Fayetteville, NC · Member since 2015 · 30 posts · 4 votes
Hello all!
Me and my husband are very new to investing and we decided to get into MFP as a way to pass time while he's stationed in Fayetteville, NC. We got approved for our VA loan and now we're just looking for a good starter property to call home for a year. I'm learning so much from this site and I can't wait to interact and network with people from this area. Happy buying everyone!
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
10y
@Porsche Thompson I am not a fan of purchasing a Residential Multifamily Property known as "House Hacking" which is what you will be doing. If you are looking to owner occupy, you may want to consider starting out, with buying a Duplex, TriPlex, or a Four Plex. Many Realtors will suggest purchasing a property using a FHA Loan (in your case a VA Loan), to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.
Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). In your case, a VA Loan (no money down, does not charge Principle Morgage Insurance that is added to your Monthly Mortgage Payment, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.
If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.
If you think you will go FHA, VA, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.
Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You many be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
10y
@Porsche Thompson I am not a fan of purchasing a Residential Multifamily Property known as "House Hacking" which is what you will be doing. If you are looking to owner occupy, you may want to consider starting out, with buying a Duplex, TriPlex, or a Four Plex. Many Realtors will suggest purchasing a property using a FHA Loan (in your case a VA Loan), to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.
Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). In your case, a VA Loan (no money down, does not charge Principle Morgage Insurance that is added to your Monthly Mortgage Payment, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, "Take out a quality Insurance Policy and you will be protected." Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.
If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.
If you think you will go FHA, VA, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the "Acceleration Clause" or "Due on Sale Clause" that requires the loan to be paid in full, within 'x' number of days. These clauses are contained, in all Promissory Notes nowadays.
Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You many be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.
Investor · Fayetteville, NC · Member since 2016 · 24 posts · 6 votes
10y
@Thomas Franklin Outstanding advice! You sound like you speak from experience on the asset protection comments. I could not agree more. I will only close in some type of structured entity, which is an LLC at the moment. I plan on using Land Trust when I decide to buy and hold some of the rehabs I will be doing.
@Porsche Thompson make sure you put some distance between yourself and your tenant. Do not tell them you own the property. You should have them send the payment to PO Box or tell them you represent the owner.
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
10y
Porsche, there are a few multi's for sale in town right now. Although I will tell you this market doesn't seem to support those types of properties much. Over the decade I've lived here I've only ever seen a few. I wish it weren't the case because I would much prefer multi's as well.
as far as using an LLC, it's definitely ideal, but it's nearly impossible to do that. I have an LLC and I buy units in my LLC but putting a loan on the LLC has been a deal killer for me every time. You can't use your VA loan, the terms are worse (which is painful as a beginner), finding financing is harder, and getting sued is a statistical unicorn.
As I said before though, Fayetteville is a great market for investing I think as you learn the market you may change your model a bit. If you can find what you're looking for though then jump on it!
Real Estate Investor · Miami, FL · Member since 2010 · 939 posts · 739 votes
10y
@Mark Scott I once used a Land Trust Agreement and it came back to bite me. The following is a Legal Opinion, from my Real Estate Attorney regarding using a Land Trust.
An individual borrower can contribute real estate titled in the individual and for which the individual is also the borrower/ mortgagor to a Land Trust of which a LLC wholly owned solely by the individual is the sole beneficiary. The result is the same from a lender's perspective: there has been a transfer of "legal or beneficial title" in the mortgaged property.
As you know, in most Mortgages, this can be an Event of Default. It is absolutely true that a Land Trust of which the original individual borrower, through his wholly and solely owned LLC, is the sole beneficiary can be a "disregarded entity" for Tax purposes. It is absolutely true that the individual remains fully on the hook for the debt.
Thus, a smart lender would say “No Harm, no Foul”. A smart lender would say that the Loan was extended on the credit of the individual and he remains the sole human being with which the lender is dealing.
Many lenders would also note, however, that there is nothing that would prevent the Land Trust trustee from changing trustees or would prevent the Land Trust beneficiaries from changing. This is the banker’s fear: we start out dealing with Mark and we end up dealing with Harry.
Can the bankers be educated and receive no transfer assurances? Of course. Will they take the time on a loan for a 1 - 4 unit residential property for which the loan has been sold? Probably not.
However, [I] asked whether there would be no ramifications. We cannot say that because there could be ramifications if the lender correctly deemed the transfer to the Land Trust to be a transfer.
Guy with Great Hair · Austin, TX · Member since 2013 · 2k+ posts · 4k+ votes
10y
the market for small multis is depressing I agree.
The market conditions in Fayetteville are a bit unique in that the service members get large COL-based income for housing called BAH, as I'm sure you know. Well, when an e-5 gets a $1200 stipend for housing, most are going to find a $1200 place. This is way way way over market value for rentals in the area BUT most service members do rent. So it has created a market for high priced rentals. This is why you will see large apartment complexes being built all the time to support this created market. This has forced all small mutli-family (10 units and less) construction out of the market for the last ~20+ years and there just aren't any left.
again, if you search you may get lucky, I'm not trying to deter you from your plan. I just want you to be aware of the market conditions we are subject to.