What are my options in getting my 3rd property?

Question

Bought first house in California FHA 3.5% February 2016. Moved for job and bought second house in Georgia conventional 5% May 2017.

income

My salary income is $80,000

California rent income $2,850

Can I count the boarder income of my primary SFH residence right now ($3,200)? i will be reporting it on my taxes for 2017.

debt

California piti $1,950

Georgia piti $2,000 (yes, gross profit per month is $1,200 with only 5% down, seller covered all closing & living rent free)

car $530

student loans $350

As an investor I want the minimum amount out of my pocket. So "more down" isn't the answer for me. Wanting to buy a property in 200-300k range in Georgia with 20% down (or is it more likely it will have to be 25%? not sure which it is for investment property).

Not really sure what my options are. House has to be in that range, don't want less. My DTI is too high, unless I can count boarder income. Any ideas?

Richard Ladenberg · Answer

That makes sense it would come with the appraisal. Awesome info to know. Thanks!

If I do a hard money loan and need to pull a refinance later, can I rent to an LLC? I want to get a lot of properties and have my wife run the business as property manager, so it would be her getting the leases signed later. How would this best be approached? Also it wouldn't be traditional leases, it would be short stays, traveling business, etc. (month to month leases, student housing etc.) which is part of the reason i want to rent to the LLC so the entire lease is covered through the LLC that my wife would run in terms of qualifying for a refinance since they need master leases fulfilled.

Andrew Postell · Answer

@Richard Ladenberg the conventional rule to use rental income on a property you are purchasing is that the appraisal that is ordered on the property will include a rental comparison report.  That's it.  The home can be vacant, with no lease, and you can still use rental income.  As long as the bank will follow that rule.  If you are refinancing a new property (meaning you bought with cash or with hard money and are looking to refinance) then you would need an executed lease.  But on a purchase you do not need a lease at all.

And as long as you are purchasing, there is no reason to rent to anybody.  Most banks will not use rental income from an executed lease involving a family member...but again, that is only if you are refinancing.

Feel free to ask more questions if you need.  Thanks!

Richard Ladenberg · Answer

@Andrew Postell What is the typical criteria for them to include the rental income of the next property? Do you have to have a lease signed before you even go into contract on the home? Are you supposed to get a lease signed while in due-diligence and finding a tenant needs to be in the contingencies?

What about setting up an LLC and renting to the LLC, would that work? Could I sign a lease with my wife who isn't on the mortgage/title?

Thanks for the reply!

Andrew Postell · Answer

@Richard Ladenberg you should always be working with a lender that will be counting the rental income of your next purchase.  Not every lender does that unfortunately.  This is important because, in theory, you are only buying homes that have positive cash flow.  So, you should ALWAYS be able to afford a rental property...that is unless your current DTI is WAY high (which happens). If you just bought a primary home this year, you should be pretty good to afford to buy another rental property (unless something has drastically changed since then).  So while we cannot use boarder income, we should be able to use rental income on the new property.  Also, the minimum down payment you need on a conventional investment property is 15%...however, not every bank follows that rule either.  So call around and talk to some different banks.  Start with some smaller banks and maybe try some mid-sized banks too.  Their lending is more friendly to investors.  Feel free to ask more questions if you need.  Thanks!