I (Sorta) Bought My Wife (Another) House<\/h2>\n
The first one was my BRRRR<\/a> that failed – you can read about that here<\/a>.<\/p>\n The second house I gave to my wife was purchased in February 2019. It wasn\u2019t an investment as much as the dream home plan, especially when you run the numbers. We were looking for a large parcel of land to build our dream home and start a farm.<\/p>\n However, we didn\u2019t have the multiple six-figure money to plunk down on a primary home, plus the large tract of land. And at this point as beginners in our investing career, we knew that there are better investments out there from a return on capital standpoint.<\/p>\n So, I channeled my inner Kiyosaki and asked myself, \u201cHow can I afford the dream home with 100 percent financing?\u201d Then, I let the creative process flow from there\u2026<\/p>\n Related:<\/em><\/strong> USDA Rural Development Loan: The 100% Financing Loan That\u2019s Not \u201cJust for Farmers\u201d<\/a><\/em><\/p>\n I searched for a house with 25-plus acres that needed a rehab. My thought process was:\u00a0use hard money to finance<\/a> the purchase, subdivide the land, rehab the house, and aim for the value of the house AND the minimum lot size to equal the amount of capital invested in the deal.<\/p>\n Then, I’d split off the rest of the land, owning it outright, to use the land as a down payment on the new construction to a permanent financing loan.<\/p>\n <\/p>\n The Numbers:<\/strong><\/p>\n I will fast forward through the subdivision part, even though that brought its share of frustration, time, money, and learning as I went along.<\/p>\n The biggest takeaway is real estate development isn\u2019t a poor man\u2019s game, nor a beginner\u2019s.\u00a0It is often capital intensive, unpredictable, and hard to underwrite the timeline of completion.<\/p>\n But creating just one additional lot for our primary wasn\u2019t as difficult as creating 20 to 30 lots, so I felt comfortable with the risk as a first time developer.<\/p>\n It is almost my three-year anniversary of quitting my teaching job to go into real estate investing full time. Thanks, BiggerPockets. \ud83d\ude09<\/p>\n Before I can become financeable again, I have to have two years of tax returns showing a profitable business, which will be this next year. This plays a part on the refinance side and is why my wife is starting to trump me on collecting houses.<\/p>\n Our original goal for this deal was to cash-out refinance at six months with a local credit union. As we neared that date, we found out you can only cash out 75 percent of the purchased value in the same year\u2014not 75 percent of the new appraised value. Typically, they lend on the lesser of the two values. That left us with a $213K loan instead of $244K.<\/p>\n This was disappointing for cashing out the majority of our funds at the closing table. And the interest rate was 75 basis points higher than purchase rate as a portfolio loan.<\/p>\n Related:<\/em><\/strong> No Money Down Loans: How Do They REALLY Work?<\/a><\/em><\/p>\n This was another argument that I had with the last bank on the BRRRR deal: \u201cWould there be a seasoning requirement if I just sold it to my wife?\u201d<\/p>\n They said no. And then I asked them, “Why the he** does it matter, then?”<\/p>\n I always question the reasons behind certain guidelines. But this deal wasn\u2019t necessarily a seasoning problem\u2014it was a cash out problem.<\/p>\n So, I said, \u201cCan my wife just buy it from the LLC?\u201d<\/p>\n They said yes.<\/p>\n And then I asked, \u201cCan she use her FHA loan?\u201d<\/p>\n Again, they said yes.<\/p>\n \u201cCan she use a 5 percent conventional?\u201d<\/p>\n We wanted this because it is cheaper mortgage insurance. The cash was sliding back across the table, so either loan did the job.<\/p>\n So, this is how we got 100 percent financing from Fannie\/Freddie.<\/p>\n My wife used our savings account funds. This included 5 percent down plus closing costs, so about $26K to close.<\/p>\n At the closing table, the funds slid back across the table to my business account, making me whole again, leaving us to own the land outright and putting a high-leveraged loan on the new primary house and six acres.<\/p>\n The downside of selling:<\/strong><\/p>\n Work together in a partnership. You both may bring more to the table in terms of strengths than you think.<\/p>\n And always be creative when it comes to financing. Learn the rules and play by the rules to get all the good debt you can with good property.<\/p>\n The new goal is to use the land as the down payment in the new construction loan for another 100 percent financing house. If the land appraises for 20 percent of the construction costs, that is considered our skin in the game.<\/p>\n If we went the conventional way with a $600K purchase for building our dream home, it would\u2019ve cost around $120K as the down payment on the loan plus the land cost, easily topping $250K.<\/p>\n With the creative way, we get two houses, which includes our dream home and land, all for thinking outside of the box and asking ourselves, \u201cHow can we?\u201d<\/em><\/p>\n The new-build cost is $419K for a modern farmhouse on 57 acres. I will be the licensed general contractor on the project and will be finishing the kitchen, bathrooms, trim work, painting, and tile work.<\/p>\n I enjoy those parts of the trade and will be documenting the process,. Feel free to follow along with the process here<\/a>.<\/p>\nDream Home Deal<\/h3>\n
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I Ended Up Selling a House to My Wife<\/h2>\n
The Bottom Line<\/h2>\n
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The Takeaway<\/h3>\n
The New Goal<\/h2>\n
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