B2R Finance vs Partnership - Which should I choose?

Question

Account Closed · Answer

@Melissa Searing

Good advice from @John Kent - you are going to run into issues with B2R if you intend to occupy the property.

You had asked about what cash flow they might require.  I'm not sure about this new program, but for their others they require that the annual cash flow to annual debt service ratio be 1.2x or greater.  Again, that is for rental properties not occupied by the owner, however.

Melissa Searing · Answer

Account Closed Thanks  for that info! I found a debt service ratio calculator online. I have no idea if I'm doing this right, but it seems like if I borrowed $200,000 at 6% with 30 year amortization, my debt service annually would be $14,453.  When I take that number times 1.2, it equals $17,343. When I divide that by 12 months, it equals $1,445. So does this mean that I could potentially have a deal if I can collect $1445 per month in rent? Or will I have to subtract vacancy rate and cap ex from the cash flow? Am I even doing this right? Lol

John Kent · Answer

@Melissa Searing

Thanks for sharing the info about the upcoming program with B2R. I have been looking for a good rental refinance product. My understanding is tha they only do non-owner occupied loans which means it can't be your primary residence.

The property showing on your credit report or your loan application will disqualify you from being a first time buyer. If B2R will offer a non-recourse option titled in an entity with no personal guarantee then it may not show up on your credit report and may not require disclosing on your loan application.

If you are going to live in the house for the first 12 months then you might be best served by getting an FHA loan with a family member as a non-occupying co-borrower where you can include your family member's income in the application. There may also be first time homebuyer second mortgages or grants offered by your state or county that will let you purchase with 100% financing. However, keep in mind that most first time homebuyer programs require that you repay the grant/loan once you move out of the property if you have not been there long enough for it to be forgiven.

Melissa Searing · Answer

@Logan Dickson Thanks so much for your response! I am just trying to determine which would cost me less money... paying a higher rate for 3 years (B2R will have a pre-payment penalty if I refinance in less than 3 years) and potentially a greater down payment...or doing conventional financing, paying PMI and splitting any profits in half after 3 years.

Argh! I was never any good at math! :D

Logan Dickson · Answer

If you partner with a family member and use conventional financing, you can find better rates than 5.5-6.5% that B2R is offering, which still isn't bad. Also someone on the podcast(I think it was Mehran) said he found conventional financing with 5% down rather than the usual 20% as long as you pay the PMI upfront. That might be available in your area as well. If you have family member lined up that would help, go for it!