All Forum Posts by: Jon Puente

Hey Theron,

If rehabbing the home is out of the question, then I would probably just sell it and move on.  Yes you could develop it, or turn it into a storage facility, but that means you are managing the land and it becomes a business. on top of whatever business/job you are in. 

A great way to answer situations like this is to reverse engineer the question - 

If you had 250K-300K sitting in the middle of your kitchen table, would you go out and buy this specific property and land, in the condition that it is, and want to monetize it or develop it?  If the answer is no, then sell it.  This happened by default, not on purpose. 

Great Question!

Hey Dominique,

Everyone has basically answered the questions of what buy-downs and how they work.  Quick Summary - 

1) YES, your buyers should be negotiating for a temporary rate buy-down on every deal, if possible.  It is the best benefit right now with higher rates, and even if you refi before you get all the benefit, you still keep the seller credit money in an escrow and dont lose the money.  Its a win-win for everyone. 

2) NO, do not do a permanent rate buy-down unless you have to in order to qualify for the deal.  It will be wasted money when you refinance, especially in this market.

I have a loan closing right now in using this technique.  DM me if you want to know how it works and what how it benefitted my client.

Great Post!

Quote from @Scott Trench:

Quote from @Jon Puente:

I am 100% certain that rates will be not be 6-7% for longer than 36 months.  Using a 2-1 buy-down is exactly how to get a better payment, just like you are saying, for the first 2 years of your loan.  Why wouldn't you do this, especially if it's the seller paying for it? 

Oh btw, you have to qualify the loan on the note rate anyways, so its not like they wouldn't be able to afford it at the highest note rate (with current lending guidelines).

Rocket Mortgage is putting out really aggressive incentives because they have the highest rates of anyone lol. Their retail channel charges an absurd amount of fees & points on every loan. You can't watch a sports game without seeing their commercial almost every break, how do you think they pay for it? 

Sorry, but I have done enough research to know that rates will drop sooner rather than later, from real economists.  6-7% is not sustainable in the economy longterm.

This is a very dangerous statement. Rates absolutely can stay high for longer than 36 months. Not only that, but they can rise for decades. Here's the Federal Funds Rate over the past 60 years: 

If you don't like that, here's a great visual of interest rates over the last 600 years. 

The Fed does not care about you, your assets, or your business. It only cares about inflation (and unemployment). And, the Federal Minimum Wage is the lowest it's been (in real, inflation adjusted terms) in 80 years. The economy can take a massive beating before unemployment begins to swell. I believe this Fed, that they are convicted about beating inflation. 

What's more, the pain is going to be felt disproportionately by the rich in a higher interest rate environment. Higher interest rates wipes out equity value in assets like businesses, commercial real estate, etc. It has way less impact on homeowners. People still need to operate those businesesses and we still have 2 job openings for every job seeker even now. Rising rates hurt everyone, but they might just hurt the rich more than the poor this time around. In a perverse way, that reduces long-term systemic problems, like income inequality, in this country. 

Hey Scott, I am honored that you took the time to respond.  While I understand rates have been as high as 20%, the chances of that happening are almost zero.  Inflation wasn't necessarily caused by low rates in the beginning, so by raising rates, it's only treating the symptom to a bigger problem which was: supply chain issues due to COVID, and the printing of trillions of dollars.  As you know, we can't really go back in time to fix those items now, so the only option now is to raise rates in hopes to slow inflation.

Which leads me to my point that rates will not increase for decades because that would literally destroy the entire economy. I understand rates could be "higher" for a while, but higher doesn't mean 12%.  It means higher than 2%-3%, which were all time lows.  I dont disagree that higher rates hurt businesses and everyone seeking financing.  The only point I was trying to make to the previous contributor was that a Temp rate buy-down is the best solution right now to someone purchasing a home because you use seller credits to obtain a lower rate (none of your own money) and can refinance in the future should rates drop, which they will eventually. 

Hey Griffin, 

Great question, here are my thoughts on the FHA 203(k) loan for what you are trying to do! -

1) You can use an FHA 203(k) for a full rehab no problem and you can live somewhere else while its being done. However, you would have to live there for 12 months post closing. FHA is only for primary residence.

2) I would also consider using a Conventional loan with 3%-5% down and doing the rehab with private money or hard money because it sounds like you plan on renovating and then refinancing after you have added value.

3) The FHA 203(k) loan is highly regulated and you have to have so many specific requirements for it, that it can be quite a pain. I personally do not specialize in FHA 203(k) loans, but I have heard so many people struggle through it or cancel mid process. If I was personally buying a fixer-upper, I would find another way to buy/rehab.

Just my thoughts, great post!

Okay, I want you to look up Barry Habib and watch some videos.  He has done a lot of research on this and has been literally spot on predicting rates and other real estate activities.  He won the crystal ball... 3 times.  I will leave you with this - 

Temp buy-downs work in EVERY CASE, unless you need the cash for other reasons.

You can refinance at 95% or 96.5% LTV. If someone really paid THAT much over asking that you owe a lot more than that, then it is what it is! Sucks to suck.

This has nothing to do with timing the market.  It has to do with getting the best payment you can now, and WHEN (not if) rates drop, you refinance in the best way available.  By the way, when rates drop, home values will go up again, and the cycle continues.

I am 100% certain that rates will be not be 6-7% for longer than 36 months.  Using a 2-1 buy-down is exactly how to get a better payment, just like you are saying, for the first 2 years of your loan.  Why wouldn't you do this, especially if it's the seller paying for it? 

Oh btw, you have to qualify the loan on the note rate anyways, so its not like they wouldn't be able to afford it at the highest note rate (with current lending guidelines).

Rocket Mortgage is putting out really aggressive incentives because they have the highest rates of anyone lol. Their retail channel charges an absurd amount of fees & points on every loan. You can't watch a sports game without seeing their commercial almost every break, how do you think they pay for it? 

Sorry, but I have done enough research to know that rates will drop sooner rather than later, from real economists.  6-7% is not sustainable in the economy longterm.

Hey Brittney,

1) If you are purchasing properties using Commercial financing (5+ Units) or NonQM financing (DSCR Loan), then you will be just fine purchasing those properties under the LLC.

2) If you are purchasing properties using traditional financing (such as Conventional or FHA) then you will run into trouble buying properties in the LLC.

I would just buy the first couple of properties in your own name to start, and then transfer them into your LLC post closing. As long as the LLC is in your name, then you wont receive the "due on sale" clause.

However, when you get up to 4 or 5+ properties, it will most likely be difficult to qualify with DTI and you will have to use other financing, such as DSCR loans.

Having 1 or 2 properties in the LLC wont matter much, but once you reach a higher number of properties, it will make more sense because you are "limiting liability" of all the properties in the portfolio.

Hope this helps!

Hey Drew,

Use seller credits to your advantage (as much as you can get) and buy down your interest rate with a temporary rate buy-down. 

This is different than a permanent rate buy-down, because you get more buying power to achieve a lower rate.

The goal would be to refinance after 2 years (which rates should decrease in that time period if you bought today).

This strategy is used for traditional financing, but obviously you can to do "sub-to or seller finance" to achieve great results as well. 

Great Question!

Hey Rami,

In this market, it would absolutely make sense to go Variable.  Rates "should" come down in the next 24 months, so as long as you plan to refi sooner rather than later, then you would be good.  

I have ran the math many times, and there really isn't any benefit to doing a 7yr ARM or 10yr ARM.

Great Question!

Hey Travis, 

Great question and discussion! Here is what I would do personally - 

I would do the 15YR and not pay off early.  The 15YR option gives you the better interest rate for now and you would be able to pay down the loan balance a lot faster, meaning building equity faster.  The great part about this is that when rates drop (because they will), you can do a cash out refinance and lower your rate + take out cash for your first rental.   Imagine 24 months from now, getting a 4.99% (or less) on a 15YR and getting 25K (or more) out for your first rental property.

On a 30YR, you can save each month but you have to force yourself to save, and it's hard to stay disciplined with free cashflow.  The 15YR does not give you an out, because you are forced to make that payment, aka forced savings.  

In any situation, I would only be buying a property with a 2-1 Temporary Rate Buy-Down using seller concessions.   I am happy to give you more information about my personal circumstances, just DM me!