All Forum Posts by: Kevin Romines

@Jim Costa I have  a solution to the Fannie Mae 10 financed property rule. If followed, you can have many any more then 10 financed properties and Fannie Mae will gladly give you the loans. 

I would use the 20K as a down payment on an FHA loan to buy a 2-4 unit property. Negotiate that the seller pays your closing costs, so that the full amount of the 20K can be used for the down payment if it is needed? You will live in one unit as owner occupied for a min. of 1 year before you can rent that unit out, and then you will collect rents on the other units. With 20K, you will be able to get a purchase of up to $571,428.00 or $571,428 X 3.5% = 20,000.

So go shopping to see if you can get a decent 1-4 unit at that price range or lower. Look to see what the rents are that are coming in off that property? The more rents, the more potential cash flow. Do a cash flow analysis on the property using the BP calculators. If you find a decent property, put it under contract and close on it as an owner occupied FHA purchase. Use the cash flow to build a nice nest egg to rinse and repeat down the road to another property. Keep building you portfolio that way.

Eventually you have enough passive income coming in that you can choose to keep working or live off part of your cash flows and invest the rest?

@Brent Coombs I agree with you Brent. I tend to be conservative and try to mitigate the risks as much as possible. I guess that's my previous back ground as an insurance agent talking, lol. 

For me, I wouldn't be opposed to going down the path of planning a 1 year refinance, but I would want to see my borrower planning on forcing appreciation by doing a bit of a rehab or an addition possibly. Also because I have wholesaled many times in the past, its not hard to see when someone is buying at distressed prices, so if the equity position looked to be there at the time of the purchase, or close to there, then I could see myself helping a client structure a deal in that way at that point. 

But to hope that values will come up without some mechanism to help force the value up, is not a wise position to take. 

Why hold the properties that your wanting to get Fannie Mae financing terms on, in an LLC for the protection of the shell of the LLC? LLC's and other entities can be easily pierced by any competent attorney who is dead set on getting to you and your personal assets. Heck, just co-mingle personal funds and business funds, even one time and it can be pierced? Then where is your protection? Don't get me wrong, if they are handled correctly, it is an added layer of protection, but what exactly are you protecting from what circumstance?

If you want to get Fannie Mae financing and not have a due on sale clause violation and the potential for the lender to call the note due, you must hold the properties in your personal name. If you hold the properties in your personal name, you can get Fannie Mae financing up to 10 financed properties unless you know more advanced techniques to go beyond 10. I do know the ways to structure things such that Fannie Mae will gladly give you more then 10 financed loans. 

The real issue here is protection. I'll take off my loan officer hat and dig into my previous background as an insurance agent to answer the question. To protect yourself, you should set your liability to the highest amount allowed on the landlord policy. Typically this is 500K to 1,000,000 worth of liability protection. I would also follow it up with an umbrella policy for between 1-6 million dollars. The nice thing about liability protection is that they also pay all defense costs associated with a claim against you. Anybody that has been around that litigious world knows that defense costs can be huge at times. The insurance company will pay separate defense costs on your primary policy up to the point where they have paid out the max. liability on that policy. Then the defense cost on the umbrella kick in. There is no limit on what an insurance company will pay, except they will settle if they deem it to expensive to defend. Either way your costs are covered. 

In the end, I'm not saying not to put the properties in an entity.  However, I think more careful consideration needs to paid attention to what your trying to accomplish in all areas, why your trying to accomplish the goals, a careful analysis of all the risks involved and that will help lead you to the best overall path.   

@Dave S. By what you described, it sounds like a home equity loan would be the best scenario for you, however getting a HELOC on a rental can be difficult. They are out there, but very few and far between for the higher CLTV or combined loan to value ratios. If you cant find one that works for you, you will be looking at a traditional non-owner occupied cash out refi to access the cash. I would suggest you look at credit unions for the HELOC your looking for.

What Zack was referring to on the lender credit was a credit toward closing costs. So if you were planning on putting 3.5% down payment and then also paying your closing costs, you might be better off taking a high enough rate to get the lender to cover all your closing costs and instead of using part of your money to cover closing costs, you now have enough money to put 5.5 - 7% down on the loan. This reduces your payoff, increases your equity position and makes it easier to hit the equity position you will need to hit at the time of the refinance. 

And because you had the loan for such a short period of time before you refinanced it, you have a lower balance with a little higher monthly payment. So in the end, you put more of your money to use correctly versus into closing costs. Its all about planning and executing the plan. 

@Raheem Forsythe Delayed financing is a loan that you can use in the 1st 6 months of ownership to get typically 75% of the appraised value, up to 100% of what you paid cash for the property plus closing costs on the refinance. So if you paid $375,000 for the property and it appraised at 500K you would get a loan amount of $375,000 if it appraised for more than 500K you would get the purchase price of $375,000 plus closing costs as a maximum loan amount. 

The property can not have any type of mortgage or lien against it at the time of closing the delayed financing loan. Once you have been in title to the property 6 months and 1 day, then you can do a standard Fannie Mae cash out refinance that doesn't have restrictions of having had to pay cash for the property. So you can have a loan against the property and the cash out will just pay off that underlying loan and the rest will be disbursed as cash back to you, on the standard Fannie Mae cash out.

I just completed a delayed financing for one of my borrowers a couple of months ago, it was an owner occupied and so I was able to go up to 80% LTV. Its a great loan if you cant wait the 6 months to get to the standard cash out guidelines.

Ill take you up on that offer. Give me a call or email me and we can schedule a time to talk. 

@Eric E. You would to roll it over to a SDRIRA or self directed Roth IRA, or maybe its just a ROTH IRA?

@Chris Chase One thing that no one is talking about that needs to be considered and the calculations need to be run to determine if this would be a make sense deal is......If you took the money and converted it to a self Directed ROTH IRA. Yes you would pay today the ordinary income taxes and the 10% penalty, but you would be putting that money to use in real estate and once you have held that account open for 5 years or more and you have reached the age of 59 1/2, then all distributions from there are tax free. That means your basis and gains distributions are all tax free.

The things that will determine how well the numbers come out would be your timeline before reaching age 59 1/2 or the point at a later age of your choosing, where you would withdrawal the money? How much in gains the account made on the real estate investments. The tax bracket your in now, versus the tax bracket you will be in at retirement age? Keep in mind that we are at one of the lowest overall taxation levels we have been at in history. 

As few years ago as 1981 the highest tax bracket was 70%, today its 39.5%. That coupled with an ever speedy growth of our national debt at 20 Trillion now and growing fast, what is the likelihood that the tax brackets at the time of your retirement will be higher then now? I'd say, pretty darn good!!!  So would it make sense to pay the price now, to have all future money with no taxes? Years to build gains, none of which you would pay any taxes on? I think its worth doing the calculations on to see where it lands? But that's just me!!!