Best option how to use conventional loans long term with a partne

3 Replies

Hello All,

I have been doing a LOT of reading on what would be the best way to using long term Conventional Loans for buy and hold rentals with a partner where you BOTH are planning on staying in the deal for the long run. They have the down payment funds and I have the time/expertise to do all of the finding, acquiring, rehab management if needed, on going PM and business management.

Right now I am a partner in 30 units, some of them with this same potential partner. We both have the same long term goals. So far we have used LLCs and all Commercial Loans. We now have an opportunity to purchase some great units in great locations that would make ideal lonngggg, low maintenance holds and would like to take advantage of the great terms on conventional loans as we plan to keep these at least 20+ years if not indefinitely.

Let's assume for round numbers that we there are 5 200K duplexes available to purchase and timing from the sellers perspective is flexible over the next year or two if needed. I also have enough of MY own cash to buy the first one if that would be advantageous (see below). After that it would be all the partners funds for down payment

It sounds like some of the options could be

1) To have a joint bank account at least 2 months ahead of time to be able to ' season the funds'. My understanding is that either one of us could then use those funds and be the sole person on a loan, although we could both be on title.

1.1) If we went this route, and had a separate 'business agreement' spelling out responsibilities, profit splits, dissolution in the future etc... is there a 'preferred format' for that? JV Agreement, LLC, Partnership Agreement etc.....?

2) To have the partner give me a second mortgage on my house or other property to make the funds 'secured which having read several of @Chris Mason 's posts can be a good way to do it. This would likely only work for one duplex purchase as that is all the equity I have in my house.

2.2) Can this 'second mortgage' add up to greater than 100% of equity in my home or other property? If yes is there a limit? Mean if I had a 200K house with a 160K mortgage, can the partner give me say a second of 50K, and then a 3rd, 4th, etc... is they are comfortable with that? That could mean a 4th mortgage of say 200% LTV of my primary home.

3) My other though that I have not seen explained is this - I would buy the first one with my own cash funds of 50K and a conventional loan of 150K. Then immediately (if possible) they would give me a second mortgage (or buy an interest in it in a different way if needed) for the 50K I originally but in which I could then 'recycle' into the next one. Repeat as needed :-).

Thanks, Dan Dietz

2.2) Yup, once in a blue moon someone has a private lender willing to let you go underwater. 

@Chris Mason as a Lender, do you see an advantage to #1) above instead of #2)?

#1 seems to be the simplest if I am understanding it correctly. Just not sure if it is a simple as it sounds from a Lenders perspective?

The only downside I see is that it 'needs to be planned ahead of time' whereas a lot of people find the deal and *then* try to figure out how to finance it.

Thanks, Dan Dietz

Option 1 would be less paperwork if it's viable. 1.1 might be a pain in the butt if you're trying to use Fannie financing. "Reading in between the lines," Fannie Mae 1-4 unit guidelines understand people, but doesn't truly attempt to understand business entities. 

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