and thank you for your service!

I would need more details to answer your question. If the property was not listed on your 2022 tax return as a rental, VA will allow you to use a lease to offset the mortgage payment (or reduce the monthly liability). If it was on your schedule E in 2022 than it depends. Was it rented for all 12 months or only part of the year? Some lenders are not great about digging into the details of that part of the rental income analysis.

How much VA entitlement is used up? That could be a limiting factor and we would run that as well.

VA will allow a very high debt to income ratio on certain files, but we have a "residual income" calculation that still need to work.

So - it depends on the details...  I am happy to chat if you have questions and want to really dig into the scenario

@Ray Winner - The term is "delayed financing" and most lenders can handle this type of refinance transaction.

I think you have 2 opposing goals - spending money to remodel your home and also increase the value so much that you can get cash out.  It is unlikely that you will increase the value of your home dollar for dollar compared to the remodel.  Adding sq ft is the best way as someone else mentioned.  But doing a kitchen remodel, carpets, ceiling, etc will not get you a dollar for dollar value increase.

Its worth it to make your home more enjoyable, but it will not make you money

I have not seen any, I highly doubt they exist right now. DSCR as Darnell mentioned is probably the best option. There are bank statement loans and other products besides a conventional mortgage.

@Nimit Gupta - you may want to consider buying a primary home with the min downpayment allowed (whether FHA works for you at 3.5% down, or conventional at 3% down) and live in the home for 1 year. Then, rent that property out and buy a new primary home with 3.5%-5% downpayment. Live in that home for 1 year, rinse and repeat.

That is the cheapest way to finance rental properties, buy them as a primary home and after you have met your occupancy requirements of 1 year rent the property out and buy a new primary.

Let me know if you questions on that structure