All Forum Posts by: Sasha Mohammed

effectively, you'd either need to look for a lender that would let you use the other property as collateral (cross) so that you can avoid actually taking the cash-out (this is rare in terms of institutional DSCR lenders, but fairly common in the hard money or private money space)... OR you'd have to do 2 separate transactions and incur 2 sets of closing costs/ transactional costs.

i dont think its a bad play, a lot of people leverage one to help them expand to the next. another challenge you will have, though, is pulling something small like $50k out. most lenders rn have a $100k min. you might be able to find less but then fees/ points will be a little excessive. 

im in Orange County CA and there is a huge market here for room by room rentals here. i've been doing this for quite some time (over a decade now), and it certainly has its pro's and cons. 

my advice if you go about this is make sure you do proper vetting before moving someone in... not only for financials/ credit-worthiness, but also for temperament and expectations in a co-living space. 

we ask a lot of questions like "how do you handle conflict?" "what is your experience living with room mates?" "what does your M-F schedule look like" "how do you decompress at the end of a long day?" in a vast interview process with many steps before allowing someone to move in. a new roomie is an everyone-decision, not a landlord-only decision; if you're expecting people to co-exist in a space together (for longer than just a few months), you have to make sure they all have some things in common, or at minimum have the right expectations in terms of cleanliness and routine habits.

someone working the night shift and someone else having a 5am rise-time, or someone who works from home in a call-center job is not going to jive well for example. and someone who doesnt handle conflict well is not going to jive with someone who is brutally honest and up front about issues. 

happy to go into more deets on how we do things if it will help. this can certainly be lucrative in terms of cash flow, but there are huge mud puddles i have stepped in over the years which i have had to learn to navigate.

sounds like a good deal. a couple things of note to hopefully help: 

SFR w/ ADU is fantastic, you don't want this to be a triplex on paper. do your DD here, and make sure those ADU's are properly permitted as such.

if you intend to live in the property you will have to qualify w/ some type of ATR rules (income/ Ability to Repay). This doesn't mean you're stuck to conventional/ FHA, although those will give you the best terms (lowest down and best rates). there are NonQM options you could look into as well.

DSCR is a great option if you do not intend to live in it. DSCR will not allow for owner-occupancy, and also will require much larger down payments. BUT you can skip the income piece, as "qualifying" will be based on rents received, not your personal income.

this one doesn't look to have the equity to do it, even if the outcome would give you lower payments overall. 

if the construction is complete on the property where the construction loan was taken out on, i would look to refi that one asap into something long term (30 fixed). that should get you somewhere likely in the 7's and 8's in today's market. hopefully lower once the project is done. 

 are they two separate loans on the same property? or two separate loans on 2 separate properties?

you're correct on the boarder income for primary residence, but if it's an investment property, there is 2 ways you can classify the rents on your taxes. or rather, your CPA will, depending on how you're doing it. 

From my understanding, if its passive income, just a room-by-room rental, it would go on your schedule E just like any other rental. if its active, like a short term rental situation or mid-term, something like an airbnb or bed and breakfast where you're actively including extras, it would be filed on a schedule C. disclaimer, im not a tax person, so double check this with your tax pro. 

when you go to qualify for your next purchase, whether that's for primary or inv., using a full-doc loan... if its schedule C, you would need to do a 2 year average of this income in order to use it. its looked at as a business, and self employment income. if its schedule E, theoretically you could use the schedule E income calculations just like any other rental even after the first filing. HOWEVER, be prepared that an u/w may find the numbers higher than usual for the area and may scrutinize this further. if there is indication this is room-by-room, it likely will be a no-go, and you could end up being hit for the expense of the property without any income to help offset it on your DTI.

When that time comes, i would suggest getting one lease from all the tenants in there so the whole home is leased to all of them instead of trying to produce multiple leases for the property. 

gotta just do the maths, are both of these loans on the same property?

I dont think you have enough equity to refi and consolidate the two. combining them puts you at over 96% LTV. cash-out will likely max you at 75% LTV of the $450k, so raising your rate on the bulk of the debt probably is not the move if you still have to bring in $100k to do so.

is your 2nd going to balloon soon? is it IO payments?

if ballooning, i would try a bank or CU who can do a standalone 2nd for you to pay off that $155k only... but something 30 year amortization. 

if its on another property, then... different conversation.

I 2nd a CU. 

Most lenders will want a $75k or even $100k+ minimum, which you need to draw that portion and keep it for a few months before you can pay it back. its also much more challenging to get one on an investment property than it would be your primary residence if that is an option. HELOCs especially. 

check with your local bank/ CU before exploring guys like Rocket. I'm pretty sure they only do HELOANs (not HELOCs) on a 20 year am, not a 30 year. Couldn't speak to Lending Tree's options, but i tend to refer HELOCs and small-balance HELOANs to banks / credit unions just to have some flexibility.

Hi @Brandon Jensen

i think your best bet while you "get back on your feet" is to have someone else in your partnership be the guarantor for the loan. 

when it comes to fix and flip lending, your LLC will take title to the property. Everyone within that LLC theoretically is the "owner" of the property. However, not all of you need to take on the DEBT portion. That's where the "guarantor" comes in.

Talk to a few F&F lenders about % of ownership requirements to be the guarantor, and if there's a % of ownership which REQUIRES you to be a guarantor on the loan. 

you can avoid this headache by being strategic as to how the loan (and the LLC) is structured while you wait for your scores to improve again.

i'll just add to what others have said - it's negotiable. but I would consider if the juice is worth the squeeze. 

i just had this conversation with a client looking to borrow $100k. For him, he intends to keep the loan long term anyway, but the differential between a 5 year PPP and a 3 year PPP was .25% to rate. 

On a "small" loan amount like his, he found it more beneficial to pay the extra .25% to rate to get the 3 year PPP. reason: it added only $17 per month to his payment every month; a small price to pay to open the door for refi or sale 2 years sooner. 

On a larger loan size, this gap could be a substantial hit to your cash-flow. On a transaction with tight margins (barely debt-covering), this could be the difference between getting it done and not. 

Just some food for thought as you're going through the motions :) it is absolutely negotiable, before you close the loan.