My partner and I are in a pickle

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My partner and I are in a pickle

Bosko Mijatovic
Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes

So my cousin/partner and I are both Real Estate Agents here in Southern California and we are currently looking for our first house hack. We are kind of out of idea's so I hope someone who a fresh mind can maybe point something out we aren't seeing or maybe share a similar story. His name is Mel for the purpose of listing out our situations

Here are some of the realities of our situation:

  • Mel has a lower FICO (610-620 I believe)
  • My FICO score is higher (770)
  • Mel has a W2 paying job where he is salaried
  • I am a 1099 with two separate companies (Independent Contractor)
  • Mel has been FHA approved up to $300k
  • I have not because I don't have a "steady income" even though my income is higher than average, they don't like the fact that it is inconsistent because I am not salaried.
  • We currently live in Orange County
  • Looking in Pomona (LA County) and Riverside County for property because anywhere else $300k is unrealistic to find a multi or a SFR to flip.

Now if you've come this far and read all that.... I love you and appreciate you for reading it haha.

So given the current situation we're in all, realistically all that we can do is find a SFR live and flip situation that we occupy for a year and resell as an exit strategy.

If you have anything to add even if you don't think its helpful please post it anyway because maybe it'll get our brains stirring in some way. 

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Patrick Fraire
Flipper/Rehabber · Long Beach, CA · Member since 2017 · 155 posts · 118 votes
7y

How much do you have ready to put down? That could open the door for owner financing but owners typically want 20% down at least. 

To find a deal under 300k....I would pull the sale records for multi family in the specific areas you want to buy with a max purchase price of let’s say 250k. Then cold call owners and tell them you are an agent who is looking to buy their property. If they ask how much you’d offer just be honest and say your pre approved for up to 300k. If they are willing to sell but want to sell for more...offer to list it for them. Maybe you get some listings out of it. 

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  • Account Closed
    Real Estate Broker · Northern California · Member since 2018 · 54 posts · 27 votes
    7y

    @Bosko Mijatovic do you have a loan broker you are working with?  I think that would be the first step and they could advise you as to the best way to qualify for a loan and/or whether or not it makes sense for just your cousin to be on the loan and for you to have a partnership agreement outside of the loan that covers that. 

    Next, how are you searching for homes?  And have you been finding any?  

    1Reply
  • Exavier Hamilton
    Lender · Los Angeles, CA · Member since 2018 · 95 posts · 16 votes
    7y

    You can get a Hard Money Loan until you can provide two years of solid earnings.  Especially if you can provide 20% down to sweeten the deal.  

    0Reply
  • Bosko Mijatovic
    OP
    Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes
    7y
    @Lauren Prichard Actually yes! So the lender we have said that my cousin Mel is topped off at about 300k with around 5.75% on the FHA side. He has also gave us a broker to contact to see if he can sweeten any options up for us.
    0Reply
  • Bosko Mijatovic
    OP
    Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes
    7y
    @Exavier Hamilton So you are saying provide 20% down to the HML?
    0Reply
  • Exavier Hamilton
    Lender · Los Angeles, CA · Member since 2018 · 95 posts · 16 votes
    7y

    I just sent you a PM.

    0Reply
  • Exavier Hamilton
    Lender · Los Angeles, CA · Member since 2018 · 95 posts · 16 votes
    7y

    Yes, that is what I'm saying.

    0Reply
  • Patrick Fraire
    Flipper/Rehabber · Long Beach, CA · Member since 2017 · 155 posts · 118 votes
    7y

    How much do you have ready to put down? That could open the door for owner financing but owners typically want 20% down at least. 

    To find a deal under 300k....I would pull the sale records for multi family in the specific areas you want to buy with a max purchase price of let’s say 250k. Then cold call owners and tell them you are an agent who is looking to buy their property. If they ask how much you’d offer just be honest and say your pre approved for up to 300k. If they are willing to sell but want to sell for more...offer to list it for them. Maybe you get some listings out of it. 

    2Reply
  • Patrick Fraire
    Flipper/Rehabber · Long Beach, CA · Member since 2017 · 155 posts · 118 votes
    7y

    @Bosko Mijatovic

    Also did you say the lender is quoting him 5.75% interest rate on an fha? That’s insane. Last I heard fha rate was in the mid to high 4’s. Maybe it changes significantly from file to file but a whole percent is a lot.

    0Reply
  • Patrick Fraire
    Flipper/Rehabber · Long Beach, CA · Member since 2017 · 155 posts · 118 votes
    7y

    Another option is to do a seller carry back on a property. Let’s do a real world example shall we? 

    There is a duplex on Gordon st in Pomona. I personally have walked this property and submitted an offer way back in like Spring. I made an offer on it but it was well under asking. The property was listed in the 400,000s. They countered way too high and I walked away. They have been dropping the price for months. They are now listed at $350,000. Maybe you do an fha purchase at $300,000 and structure a 2nd mortgage of $50,000 due in 5 years at like 3% interest? Since you are in an fha loan with PMI you should have plans to refinance. If you can get the property to appraise high enough to get you to 20% equity (to get rid of that pmi) + $50,000 cash...you'd be able to pay off the second loan.

    Maybe it’s worth it to them since they’ve been on the market for so long. 

    What you need to take into account is your cash on cash return. 

    3.5% down payment on 300k purchase price 

    Closing costs

    Rehab money

    Monthly mortgage -rental income

    Refinance costs

    Plus if you refinance in like 3-5 years the market may be down and you wouldn’t be able to refinance and pull out the $50,000 to pay off your second. Then you’d have to fork over that cash to pay the seller and your cash on cash return would look terrible. Definitely some risk there.

    Hope this helps I know I wrote a lot and there might be some parts in there that don’t make sense but I’m doing this thing in one take. 

    2Reply
  • Jacqueline Carrington
    Investor · Corona, CA · Member since 2014 · 746 posts · 372 votes
    7y

    I don't see what the big dilemma is. Buy a house using Mel's loan. Put both names on the title. Have a separate signed agreement that you will be responsible for half of the mortgage payment the entire time the house is owned and due 50% of profits from a sale. 

    2Reply
  • Sen A.
    Rental Property Investor · Union City, NJ · Member since 2018 · 40 posts · 66 votes
    7y
    @Bosko Mijatovic take a moment and consider if you really want to partner with a family member, especially with such a low FICO score. You could be picking up his share down the line.
    2Reply
  • Ray Johnson
    Irvine, CA · Member since 2016 · 545 posts · 614 votes
    7y
    @Bosko Mijatovic I think the missing piece here is where are you looking to purchase the property? Are you Two looking to stay here in Orange County? If so, Do you have access to off market deals which is what its going to take here in OC.
    0Reply
  • Scott McWilliams
    Member since 2018 · 7 posts · 2 votes
    7y
    @Bosko Mijatovic I agree partially with Sen. A family member can be a great or terrible partner. You need to determine why his FICO is so low and ask yourself if the root of that issue makes him a good partner. If so, I would work on improving your buying position before making the purchase. Get with a loan broker that is willing to help him improve his FICO score. Help him develop an action plan to get it to the mid 70's in 18-24 months. By that time the market in SoCal will correct and you can buy at a much better price point and you may be able to buy 2-3 properties at that point. Better credit, lower interest rate, better price point. Sounds like a win to me.
    1Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y
    @Bosko Mijatovic Why does mel have a poor credit score
    0Reply
  • Bosko Mijatovic
    OP
    Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes
    7y
    Originally posted by @Patrick Fraire:

    @Bosko Mijatovic

    Also did you say the lender is quoting him 5.75% interest rate on an fha? That’s insane. Last I heard fha rate was in the mid to high 4’s. Maybe it changes significantly from file to file but a whole percent is a lot.

     Actually he just got quoted 5.5% with a 615 fico

    0Reply
  • Bosko Mijatovic
    OP
    Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes
    7y
    Originally posted by @Patrick Fraire:

    Another option is to do a seller carry back on a property. Let’s do a real world example shall we? 

    There is a duplex on Gordon st in Pomona. I personally have walked this property and submitted an offer way back in like Spring. I made an offer on it but it was well under asking. The property was listed in the 400,000s. They countered way too high and I walked away. They have been dropping the price for months. They are now listed at $350,000. Maybe you do an fha purchase at $300,000 and structure a 2nd mortgage of $50,000 due in 5 years at like 3% interest? Since you are in an fha loan with PMI you should have plans to refinance. If you can get the property to appraise high enough to get you to 20% equity (to get rid of that pmi) + $50,000 cash...you'd be able to pay off the second loan.

    Maybe it’s worth it to them since they’ve been on the market for so long. 

    What you need to take into account is your cash on cash return. 

    3.5% down payment on 300k purchase price 

    Closing costs

    Rehab money

    Monthly mortgage -rental income

    Refinance costs

    Plus if you refinance in like 3-5 years the market may be down and you wouldn’t be able to refinance and pull out the $50,000 to pay off your second. Then you’d have to fork over that cash to pay the seller and your cash on cash return would look terrible. Definitely some risk there.

    Hope this helps I know I wrote a lot and there might be some parts in there that don’t make sense but I’m doing this thing in one take. 

    I really appreciate you doing this, especially using a real example because I think we offered on that one as well haha! I’ve never heard that before though, the two mortgages going on at once. It’s interesting but like you said a risk if we can’t refinance and pay off that $50k

    0Reply
  • Bosko Mijatovic
    OP
    Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes
    7y
    Originally posted by @Jacqueline Carrington:

    I don't see what the big dilemma is. Buy a house using Mel's loan. Put both names on the title. Have a separate signed agreement that you will be responsible for half of the mortgage payment the entire time the house is owned and due 50% of profits from a sale. 

    Well that is what we’re doing now, we just weren’t positive if he could be approved for a loan. 

    0Reply
  • Bosko Mijatovic
    OP
    Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes
    7y
    Originally posted by @Ray Johnson:
    @Bosko Mijatovic I think the missing piece here is where are you looking to purchase the property? Are you Two looking to stay here in Orange County? If so, Do you have access to off market deals which is what its going to take here in OC.

    Have been looking in Pomona and Riverside. Our cap is $375k on a multi and $250k on a SFR. We don't really have much access to off market deals, so I guess that means it's time to pick up the phone and start calling wholesalers and agents.

    0Reply
  • Bosko Mijatovic
    OP
    Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes
    7y
    Originally posted by @Dennis M.:
    @Bosko Mijatovic

    Why does mel have a poor credit score

     He had to pull numerous loans to stay afloat 3-4 years ago. He has since paid off every debt and has rebuilt his credit over 150 points

    0Reply
  • Bosko Mijatovic
    OP
    Investor · Irvine, CA · Member since 2017 · 39 posts · 10 votes
    7y

    Update: Everyone thank you for your inputs, it really help us see some different POV's. We spoke to a broker and Mel has been approved for up to 250k on a SFR or 375k for a multi. We have made 5 offers with deals that have been on market. Our next step is to start calling wholesalers/agents with any off market deals. My only question is has anyone done a FHA with a off market deal. I assume most off market deals are bought with cash because they are typically seller sensitive or special situations where the seller needs to move quick so I would sure if anyone has had a success story doing it. I will keep everyone posted and appreciate all the help!

    0Reply
  • Matt M.
    Specialist · Easton, PA · Member since 2018 · 1k+ posts · 2k+ votes
    7y
    @Bosko Mijatovic My wife is a W2, I am self employed. Our personal home mortgage- mortgage is only in her name, but the bank counted my monthly $ contributions towards our qualifying income amount. Deed is in both our names. A good loan officer will make it work.
    1Reply
  • Stephanie Trevizo
    Rental Property Investor · Los Angeles, CA · Member since 2018 · 49 posts · 46 votes
    7y
    Originally posted by @Bosko Mijatovic:

    Update: Everyone thank you for your inputs, it really help us see some different POV's. We spoke to a broker and Mel has been approved for up to 250k on a SFR or 375k for a multi. We have made 5 offers with deals that have been on market. Our next step is to start calling wholesalers/agents with any off market deals. My only question is has anyone done a FHA with a off market deal. I assume most off market deals are bought with cash because they are typically seller sensitive or special situations where the seller needs to move quick so I would sure if anyone has had a success story doing it. I will keep everyone posted and appreciate all the help!

    Hi Bosko, it, of course, depends on the seller's situation. Generally speaking, you could buy an off-market property with FHA financing. Even if it were a distressed sale, it depends on the circumstances and the condition of the property. FHA financing now is much quicker than it once was. I know one of the lenders I've worked with could close an FHA loan in as little as 25 days. With a great lender and the right property, it shouldn't be a problem. It looks like you have some good lender references above.

    1Reply
  • Cody Z.
    Real Estate Agent · Belmar, NJ · Member since 2017 · 370 posts · 200 votes
    7y
    @Bosko Mijatovic Quick food for thought ... you may need to really go off market if you need that deep of a discount. Maybe also consider a hard money loan to acquire and rehab and then force some appreciation to cover the difference on traditional financing? Just my .02 cents. A sincere good luck and remember... it’s not I can’t, it’s how can I 🙂
    1Reply
  • Heidi Kenefick
    Rental Property Investor · Hartford, CT · Member since 2017 · 168 posts · 163 votes
    7y
    @Bosko Mijatovic If you get a single family, consider renting it out by the room to the medical students at COMP. renting by the door will increase your cash flow.
    1Reply
  • James Stayton
    New to Real Estate · Monterey tn · Member since 2017 · 19 posts · 7 votes
    7y
    @Bosko Mijatovic I own my company and I am in the same boat for the 1099. Very frustrating. To be able to get a 4 plex I took a job I can work Nd still manage my company. I am also looking for a bank that can see past the time for check process. I dont want to do hard money but I think I can find a middle ground. - Wish I had a magic bullet for ya.
    1Reply
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