All Forum Posts by: Mario Morales

I'm looking to pull equity from a property, but I have a great interest rate that I don't want to lose. My thought is to use a HELOC for the down payment on a new property (20% down), then once I acquire it, do a cash-out refinance to pay off the HELOC while keeping my original low rate intact. Does this strategy make sense, or am I overlooking any potential pitfalls?

what if he got a HELOC, used the funds to get a property, then cashout-refi the new property and pay off the heloc? as helocs go for around 10% and the new rate could be 7% on the cashout refi. Im not expert but Ive took out a heloc and dragged on going on my advise and it sucked

I've been using the MLS, but I like the idea of talking to neighbors to see if they're interested in selling—or at least getting on their radar. After completing a massive gut rehab, I'm now looking for minimal value-add opportunities. If I can find a property that just needs cosmetic updates, covers its expenses, and leaves a little extra, I'm interested. I buy and hold.

I've heard that you cant force a tenant, at least in chicago or the state on how to pay rent, as you have to accept cash as well if thats how they want to pay. Not sure but heard it somewhere

I went through the same thing with my first house hack. Turnover costs can be frustrating, but they’re worth it for the peace of mind that comes with having quality tenants—tenants who pay on time and don’t bring the daily stress of dealing with bad renters.

If you keep these tenants, they’ll likely cause more damage, knowing they can get away with it. In the long run, that will cost you more. It’s better to cut your losses now.

Hate the process of finding new tenants? Suck it up—that’s real estate. But if you put in the effort to find the best tenants possible, most of your problems will disappear.

Quote from @Riley Poppell:

Quote from @Mario Morales:

If you own a 2-flat with an additional non-conforming garden unit (basement) being rented, and you're considering a cash-out refinance, how will the lender evaluate the rental income? Specifically:

• Will the lender only consider the rental income from the two legally zoned units, even though all three rental incomes are declared on your tax return?
• Will they base their calculations solely on the income from the two legal units and disregard the non-conforming basement?

Additionally:

1. What is the current loan-to-value (LTV) ratio for rental properties?
2. If the property were owner-occupied, would I only receive credit for one rental unit's income, while the non-conforming basement income wouldn't count?

From my understanding, it might be more advantageous to refinance as a rental property at a lower LTV with income from two units, rather than as owner-occupied at a higher LTV with only one rental income considered. Does this make sense?

Hey Mario, I need a few questions answered before answering some your questions. Here are some answers though. Feel free to add me as a connection and follow up through message.

1. The collateral makes a difference.

2. When we order the appraisal everything will come up so it will need to be listed correctly or else the 1007 will come in low.
3. Appraiser will check the rent schedule and if there were any improvements done.

4. When you converted the 3rd unit and put it on your tax return was it done through the city?

5. If is 65% and below LTV you won't need to provide reserves.

1. Not sure what collateral means
2.What do you mean by "listed correctly" as in reporting the rental income on your taxes?
3.Rent schedule available, as well as lease and income reported to the IRS
4.Not sure by what you mean doing it through the city, are referring to rehab permits? 

Quote from @Erik Estrada:

Quote from @Mario Morales:

Quote from @Erik Estrada:

Hey Mario, 

I think you should first establish whether or not this is a non-owner occupied rental property or if this is just a primary residence refinance. This will avoid a lot of confusion. 

Next we will need to know if the non-conforming unit is legal. If not, you may not even be able to finance this on a conventional loan. Is the basement legally considered living space? If not, the income won't be considered. 

1. LTV would be determined by the type of loan. If it's a DSCR loan, you could get up to 80% LTV if the property qualifies. Conventional loans will require 12 months seasoning for cash out and are usually capped at 75% LTV

2. If it's an owner occupied loan, the underwriter will need to verify this is your primary residence. If you are attempting to use income for the non-conforming unit, they will need to verify that it can legally be used as a rental unit. Do you have any permits or anything to show you can rent it out? 

 So its not a legal unit or zoned as such, but rented. When the home was purchased, it was conventional loan and the basement had tenants. Are you saying that because of this unit, the building might not be able to be refinanced? Property has been owned for about 3 years now. 

 Most lenders will not consider the income from the basement if it's not a permitted to be used as living space. the appraiser will also note it on the report and the lender may not even be able to finance this, unless its a non-qm style lender. 

When I purchased the property, it had the basement with tenants but the rental income wasnt taken into account and it was just considered a two flat, as it had two units in addition to the basement. It was 20% down

Quote from @Erik Estrada:

Hey Mario, 

I think you should first establish whether or not this is a non-owner occupied rental property or if this is just a primary residence refinance. This will avoid a lot of confusion. 

Next we will need to know if the non-conforming unit is legal. If not, you may not even be able to finance this on a conventional loan. Is the basement legally considered living space? If not, the income won't be considered. 

1. LTV would be determined by the type of loan. If it's a DSCR loan, you could get up to 80% LTV if the property qualifies. Conventional loans will require 12 months seasoning for cash out and are usually capped at 75% LTV

2. If it's an owner occupied loan, the underwriter will need to verify this is your primary residence. If you are attempting to use income for the non-conforming unit, they will need to verify that it can legally be used as a rental unit. Do you have any permits or anything to show you can rent it out? 

 So its not a legal unit or zoned as such, but rented. When the home was purchased, it was conventional loan and the basement had tenants. Are you saying that because of this unit, the building might not be able to be refinanced? Property has been owned for about 3 years now. 

If you own a 2-flat with an additional non-conforming garden unit (basement) being rented, and you're considering a cash-out refinance, how will the lender evaluate the rental income? Specifically:

• Will the lender only consider the rental income from the two legally zoned units, even though all three rental incomes are declared on your tax return?
• Will they base their calculations solely on the income from the two legal units and disregard the non-conforming basement?

Additionally:

1. What is the current loan-to-value (LTV) ratio for rental properties?
2. If the property were owner-occupied, would I only receive credit for one rental unit's income, while the non-conforming basement income wouldn't count?

From my understanding, it might be more advantageous to refinance as a rental property at a lower LTV with income from two units, rather than as owner-occupied at a higher LTV with only one rental income considered. Does this make sense?