My wife and I are just starting out in real estate.
We bought out first home in May (which we live in currently), my wife purchased with 3.75% down, first time home buyer perks, etc. and it's only in her name (intentionally, in NC so we don't have those weird community property rules)
I'm negotiating our second house deal- a duplex we're planning on moving into to "house hack" while we rent out our first house. (We were married after we purchased the home so we have a significant life event to justify leaving the owner occupancy earlier than one year)
The second home we'll be able to purchase with 5% down (off market, owner financed deal, no agents, etc. hopefully I'll be posting in the success stories soon!)
So here's the question. In an ideal BRRR strat, we'll get this through owner financing, refinance through a bank, and hope to get a good appraisal where the 75-80% refi will get us cash back. The problem is this house could appraise anywhere from $170-250k possibly as high as $300 depending on the level of rehab we do. I put in an offer for $150k I'm confident about. But I'll need the home to appraise in the low to mid 200 range to get my money back out to move on to the next deal. And I'm sure the bank will try and hit the low end of appraisal.
BUT WHAT IF: My wife (and she's on board with this, by the way), 'buys' the house with the owner financing, again in her name only. We move into one unit of the new house (which is actually bigger than our current house so we're not even downsizing). THEN. She 'sells' me the house. AND, since my name isn't on our first home, I can tap into the first time home buyer perks, only put down 3.75% which is LESS than we put down initially, AND we can set or 'force' the value of the home anywhere in that spectrum (within reason, certainly, but without the fear of a conservative appraisal)- possibly pulling out enough for multiple down payments.
Thoughts? Is there a catch somewhere I'm missing?
Misleading banks for a loan is called bank fraud if I understood your post correctly. BAD idea.
I would suggest you google the term arm's length transaction before doing anything. This sounds like a recipe for disaster.
Good luck and keeps us posted on what you ultimately decide to do.
Your wife is going to buy the house from the owner for $150 and then you will try to buy it from her at 3.75% interest at a higher price say s225k after you fix it up and you will get a fha loan? As owner occupied _ what purpose the bank is still going to do an appraisal why dont you just use a fha loan and a 203 k rehab loan and buy the house for the original $150 from owner?
I would "disarm the bombs" in that idea by forming an LLC and having the LLC buy it from her. That way, when you move on it's just a rental property, it's already in an entity and can be protected without the usual worries ("Due on Sale").
Now, entities get commercial financing - no "low down payment" or any of that.
Just FYI ...
Thank you @Ramon Cuevas , @Steven Picker , @David Dachtera for the helpful comments. The rehab loan won't quite fit what I wish to do as I don't need money to just rehab the home, but also need to get my money back out of the property for the next down payment. Based on my purchase price and the market value of the home I believe both those goals are possible. But also maybe not. I'd at least rather ask the question "How can I?" than simply say "I can't."
I plan on using the space between the home purchase and the 'refinance,' however that unfolds, to form an LLC. After some research, what I am wanting to do is a Non-Arm's Length transaction which is completely legal and is not bank fraud (as long as I don't lie about my marriage). It just may not be as straight forward as I initially thought. Fannie Mae just recently updated their stance on this here.
I believe as long as the market supports the eventual second sale price, I'm still in the green, but I will certainly talk with some local lenders.
But this was a learning opportunity! Thanks all!
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