All Forum Posts by: Zack Karp

@Quincy Mingo I'm a local lender in Chicago and can help you navigate this. There are a few missing pieces to your situation, and I can answer your questions too.

When was the property deeded to the LLC?

Are you and your partner both 50/50 on the existing LLC?

FYI, you should not be using a LLC on a residential property when you only have one. It's pointless and only causes issues. Whoever coached you into that when you bought it steered you wrong, and now 4 years later you are seeing how it's problematic when it comes to an exit or refinance.

Without the LLC, if you were on title jointly, even with the loan just in your partner's name, you could have just done a cash out refinance into your name, without the hassle of a purchase transaction and down payment.

As it stands now, assuming you are 50/50 owner of the LLC and not a majority owner, the only way to do this is a purchase transaction to buy the property from the LLC. You will need enough funds for both the down payment and also the buyout of your partner.

The only other option that I can think of is to deed the property back to you individually, and then you will need to wait 6 months, and then you can do a cash out refi into just your name. If your partner can wait for that.

As for the purchase questions, you do not need to use a realtor, and yes it is customary to use an attorney in Chicago. You probably only need 1 attorney, because of your relationship with your partner, who will represent the "seller" for title and fiduciary purposes, and as the buyer you really don't need your own unless you feel like you need to protect your interests.

You absolutely should not transfer this property back to a LLC once you own it, especially in the first year as a primary residence, but also because it's completely unnecessary. Instead, go get an umbrella policy on your homeowners insurance for protection, and you can deduct the exact same expenses on your personal tax return as you can with a LLC. LLC's are really only needed for commercial property, and/or once you hit your 10 property cap with Conventional financing where you can't use that anymore.

Lastly, as for capital gains, the only way to avoid them is living in the property for 2 out of the last 5 years. Or deferring them with a 1031 exchange when you sell. Otherwise you're paying taxes on the gains. I'm not a CPA and maybe there is some other magic solution, but in 25 years doing this, I don't know of any.

Hope that helps. Feel free to reach out if you want to deep dive further.

@Paul De Luca thanks for the tag!

@Caroline Knight I am a local lender based in Chicago and I have helped hundreds of Veterans with their VA loan and house hacking. I'd be happy to share all the strategies, tips, do's and don'ts, etc to help you have a successful journey and make sure that you don't get stuck. It really comes down to your goals, and aligning the right properties and mortgage loans along the way. Sometimes there is a case to NOT use the VA loan right off the bat, contrary to what many think is best. And while the real estate and properties are the sexy part, the mortgage loans are the real meat and potatoes that can make or break your journey. If you just want to buy 1 MFH and then settle down to a house, that's a very different strategy than house hacking MFH's every year and accumulating as many properties as you can. Feel free to reach out anytime.

TYFYS and best of luck!

@August Kahle sounds like a good plan. There is no VA requirement of justification for buying a home, living there for 1 year or more, then buying another home with a VA loan using secondary/bonus entitlement and keeping the first home as an investment property. You could have a $200K house then buy a $400K 3-unit, or vice versa, as long as you have the entitlement. If any lender tells you different, then that's their overlay on the actual VA guidelines. For example, all we would require is a simple letter stating you are buying the new home as your primary residence, period. No further explanation is required.

@Paul De Luca thanks for the tag

@Dominick Persino your math and understanding of DTI and SST are a little off.

This property should pass the SST. You take 75% of the rents of ALL 4 units, and that must be greater than the PITI.

For the DTI though, this depends on your personal income. If your income is $20K per year, and you have $700/mo in liabilities, then you will not qualify with DTI. I am not sure if I'm understanding that part correctly though.

FHA requires 3 months PITI reserves on 3-4 unit properties. This can also come from a 401K/retirement accounts, it doesn't need to be cash.

Feel free to reach out if you want to discuss further. I can also explain your options with IHDA and any other down payment assistance.

@Colton Forbis I'm near Rockford and have a decent investor network there. How can I help you? Feel free to send me a DM if you prefer.

@Robert Medina when did you buy the first house? Exact date please.

@Doug Quist

What @Jay Hurst and @Jared Rine said.  The Fannie Mae Conventional 10 property limit does NOT apply to a primary residence.  Find another LO who knows what they are doing :)

@Thomas Bullock it's unfortunate that you didn't have someone guiding you with a better strategy from the start. You should not have both gone on that first property together. You should have taken a divide and conquer approach. Even if you want to "partner" together, buying and financing these homes separately is the better play. That way, you can each utilize both your VA and FHA eligibilities and maximize the amount of homes you can buy with low down payments. You can figure out all the partnership logistics separately with the amount of funds contributed, rental income, etc.

It might not be too late to refinance the first property into only one of your names and remove the other one off the loan and title. It depends on whether you used VA or FHA. And obviously the interest rate will be a lot higher now, so you would have to stomach that. But you would need to determine if that higher monthly payment is worth freeing up the ability to buy another property.

If you need help mapping out a better strategy to get you to properties 2,3,4,5, etc, feel free to reach out.

TYFYS and best of luck!

@Ryan Cramer easy solution.  Gift of equity using a regular Conventional loan.  I have helped many others in your exact situation where you can buy the house with $0 out of pocket.  Then you can save your capital for investment properties.

If you need any help on how to structure this properly, feel free to reach out.

Best of luck!

@Jonathan Klemm thanks for the tag! I already have a call scheduled with @Yun Meier today! :)