All Forum Posts by: Will Barnard

Conventional lending has just got even harder on us investors. In an attempt to recover from the huge losses on all the foreclosures (mostly from the rookie speculators betting on the come), lenders have come out with new criteria for loans.
1. No insurance companies will write PMI (private mortgage insurance) on investment properties.
2. 4-plex units will require a minimum of 25% down.
3. THE WORST OF ALL - You will be limited to 4 properties including your personal residence.
Go to my website and read the blog as it outlines all the details and how it affects us as investors. We also had our lender on our radio show today explaining this new criteria. The podcast will be available early next week if you missed the show.

Jason, while you have great goals and the fact that you have chosen RE to obtain them is great. My only comment/concern to your approach is why would you EVER want to pay off your primary residence? Warren Buffet has a mortgage on his home and was quoted as saying that it is the cheapest loan he has ever got! You miss out on the tax deduction, thus increasing your tax exposure, you open the door for frivoluos lawsuits, you lose the power of leverage, and perhaps the most detramental point is that the equity sitting in the walls of your home earns you a grand total return of 0%.
Use the equity to buy RE, use leverage, keep every tax deduction available to you, and acquire many more properties. Over the long haul, you will be much more wealthy with this road, then paying cash as you go.

Jason,
As you mentioned, all you need is a reserve account for the "rainy days" By paying off an investment, you are losing the power of leverage, exposing yourself to lawsuites due to your high equity position, and losing the second most important thing in RE - write-offs (via the tax deduction on the interest paid).
My suggestion is to use leverage, buy smart, have a reserve, manage properly, and repeat the process over & over.

You can use the title company, but I recommend having your RE attorney file the docs for you as well as advise you on what you are trying to accomplish and how.

40,000 loan X 5.24% (.0524) = annual interest only payment of $2096 / 12 months = $174.67 IO payment. (Heloc lines are interst only in most cases).

I would not say they are challenges, just a necessary process. You simply must have a self-directed account and then you may invest in anything you choose, excluding life insurance policies and collectibles. Just as you can in an IRA. Roll it over to a self-directed account and start buying RE! Its that easy. The "challenge" is finding and negotiating a deal that makes sense financially.

Good job Matty. Credit unions are usually the best for HELOCs.
As Wheatie said, make sure the investment you purchase supports all the expenses including the new HELOC amount borrowed for acquisition. Also, Wheatie mentioned the term is not 30 years. That is correct, however it is not usually 10 years, rather 15. Either way, the interest only payments are the same regardless of the term. Just make sure you have an exit strategy at least one year prior to the term due on the HELOC or the ability to repay, refinance, etc.
Matty, keep in mind that the cost of your HELOC line (based on the prime rate) will be a tax deduction as well (for the interest). This reduces the cost of the borrowed money even more and adds value to your newly acquired investment property. :lol:

I am not aware of a law that states that in Ohio or any other state, however, there are lending criterias which would prevent a buyer from purchasing the home from you before 90 days. Assuming you finance the purchase, the new buyer's lender would require you to have owned the property for at least 90 days, in some cases 6 months.

You can get around that if you were to pay cash for the purchase, temporarily owner finance via a wrap or lease option, have the property placed in a single asset entity and sell the entity to the buyer, or perhaps utilize a land trust to transfer the beneficial interest in the property.
Do a search for topics on land trusts here on BP for more info on that.

If it was a loan on a 4 unit or less, then no, it is still a residential loan. If the building was 5 units or more, than the loan was commercial to begin with, regardless of you signing or on behalf of an entity.
Either way, in most cases, you will have to personally guarantee the loan, regardless of the type of loan (residential or commercial)