All Forum Posts by: Christopher Beahm

The lender should be able to use 75% of the projected rental income on the subject property that you’re purchasing which most of the time will offset the entire cost of that new mortgage, or at least very close! You can often times purchase rental properties without having any impact or increase to your debt income ratio when using the future rental income to qualify. Now if the debt to income ratio with your primary home and your student loans are already at 50%, this will be a moot point, but if those items are below that threshold you should be able to make this happen. 

Creative Financing Strategy: How to avoid cash out seasoning requirements?

As a lender this is one of the most commonly asked questions that I get from investors looking to get cash back out of their recently purchased properties.

This method has a few extra steps involved and is more geared towards the experienced investor, but when used appropriately, it offers several advantages. Below is a very high-level explanation.

Create an LLC for your real estate business --> Connect with a local hard money lender to borrow the cash needed to fund your future real estate endeavors {assuming you don't have the assets needed for initial purchase and /or repairs} -->Use the cash from the hard money lender to buy the property in cash --> At the time of closing, have your LLC file a mortgage note against the subject property for the amount borrowed from the hard money lender --> start the refinance process the day after closing on the subject property to recoup your investment / pay back any hard money loans as needed

In this scenario, technically you as the borrower will not receive any funds back at closing, however, you as the mortgage note holder of which your LLC holds 100% interest will be satisfied in full at closing. You're paid back through the LLC rather than as the mortgage borrower.

Benefits? This scenario is not treated as a cash out refinance, it's a rate term refi. 1) Interest rates and loan terms for non-cash out refinances will always be superior 2) No seasoning requirements. 3) Maximum LTV can be based on ARV rather than initial purchase price.

Hi Michael, 

Ask you lender to submit your automated underwriting findings to Freddie Mac rather than Fannie Mae. Lots of times Freddie will approve the file only asking for 1 year returns rather the 2. 

I'm happy to help if you have further questions. 

Best of luck! 

Welcome to BP, Craig! The FHA loan is a phenomenal loan for multi family homes as it only requires 3.5% down payment for 1-4 unit properties. When looking at your cash on cash return, you'll likely get your initial 3.5% investment back within 18-24 months. Even as a lender by trade licensed in CA, we've used the FHA loan to buy multi family homes and we keep that loan until we have 20% equity at what point we refinance into a conventional loan with no PMI. By only putting down 3.5%, we were also able to acquire another property the following year which would not have been the case if we put down 20% on the first loan. Have a successful 2019!

Welcome to BP, Tiffany! I hope your 2019 is off to a successful start!

The biggest issue here is that with $50k loan amounts lenders run into high cost problems which are prohibited in many areas. The total closing cost on a $50k loan is still going to be around $2-3k which is 6% of the total value. This is what regulators have an issue with and also why most conforming investors won't lend under $50k. Those small loans amounts simply fail the high cost restrictions.