All Forum Posts by: Stephen Chittenden

Radian is one of the big mortgage insurance companies out there. You can get a PMI quote from them on their website. You can see exactly how it varies depending upon down payment size, credit quality, etc. Radian.biz

Did the same thing in 2009. Unfortunately, the property didn't cash flow. Some $70,000 in disallowed passive losses later, I can't wait to sell it. If not, it'll cash flow soon. The bleeding was greatly reduced by refinancing when rates fell. It'll be stemmed completely when the home equity loan is paid off. Your plan sounds solid, assuming the property cash flows. It's a great way to get into it. Fortunately, our other *planned* rentals have turned out much better.

You can deduct personal expenses on a vacation home for the portion that you use it on schedule A, subject to limits on mortgage interest deductions, and AMT. The portion of expenses for the time you rent it are deducted on Schedule E, up to the amount of rent you collect. That's assuming you use the home yourself for at least two weeks of the year.

What if you put $50k down on each of two houses and finance the other $50k? How do your returns look then? How about if you put $33k down on each of three and finance the balances? Now, don't forget that while your monthly cash flow will be hit by the mortgage costs, when you are done you'll own two/three houses that you paid only the down payment toward.

We use quickbooks with a customer for each unit and a class for each building. All reports can be run on a class basis, so you can see P&L by building, etc.

Originally posted by @Linda Gonzalez:

We are getting ready to buy three lots from our neighbor. Lots #3 & 5 are vacant lots with Lot4 sandwiched in between. Lot 4 has a cabin on it. Here's the sticky part-- my husband and I want only lots 3 & 5 (the vacant lots, each of which adjoin other properties we own). A family member wants to go in on the purchase of Lot4/cabin with us. We were originally was planning to present two separate Purchase Offers-- one for Lots 3&5, (being purchase by self & hubby) and a second Offer for Lot4/cabin (being purchase by self, hubby & sister). That way we would have separate HUD statements/closings and most importantly, the deeds would reflect hubby and I only on Lots3&5, and then hubby, me & sister on Lot4/cabin. BUT.... Seller now tells me she wants just one Offer for the whole thing and consequently only one closing/HUD statement for the whole thing. Her fear is that it will be easy for us to back out of one or the other Offers and thereby leaving her with only one or the other to sell. I assured her that wouldn't happen, and that we're willing to put it in writing for her. I suggested writing into the Offers that each offer is contingent upon the other, or something to that effect. We'ire hoping she agrees with this...

BUT... if we do indeed end up buying all three lots in one deal-- could we then have sister file a Quit Claim deed on Lots 3&5 (the vacant land)?  So that it ends up with her name only on the deed for Lot4/cabin?   OR... would it make more sense for hubby & I to buy all three as one whole package, and then add sister's name to the deed on Lot4/cabin?  Sister's money would be used to complete the purchase however it gets done.  

Any insights from anyone?  Thank you!!

 Are there any loans involved? If not, it should be easier.  Seems like you could also change the purchase agreements, so that both have to be completed simultaneously, then her worry about you backing out on one of them should be addressed.

@Zach Gordon One more thing. I spoke with TD Bank some time ago, and they indicated they would be able to do a line of credit on an investment property. I was asking about a triplex (not sure if that matters) that we own. I forget the details, but I think it was like 50 or 60% LTV on a commercial line of credit.

@Zach Gordon Just remembered another that we spoke with that were willing to lend on an LLC-owned investment property.

Columbia bank (5-year fixed, 20-year amortization, 5-6%, 75% LTV)

@Zach Gordon Contact MECU, if you are eligible to join (if you aren't you can become eligible by joining some group or something for a small fee). We were able to finance a SFH owned by an LLC through them. The LLC owned the home free-and-clear and had done substantial rehab. They used the current appraised value of the property and offered 75% LTV.

They follow the Fannie/Freddie underwriting generally, but wrote the loan as two of our LLC's four members as the borrowers and the LLC as the guarantor. Had to open a personal account and a business account with them, but they only required $5. Got a good rate on a 30-year fixed rate loan.

You can also try one of the big national lenders like Dwell Finance, but they will have higher interest rates.  They do still offer 30-year fixed rate loans at rates somewhat higher than what most banks offer 5- or 10-year balloon loans though.

Originally posted by @Dan G.:

Hello, 

My brother says he had a friend who used leverage to buy a bunch of houses, and after the housing market crashed in 2008, the banks demanded more cash from him due to the LTV being out of whack. He couldn't pay, so they foreclosed on the houses. Is this how it works? If so, what is it called when this happens? Does it have a name?

Thanks! 

Dan

 No, that's not how it works, at least not on residential mortgages.  I can't say that didn't happen, but I can say pretty confidently that is not WHY it happened.  A loan is a contract between you and the bank.  The bank agrees to give you $X toward the purchase of an asset worth $Y.  You agree to pay the bank interest for providing you the funds for the purchase, and to repay the bank on a set schedule.  To ensure that you pay the bank back, you agree to give the bank the right to take the asset you purchased and sell it to recoup their money only if you fail to live up to the terms of your agreement with the bank.  

Now if you are using a commercial loan, the bank may include certain warranties--which are promises you make to the bank about your financial situation. Big bank do this in big loans all the time. They require that you maintain EBITDA a certain multiple more than your debt. They could require minimum DTI. They could also require that you maintain collateral of at least X% of the outstanding balance of the loan. I don't think that is super common, but it is possible. If you don't satisfy these warranties, you are in breach of the loan, and the bank could foreclose. Before they do that, you would usually have an opportunity to cure the breach--such as by paying down the outstanding principal to a point that the warranty is satisfied.