All Forum Posts by: Chris Mason

I'm not a judge or anything, but I think you'd have a hard time convincing a judge that your intent, in your heart-of-hearts, really did change in between signing and the evening of signing...

Nick, that's your primary residence. For a year. Your head is supposed to fall onto a pillow in that house on 183 spread out evenings, of the next 365 evenings. You signed paperwork promising as much. Don't rebut it with me, I'm not a judge or jury. 

You can rent out extra space, etc.

If this isn't a very "bay area" snip, I don't know what is:

No replies, 8 hours after being posted, looking for a GC. Yup, very bay area indeed.

It's going to be tough to get a call back, etc, for a job like this. They aren't hurting for work, there's plenty of that. The job isn't that big, so no love there.

Ask your Realtor, whomever you've been loyal to in the past. They have the volume of referrals/business to send to their GC/GCs/handypersons that you (likely) don't have. That volume-referral dynamic may be the sort of icing on the cake that gets a phone call returned.

Or, and I say this only partially in jest, massively expand the scope of the job. If there's other stuff on that home's bucket list, throw that in there too while you are at it, so the job is juicy enough so as to be appealing.

When Fannie/Freddie say "single family," they mean 1-4 unit, that's why you see references to 2-4 unit real estate under that 'singlefamily' url here, for example. 5+ is what they call "multifamily."

Fannie/Freddie do not really care about California laws. California could legalize building an airplane factory in your suburban single family house, that doesn't mean Fannie is going to back a residential loan on it. None of the California state legislature folks, or the lobbyists, checked with Fannie/Freddie when passing all those new ADU laws a couple years back.

If something doesn't meet Fannie requirements, then you and/or your buyers don't get to get a Fannie loan on it (though they generally will not call an existing loan due). No sexy 30yf with low fees. But if you had a rich uncle, or a hard money lender, etc, you could still get a loan on it - from that rich uncle, or from that hard money lender. 

2 unit property with an ADU = no Fannie loan.

3 unit property = Fannie Mae eligible. 

There are certainly examples that sneak through. Maybe the day the appraiser shows up, the ADU looks and feels like a storage shed (and so on). You can also do commercial financing, etc.

Not a direct answer to your question, but you know what happens down the road when you attempt to refinance, or a buyer attempts to buy using a vanilla mortgage, when it's a duplex with an ADU, right?

It's not directly relevant to your question, but I speak to a lot of people "too late," when they're trying to refi/sell, and their buyer pool is reduced to cash buyers only, thus reducing what they can sell it for by a very non-trivial amount (cash buyers tend not to be dumb, they know there's no actual bidding war now that folks getting mortgages are excluded, no matter what those preapproval letters say). If you've already factored that in, awesome, please disregard this post. 

If not, and if that's potentially concern to you then it might be worth looking into what it takes to make this property a full blown 3-unit property. 

 Have those private loans secured by other real estate that you already own. Now, it's no different than a HELOC.

You can't use down payment gifts for investment properties, nor can you use unsecured borrowed funds, nor funny money, but you CAN use borrowed funds secured by other real estate.

It's not a 'minor factor,' your dad told the Uncle Same and the IRS he is broke. But now he's trying to tell Aunt Fannie Mae he makes "hundreds of thousands" of dollars. So, he lied somewhere.

If he lied to the Uncle Sam, he committed tax fraud, and a tax lien could be placed on whatever property you purchase. That tax lien would take precedence over the mortgage.

If he's lying to Aunt Fannie Mae, then he'd be unable to make the payments, and she'd have to foreclose.

The solution is to be honest with Uncle Sam, that way when you hit up Aunt Fannie Mae for money and she checks with her husband, nothing is awry. 

FYI: I too am an S-corp, I "get it," I know about how when the spouse asks for 100 stamps for Christmas cards, you whip out the company credit card, buy 150 stamps, drop 50 off at the office, give 100 to the spouse, but write off all 150, but not just that, one thousand other things too. That's a choice, there's no requirement to lie to Uncle Sam about all 150 of those stamps being a 'marketing expense' (or the luxury brand new leased 'company car' that you go grocery shopping with, or any of the other things).

Find an insurance broker signed up with Lloyds of London. They will insure anything... for a price. And you may not like that price (or you may, if they don't think it's as high risk as all the vanilla American carriers think it is!), but it's worth at least finding out what that price is.

Whenever I have someone who can't easily find insurance (Oakland hills fire risk, directly on a fault line, the vast NorCal region where large parts burn down every year, 120 year old Victorian with brick foundation and K&T wiring, and so on), that's my go-to. A starting point, a baseline, a 'worst case' scenario. Once you have that number, then it's not at all crazy to try to 'do better,' but at least now you have a starting point. 

"I'm wondering why I couldn't get credit for the roughly $2,500 I'll get from renting my primary residence once I move out"

You can. Find someone new. 

The rest of it, I can't comment on without seeing your tax paperwork. 

Originally posted by @CT Nguyen:

Hello,

I understand most lenders require 20-25% down for investment properties. I spoke to someone and he mentioned that he was able to secure a loan for one of his AirBnb properties with only 5% down, however, this lender is not licensed in the states that I want to invest in so I can't use them. I am wondering if anyone here has any experience with investment loans that allow borrowers to put down less than the typical 20-25%? 

Thanks,

CT

 That friend committed mortgage fraud. Get a copy of their settlement paperwork, and I'll show you exactly where it was committed. 

Person A buys a $100k house, pays all cash (into it for $100k).

Person B buys $100k in balanced index funds (into it for $100k).

Person C buys a $100k house, putting 25% down (into it for just $25k).

Person D keeps $100k in a checking account (into it for $100k).

OMG INFLATION!!! WE JUST HAD 20% INFLATION OVER X YEARS!! (If I could predict X, I'd have a crystal ball)

Let's grant that this inflation is perfectly distributed across all asset classes but checking accounts and greenbacks. We're just going to use nice round simple numbers. Gallon of milk is up 20%, gas is up 20%, wages are in theory (lol) up 20%, gold/silver up 20%, bitcoin went up 1000% then dropped 980% 2 milliseconds later (good luck at that casino, and props if you win, someone has to), so it's up 20%, rent is up 20%, stocks on average are up 20%, you get the idea. The dollar is basically down 20%, that's what inflation is, the same $1 gets you 20% less of everything. Same coin, two sides.

Person A has a $120k house. Net worth value, $120k. Into it for $100k. Not bad, picked up $20k on $100k.

Person B  has $120k in stocks. Net worth value, $120k. Into it for $100k. Not bad, picked up $20k on $100k.

Person C has a $120k house that they owe $75k on. Net worth value = $120k - $75k = 45k. Into it for $25k. Picked up $20k on $25k. Hold the phone.

Person D has $100k in a checking account. Into it for $100k, still has $100k, but groceries are 20% more expensive... whoops. Clearly this is last place.

Person A turned $100k into $120k in net worth. Person B turned $100k into $120k in net worth. Tied.

Consider that C turned $25k into +$20k in net worth. Everyone else had to come in with $100k to make $20k. They came in with $25k to make $20k... Persons A and B started richer, and remain richer, but person C is actually gaining ground, A and B are just treading water with inflation. 

Consider further that maybe Person C isn't poorer than the other 3. Maybe Person C has the same $100k like everyone else. Great, that means Person C could have picked up 4 houses for $100k a pop (25% down each) before the inflation, each now worth $120k... into it for $100k like everyone else, net worth value $180k.

Buying stocks has significantly lower closing costs than houses, so Person B would actually beat Person A, but C would still come out ahead. Closing costs are why I'm not convinced that buying real estate free/clear is really that great of a hedge against inflation. If we assume that equal application of inflation, and we're JUST looking at inflation, stocks come out ahead (There are real life reasons why real estate might [& often does] come out ahead of stocks, we're JUST looking at inflation here, with a very simplified model).