Best Loans to use to scale

[Thomas Bullock]

My friend and I are both veterans. We invested in a 3 family property about a year ago now. 100% of my friends VA loan was used, however, I am still on the loan because it was the only way we could get approved for the loan. I still have 100% of my VA loan.

It’s my understanding that since we’re both listed in the loan, we both carry that debt on our debt to income ratio. Do we both show for 100% of the loan debt? Can we each only claim 50% of the rental income to offset that loan debt? Did we screw ourselves in a sense in terms of investing towards the next property. Tax season is coming up and we want to start investing in our next property. What is the best way to claim our taxes in order for both of us to get approved for another property in 2023. Ideally we both want to get a multi family in 2023 so we can start expanding faster. 

Like I said, I have my VA loan still and my friend can use FHA.

We both make average yearly salary. We have a joint bank account with a good amount saved in there that we use for all expenses and income.

Would opening an LLC and transferring the property into it help avoid this complications? Or, would the debts still show individually for my partner and I?

Very loaded questions. As you can tell I'm very new to this game. I've tried researching on my own but haven't found clear answers. Any tips will help!

Thanks!

[Kyle Curtin]

Quote from @Thomas Bullock:

My friend and I are both veterans. We invested in a 3 family property about a year ago now. 100% of my friends VA loan was used, however, I am still on the loan because it was the only way we could get approved for the loan. I still have 100% of my VA loan.

It’s my understanding that since we’re both listed in the loan, we both carry that debt on our debt to income ratio. Do we both show for 100% of the loan debt? Can we each only claim 50% of the rental income to offset that loan debt? Did we screw ourselves in a sense in terms of investing towards the next property. Tax season is coming up and we want to start investing in our next property. What is the best way to claim our taxes in order for both of us to get approved for another property in 2023. Ideally we both want to get a multi family in 2023 so we can start expanding faster. 

Like I said, I have my VA loan still and my friend can use FHA.

We both make average yearly salary. We have a joint bank account with a good amount saved in there that we use for all expenses and income.

Would opening an LLC and transferring the property into it help avoid this complications? Or, would the debts still show individually for my partner and I?

Very loaded questions. As you can tell I'm very new to this game. I've tried researching on my own but haven't found clear answers. Any tips will help!

Thanks!

 Hi Thomas! 

  That is a great question! I would definitely reach out to @Joshua Poitras , he is an awesome investor focused agent that is licensed in NH, an investor himself, and veteran as well. He is certainly a great person to pick his brain about a topic like this! 

Good luck!

Kyle

[Joshua Poitras]

Hello @Thomas Bullock,

I have also used my VA loan. You would have to talk to a CPA in regards to the rental income. I believe you can both claim all of it, but check with a CPA. I believe the mortgage would still be tied to both your names, but your gonna have to speak with a lender, and they'll likely need to pull your credit. Let me know if you need these contacts and I can email them to you.

[Dylan M. Davis]

For your next purchase, would you consider a hard money lender or private debt? Do you have enough liquidity to cover a 20% down payment? Hard money doesn't consider your DTI (debt-to-income) it only is qualified on the property financials, borrower liquidity/credit/experience. And the great thing is, servicing doesn't see your names attached to the loan, therefore allowing you to take out as many loans as you'd like with little impact to credit.. (unless a default or judgement occurs of course)

[Eliott Elias]

Best loans to scale are going to be DSCR and hard money. These are loans that are easy to qualify for as long as the deal makes sense

[Thomas Bullock]

Quote from @Dylan M. Davis:

For your next purchase, would you consider a hard money lender or private debt? Do you have enough liquidity to cover a 20% down payment? Hard money doesn't consider your DTI (debt-to-income) it only is qualified on the property financials, borrower liquidity/credit/experience. And the great thing is, servicing doesn't see your names attached to the loan, therefore allowing you to take out as many loans as you'd like with little impact to credit.. (unless a default or judgement occurs of course)

 Ideally id like to go fha or use my va loan but if thats not an option because of the tight restrictions on these loans, then ill surely consider the other types. We do not have enough to cover 20%. I dont see how its possible to scale at any rate faster than a property every 2 years without having a major savings from the start.

[Dylan M. Davis]

Quote from @Thomas Bullock:

Quote from @Dylan M. Davis:

For your next purchase, would you consider a hard money lender or private debt? Do you have enough liquidity to cover a 20% down payment? Hard money doesn't consider your DTI (debt-to-income) it only is qualified on the property financials, borrower liquidity/credit/experience. And the great thing is, servicing doesn't see your names attached to the loan, therefore allowing you to take out as many loans as you'd like with little impact to credit.. (unless a default or judgement occurs of course)

 Ideally id like to go fha or use my va loan but if thats not an option because of the tight restrictions on these loans, then ill surely consider the other types. We do not have enough to cover 20%. I dont see how its possible to scale at any rate faster than a property every 2 years without having a major savings from the start.

I would say the BRRR method is the best to begin growing a portfolio. This is buying a property distressed with a short term 12 month IO loan - renovating (value-add) - and then cash-out refinancing at 6 months. If you do your calculations correctly and appraisals at the new value come back as they should you would be able to pull the equity you have in the deal out as well as the difference between mortgage-owed and the current value. Giving you proceeds to move on and do more properties. This can be a slow going process to start but once you have a good portfolio of properties the equity will be there to scale... doing low down payments and variable rate mortgages etc. is risky and doesn't leave enough skin in the game to do much with.

[Thomas Bullock]

Quote from @Dylan M. Davis:

Quote from @Thomas Bullock:

Quote from @Dylan M. Davis:

For your next purchase, would you consider a hard money lender or private debt? Do you have enough liquidity to cover a 20% down payment? Hard money doesn't consider your DTI (debt-to-income) it only is qualified on the property financials, borrower liquidity/credit/experience. And the great thing is, servicing doesn't see your names attached to the loan, therefore allowing you to take out as many loans as you'd like with little impact to credit.. (unless a default or judgement occurs of course)

 Ideally id like to go fha or use my va loan but if thats not an option because of the tight restrictions on these loans, then ill surely consider the other types. We do not have enough to cover 20%. I dont see how its possible to scale at any rate faster than a property every 2 years without having a major savings from the start.

I would say the BRRR method is the best to begin growing a portfolio. This is buying a property distressed with a short term 12 month IO loan - renovating (value-add) - and then cash-out refinancing at 6 months. If you do your calculations correctly and appraisals at the new value come back as they should you would be able to pull the equity you have in the deal out as well as the difference between mortgage-owed and the current value. Giving you proceeds to move on and do more properties. This can be a slow going process to start but once you have a good portfolio of properties the equity will be there to scale... doing low down payments and variable rate mortgages etc. is risky and doesn't leave enough skin in the game to do much with.

 Great advice. I'll do some more research on that and start my hunt.

[Christian Ehlers]

@Thomas Bullock From my understanding you would both be on the hook for 100% of the debt, as the lender looks at it and says well if either one of them skips town or gets abducted into the sky by aliens, the other one would have to cover the entire mortgage. Some of this income can be offset from what you claim as rental income on your taxes, it's usually about 75% of the total Lease amounts, or if a unit is vacant they may look at current market rents to determine that number. I'm not sure how the VA loan is or is not affected, I would ask a lender about that, happy to provide one if you want it.

To scale I would stick on the FHA/VA househack route if that's a possibility, as the low down payments allow you to get into a property without saving up nearly as much cash. BRRRRR is great but it takes a long time and a lot of skill, and then you still need to have money from somewhere to cover a certain down payment or renovation costs, even if you use a hardmoney lender.