All Forum Posts by: Kevin Romines

You can get what is known as Delayed Financing which allows to recover your purchase price and all closing costs on the deal through a Fannie Mae refinance within 6 months. I believe you must have paid cash on the deal or have no mortgage on the property. I have attached the guidelines. The only other alternative for conventional financing is wait out the 6 months then do a cash out refinance to 75% of the appraised value. Be prepared to document the purchase and all improvements and costs as you may need to justify this even though you are going off the 75% of the appraised value. See below:

Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the disbursement date of the new mortgage loan) are eligible for a cash-out refinance if all of the following requirements are met.

@Caleb Heimsoth If you are just now setting up the entity, I would seriously consider setting up a Sub S versus an LLC so that when you get to 10 financed properties, you can move properties over to the Sub S and move them to portfolio or commercial lending and not have the properties count in the 10 financed property rule by Fannie Mae.

This then allows you to keep buying more properties in your personal name, using Fannie Mae financing which will give you the best terms. You would hold them there as long as you can, then eventually move them to be held by the Sub S with commercial or portfolio financing.

The other issue your going to run into, is that you can not get conventional financing on any properties that you hold in an entity. You must hold them in your personal name to get the financing, so beings your going to go through a transition at some point with the properties, you might as well set your self up in advance such that it gives you the most and best benefits. 

See below from the reference guide for FNMA multiple financed properties. If they own 25% or more of the LLC or partnership then it would count.

Type of Property Ownership to include in Financed Property Count:

 Joint ownership of residential real estate. (This is considered to be the same as total ownership of an individual property).

Note: Other properties owned or financed jointly by the borrower and co-borrower are only counted once.

 Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner

of the corporation; however, the financing is in the name of the borrower.

 Obligation on a mortgage debt for a residential property (regardless of whether or not the borrower is an owner of the property).

 Ownership of property that is held in the name of a limited liability company (LLC) or partnership where the borrower(s) have

an individual or combined ownership in the LLC or partnership of 25% or more, regardless of the entity (or borrower) that is the

obligor on the mortgage.

 Ownership of a property that is held in the name of an LLC or partnership where the borrower(s) have an individual or combined

ownership in the LLC or partnership of less than 25% and the financing is in the name of the borrower.

 Ownership of a manufactured home and the land on which it is situated that is titled as real property

Type of Property Ownership NOT to include in Financed Property Count:

 Ownership of commercial real estate.

 Ownership of a multifamily property consisting of more than four dwelling units.

 Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner

of the corporation and the financing is in the name of the corporation or S-corporation.

 Ownership in a timeshare.

 Ownership of a vacant (residential) lot.

 Ownership of a property that is held in the name of an LLC or partnership where the borrower(s) have an individual or combined

ownership in the LLC or partnership of less than 25% and the financing is in the name of the LLC or partnership.

 Ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home).

@Kevin Graham here are the actual Fannie Mae guidelines. You cant do the same things with an LLC as you can with A Sub S or C corp.

See below from the reference guide for FNMA multiple financed properties. If they own 25% or more of the LLC or partnership then it would count.

Type of Property Ownership to include in Financed Property Count:

 Joint ownership of residential real estate. (This is considered to be the same as total ownership of an individual property).

Note: Other properties owned or financed jointly by the borrower and co-borrower are only counted once.

 Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner

of the corporation; however, the financing is in the name of the borrower.

 Obligation on a mortgage debt for a residential property (regardless of whether or not the borrower is an owner of the property).

 Ownership of property that is held in the name of a limited liability company (LLC) or partnership where the borrower(s) have

an individual or combined ownership in the LLC or partnership of 25% or more, regardless of the entity (or borrower) that is the

obligor on the mortgage.

 Ownership of a property that is held in the name of an LLC or partnership where the borrower(s) have an individual or combined

ownership in the LLC or partnership of less than 25% and the financing is in the name of the borrower.

 Ownership of a manufactured home and the land on which it is situated that is titled as real property

Type of Property Ownership NOT to include in Financed Property Count:

 Ownership of commercial real estate.

 Ownership of a multifamily property consisting of more than four dwelling units.

 Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner

of the corporation and the financing is in the name of the corporation or S-corporation.

 Ownership in a timeshare.

 Ownership of a vacant (residential) lot.

 Ownership of a property that is held in the name of an LLC or partnership where the borrower(s) have an individual or combined

ownership in the LLC or partnership of less than 25% and the financing is in the name of the LLC or partnership.

 Ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home).

I'm not sure if this would interest you, but there is another way to get where you want to go, just a little quicker? You could buy as an owner occupied 1-4 unit with as little as 3.5% down using an FHA mortgage. You occupy one of the 2-4 units for a min. of one year, then rinse and repeat and go buy another 1-4 unit as owner occupied. You would rent out your current residence or sell it? When you move out of the 1st 1-4 unit, you then can rent out the unit you were living in. This is house hacking as @Brandon Turner has mentioned many times. You can use this technique until you get to 10 financed properties. Keep in mind that a 1-4 unit only counts as 1 financed property. 

When you get to 10 financed properties, you have different options. There is no limit on the numbers of financed properties if your buying a new owner occupied property and will turn your existing owner occupied property into a rental. 

If your buying a rental and have maxed out at 10 properties, you can open a Sub S and move a property or two into the Sub S and get portfolio or commercial financing on those and then they wont count in the 10 financed property rule, so you could buy your next rentals via financing available through Fannie Mae. Rinse and repeat and buy as many properties as you want to buy!!!

If you establish a Sub S or C -Corp and move 1 or more properties into the corp, then get the loans in the name of the corp. even if you have to personally guarantee the loans, Fannie Mae will not count those loans into the 10 financed property rule. 

Therefore if your bumping up against the 10 financed properties rule, move some of your conventional financed properties to a commercial / portfolio type loan in the Sub S and then you have effectively cleared that spot for conventional financing. It can be some work, but it can be worthwhile to get the best rates and terms. This is a tool you should use to continue growing your portfolio. 

See below from the reference guide for FNMA multiple financed properties. If they own 25% or more of the LLC or partnership then it would count.

Type of Property Ownership to include in Financed Property Count:

 Joint ownership of residential real estate. (This is considered to be the same as total ownership of an individual property).

Note: Other properties owned or financed jointly by the borrower and co-borrower are only counted once.

 Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner

of the corporation; however, the financing is in the name of the borrower.

 Obligation on a mortgage debt for a residential property (regardless of whether or not the borrower is an owner of the property).

 Ownership of property that is held in the name of a limited liability company (LLC) or partnership where the borrower(s) have

an individual or combined ownership in the LLC or partnership of 25% or more, regardless of the entity (or borrower) that is the

obligor on the mortgage.

 Ownership of a property that is held in the name of an LLC or partnership where the borrower(s) have an individual or combined

ownership in the LLC or partnership of less than 25% and the financing is in the name of the borrower.

 Ownership of a manufactured home and the land on which it is situated that is titled as real property

Type of Property Ownership NOT to include in Financed Property Count:

 Ownership of commercial real estate.

 Ownership of a multifamily property consisting of more than four dwelling units.

 Joint or total ownership of a property that is held in the name of a corporation or S-corporation, even if the borrower is the owner

of the corporation and the financing is in the name of the corporation or S-corporation.

 Ownership in a timeshare.

 Ownership of a vacant (residential) lot.

 Ownership of a property that is held in the name of an LLC or partnership where the borrower(s) have an individual or combined

ownership in the LLC or partnership of less than 25% and the financing is in the name of the LLC or partnership.

 Ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home).

Guild has what is called a Delayed Financing Program for the first 6 months of ownership. That means that if you paid cash for the home and you can document the cash transaction, you can refinance and get the cash you paid for the home back out, however, not any of the rehab costs. 

Or if you wait until you have 6 months seasoning, you can then use 75% of the appraised value as a max. cash out, to pull the purchase and rehab costs back out of the deal. Be prepared to document the purchase and rehab costs and the sources of your cash. 

I have posed the question to our senior underwriting staff regarding if a customer of ours moves the property into an LLC after we closed a loan, would this trigger the due on sale clause? Guild services 80% of all the loans we make, which is fairly unusual in the industry. The underwriters said they felt that it wouldn't?

HOWEVER, A HUGE WORD OF CAUTION, all loans these days have the verbiage in their loan documents addressing the due on sale clause. Its up to each individual lender as to if they would accelerate the mortgage upon finding out that the title had been transferred for other than estate planning purposes? The lenders typically find out because the insurance policy changes and shows an entity or another persons name versus the person the loan was originally made to. 

Keep in mind, I ran that by my underwriting staff, I didn't call our servicing dept. who might have a different opinion?  And if we are not the lender who ends up servicing the loan, then that issue would be best addressed by whoever is servicing the loan?

I would not recommend doing these on a subject 2. I would only consider a purchase where the seller gets cashed out at closing. Due to the Washington State laws, you are running big risks as a subject 2? I would advise that you go to the links of this law and read it carefully, further, I would get the advice of an experienced attorney that specializes in real estate and foreclosures, regarding these matters. To much at risk to just wing it on these. 

@Boe Bishop You wont have to wait to get your cash back out of it. There are programs out there that will get your cash back out of the home immediately when your done. All with conventional rates, so time of ownership is not an issue. You will need to have a solid paper trail of the purchase and rehab costs, so keep theses records. 

What is an issue is getting conventional financing when the home is in the LLC's name. To get a conventional loan, you will need to hold the property in your personal name. Basically what your wanting to do is the BRRRR strategy. I highly recommend it as a way to build your wealth!!!

As a previous insurance agent for both Country Financial and Farmers, I think its very important to know a few specific things about the company you plan to do business with? You must be insured correctly and for the correct amounts. To do this, an agent must know the rough value of all your assets and must also take into account how much income you make annually and at minimum how long until retirement. A person can and will be sued for an injury judgment that exceeds their coverage's. The judgement will not go away until its paid off. BK is not an option here, so having the proper coverage is critical. 

How many houses do you own now and how many do you plan to own? Some of the insurance companies will cut you off at 4 houses? Will your company cover what is considered a dangerous breed of dog? If not, what happens if your tenant, against your rules and wishes brings home one of these dogs and it injures someone? Can you be sued, will you be liable? 

Did you know that if the neighbors dog comes onto your property and bites one of your guests, your homeowners can be made to pay the claim? Crazy, but it has happened in the past!!!

Not that its a plug, but Farmers is very investor friendly, allow up to 20 insured homes. They also own Foremost and Foremost has no limit on the number of homes they will insure. They will also insure the homes as residential versus commercial even when they are held in an entity. Most wont do that. 

Do the research, get with a quality agent that takes the time to understand where your at today, where your going and how to get you properly covered without limiting your growth. 

Just my two cents!!!

Okay @Account Closed I think we both have book ended the pit falls of Washington states laws. Let the those out there read the actual laws and apply them for themselves. 

Although as I clearly pointed out, it is equity skimming when you are putting the home owner / seller back into the home. Not when you are merely purchasing the property and the seller is moving on with no interest from that point forward. However, Ken you have pointed out that you could be at risk if a fair market value inst paid for the home. 

Fair market doesn't mean what the judge determines as value, it means what the market will bear for the sale of that home within the time frame that it needs to be sold. Keep in mind, the 1st indication of market value is what someone is willing to sell for and what another person is willing to buy it for. Comps of like type properties within a 1/2 mile radius that have sold within the last 3-6 months and adjusted out for differences in amenities and condition, location, help complete the value picture. 

What is funny is, if you had 10 appraisers and 10 realtors all value a home, they would be all over the board with valuations. Who is correct, who is wrong? Its subjective, based on available data and how each person applies that data. It will always be that way. 

I do agree with you that extreme caution needs to be used here, because why would you want to cause yourself undue stress and money just to complete a deal. 

That said, below is the law of unintended consequences by our legislators in their zest to protect the public. 

 (11) "In danger of foreclosure" means any of the following:

(a) The homeowner has defaulted on the mortgage and, under the terms of the mortgage, the mortgagee has the right to accelerate full payment of the mortgage and repossess, sell, or cause to be sold, the property;

(b) The homeowner is at least thirty days delinquent on any loan that is secured by the property; or

According to the law, you as a buyer could be at risk if you bought any home that was even 30 days late on the mortgage, weather you knew it or not? How many sellers will volunteer to give you an up to date statement of their mortgage account as part of a sale? They would also need to do so early enough in the transaction to allow you to cancel? Scared now, or does common sense come into play? If taken by that standard, a very large percentage of all sales could fall into that category?