All Forum Posts by: Nnabuenyi Anigbogu

@Frank Garcia The reason i ask that is that some porfolio lenders use a more common sense approach to underwriting and will consider businesses less than 2 years old if it is in the same field as where you previously worked. That way they know you are more likely to keep up the track record of making money.

Since that is not the case then you will have a VERY hard time finding someone to do a low downpayment loan. Any portfolio lender that takes a chance with you will require at minimum 20% down (probably over 30% given your risk level). At this point i would say start calling up small banks that might do portfolio loans and save up a significant downpayment. Wholesaling can help you build some capital.

If you are preapproved for an FHA single family home for 200K then that means you can probably get a 300K-400K multiunit with FHA depending on the rents. The reason for this is that you are allowed to count prospective rent from the building you are buying towards your mortgage.

(Keep in mind this is a simplistic calculation but it is basically how it works barring a few nuances)

i.e if your income is 50k and we assume you qualify for 4X  your income then you qualify for 50 x 4 = 200. (it takes into account other factors but keeping it simple)

If the multi unit gets 1k in rent per unit and is 4 units then the following happens
You live in one unit so its not counted. that means 3 units at 1K each = 3000
FHA uses 75% of rents to add to mortgage.
3000 x 75% = 2250 (this is added as income for qualifying purposes)

so looking at it simplistically you qualify for 50K (annual salary) + 27000( 2250x12 annual rental income) = 770000 x 4 = 308000

So you can buy a $308000 building. If rents are higher then this goes up and vise versa.

Another thing to keep in mind. Nothing stops you from buying a 2-4 unit and renting out rooms in whatever unit you live in (as long as its 2+ bedrooms). Since i assume you dont have a wife and kids, and you dont mind a roommate situation, if you find a nice duplex you can rent out one side and then rent out extra rooms on your side.You cant count the rent from your side towards the mortgage but it will be cash in pocket.

To answer this will require a bit more info. Is the business you started in the same industry that you previously had a job in?

The only way i can see you being able to do it will be to utilize portfolio lenders. I doubt any Fannie or Freddie lender would touch it due to the strict rules they follow.

@Kyle Gregg Yes the mortgagee can and is sometimes required to notify the insurance company. However they are doing it on behalf of the owner which is you. The bank only cares that the property they have as collateral for your loan is insured which is the case under the builders risk policy. 

It is ultimately your responsibility to ensure that the right coverage is present especially in relation to your personal property. You can try to make this case to the bank but i would be surprised if they pay you anything or admit fault. Even if you take it to court chances are there is something in your paperwork that probably protects them. It does not hurt to try though.

There is always risk but i don't believe it is anywhere as dire as what @Kevin Yeats detailed.

First of all in order for your HELOC lender to foreclose you will have to default on the loan. Given that most Heloc's are interest only for the first 5-10 years if you are in danger of defaulting then you should not be flipping in the first place. My heloc of 50K is costing me approximately $180 a month in interest. Even if my flip does not go well, that 180 a month is not going to cause me to default and i will have 10 years to pay it off before it switches into a fixed P & I loan (it helps that the HELOC in on an investment property and tenants pay the HELOC for me).

I personally think it is better to use the HELOC instead of a higher LTV lender. The HELOC is pretty much guaranteed to be the lowest interest loan you can get today (mine is 3.7%). You will have to pay the money back no matter what source of funds you use (lender or HELOC).

Also a partner is the most expensive option. It is a good option if you dont have the requisite experience though. However a 50/50 partner will cost you more money than a hard money lender. I recommend partnerships for those without the cash, experience or time. If i could get the cash from a HELOC and i had the deal, time and experience, i would do that instead of a partnership. (i am currently using a partner because i do not have time or enough experience. I do have the cash though)

HELOC used for flipping is a great idea in my opinion. I am currently combining a HELOC with hard money to conduct a flip. I have to do that because the prices here in Chicago are high enough in the good areas that my heloc would not provide me with enough cash to do it by myself.

As stated above make sure you start the process way i advance of when you expect to need it. HELOCS can take 3 weeks or can take 3 months depending on the bank. Im at 6 or 7 weeks with mine unfortunately due to underwriter delays.

@Jeremy W. Seems that you have gotten some good advice regarding the property.

First of all it doesnt meet the 1% rule which i believe is needed in Chicago if you want to be cashflow positive. 

Secondly as stated above the taxes seem too low. I own a four unit in Albnay park (cheaper are than LP) that i bouth for 500K. my taxes are almost 9000. For yours with a purchase of 870K i would think it will be easily over 12K after reassessed.

Third in chicago the water is usually not metered separately. That will easily add another 150-200 a month to your expenses. Also repairs and maintenance on a 100+ year old building will run you A LOT more than 275 a month not to talk about in a year.

Some quick calculation

with 870K purchase

PITI is approx 5892 a month (assuming 170k down/20%) so its 70K a year.

Your gross rental income is approx 70K

So you will cover only your Principal, interest, taxes and insurance with rental income. Everything else will come out of your own pocket.

including
CAPEX 5-10%
Maintanance 5-10%
Water
Shared Utilities (Gas/ Electric)
Vacancy (at $1600 a unit average rental this can hit hard even with one month)

ETC..... You will not be able to build a reserve fund without paying into if from your own funds due to using all your money for the PITI.

This is just a highlevel 5 min overview and i would say RUN...... This is a deal for an owner occupant that is just looking to subsidize living a bit but not for a real estate investor.

I am so tempted to apply for this using fake credentials to see what happens. If they dont do credit checks then how will they verify anything about the applicant. 

Its crazy what some people will try and its unfortunate that some people will fall for this.

You could get a commercial loan for whatever percentage of the buildings value that will allow you to pay back the hard money loan.

I.E. if you buy the building for 500K with 140K repairs then you are all in for 640K. Assuming you financed all the repairs and 10% down you will owe 50K+140K = 190K to the hard money lender. Since multiunit commercial loans are based on the buildings income you would have to ensure that the building is leased up prior to approaching a commercial lender. At that point as long as they value the building at or above what you owe you can essentially refinance up to 70% ltv or less and the refinance will pay of the HML.

Bill has a great point. The seasoning requirements can make or break a deal at times. The key is to line up the refinance at the same time you are working on the original purchase. It is best to find portfolio banks that have looser requirements than fannie and freddie

Another strategy i have seen on BP is to get a heloc on the property and then wait the required 6 months to a year then do a full refinance.