Financing First Deal in Baltimore

[Mark McGarry]

Hi fellow Baltimore folk,

I'm having trouble deciding how to try and approach financing a first deal, bear with me while I lay out the situation.  I currently own a home in 21224 for about 3 years, the first 2 years of which I did a slow and steady "live in reno".  I converted the house from a 2/2 to a 3/3 by having the basement dug and then finishing it out myself from there.  I have been renting the basement now for 1 year and have the income on my tax return, although for just the basement it is not that much.

I'd like to look into purchasing another home that offers a similar opportunity for me to do a slow and steady live in renovation while converting my first home to a rental.  I like this idea because I can do a lot of work myself and really save on costs but I am a little obsessive and the result of that is that I work very slow (so not ideal if it would mean vacancy or slow get-ready to rent).  Running the numbers on my current home, including all expenses (maintenance, vacancy, capex)  and using a conservative rent figure (determined from similar rental listings),  my house should cash flow as it is.  

We have some cash saved and want to start looking for the next deal, but I'm concerned that we won't be able to qualify for another mortgage from a DTI perspective without being able to offset the current mortgage payment more than the 1 year of 1 bedroom rental income can do. Does anyone know of a good mortgage broker we can talk to who might consider the "potential income" of a lease? I think even if we could have 50% of the potential income from a lease considered we would be in good shape to qualify for another loan.

Alternatively, if I'm being crazy and there's a better idea out there, I'd love to hear it.  Look forward to hearing from some of you.  

[Nathan Click]

@Mark McGarry - Sounds like you are looking for an unrestricted cash out refinance.  That product is a commercial loan instrument.  I doubt a residential mortgage broker would be able to help with something like that.  A commercial lender/broker might be able to set something up for you depending on what kind of project you have.  I'd be happy to discuss, feel free to reach out to me.  

[Mark McGarry]

@Nathan Click - unfortunately, I'm only 3 years into paydown on my mortgage and even though I have definitely increased the value through renovation and the neighborhood is appreciating overall, I doubt I'm much past 80% LTV (if at all) - I bought in with an FHA loan right before the "PMI forever" change happened, but I only put 4% down since I knew I would be undertaking the renovations.

[Account Closed]

If you have equity in this property - you could create your own loan - well sort of - Create your own mortgage and use that mortgage and note as the down payment - ask sell to take the note and also give you some seller financing.

• This is a classic nothing down with created paper.
• Let's say you have 30,000 in a property 
• Go to your friend title company, maybe Highland Title on Eastern Avenue, ask the title lawyer to create a mortgage on your build - be kind to yourself 3% interest amortized for 15 years.
• Next find a house you like
• Offer to give them the $30,000 mortgage secured by a second on your house with payments of X-$ (that you will be making) also ask if he can carry a small mortgage.
• Alternatively, if you can get a partner with equity, create the mortgage on his property, say for $100,000, but this time split the notes; instead of having one mortgage note for $100,000 have 4 notes for $25,000 each secured by the mortgage and the property -
• This way you have 4 opportunities to use these notes for down-payments.
• These concepts are a little creative - but they work when you understand how they work -
• Wishing you good luck.

[Ray Slack]

okay.. the first issue is if you can qualify for the 2nd property.. I'm assuming you are a w-2 employee?  and not self employed? It's much harder for the self employed to get loans now a days. 

The bank will use 75% of the rent of your current property to offset the mortgage/tax/insurance expenses. 

Now I know people that have with success downloaded a lease off the internet and filled it out with a friends name showing they are going to be renting your old house for x number of dollars starting around the same date as the closing on your new house for a year lease.   Now if that friend wasn't really going to rent your house that would be mortgage fraud which is illegal so I'm not condoning it or saying you should do it but it works.