All Forum Posts by: Sasha Mohammed

Hi @Albert Aitov,

For starters, i would recommend reaching out to a mortgage broker. Specifically one that specializes in investor-focused lending. You'll spend a lot of time (sounds like you may have already) spinning your wheels in trying to find the right lender, whereas a solid broker can pair you up with the right fit right away and get your project moving. Yes, there are added costs to this, but what is your time and energy worth?

There are plenty of lenders out there that do fix and flip/ rehab lending. 100% on acquisition and 100% on rehab is unlikely, but 80%/100% is totally do-able, and potentially even 90%/100% - all without even looking at your personal income. 

Hope this was helpful, 

not enough info. what type of development projects are you trying to do?

personally im not a fan of sub2 (unpopular opinion on BP, sorry ab it). most don't understand what they're getting into with sub2 and thats where it becomes problematic. 

Assuming since you're asking, you're not interested in some sort of traditional financing? is it the down payment you're trying to avoid? 

if it MUST be something creative, you could just simply to seller financing, or a rent-to-own situation. My best recommendation, though, is to have a lawyer structure the contract, and make sure you are put on title. < this is where most people get hung up. title is like the pink slip to the house. if you're not on title, you don't own anything. 

best of luck!

yes 100% financing is likely not going to happen. i say likely because I'm sure there is someone out there somewhere who would willing to take this on, but certainly not going to be an easy find. 

ground-up construction is more challenging as well, as you will need to evidence your experience w/ previous ground-up construction deals where you are on title. this is how lenders feel warm and fuzzy about lending you so far above and beyond the existing land value before anything is built on it. 

Fix and flip and ground-up lending, though, WILL give you acquisition money PLUS rehab/ build money! as an example, lets say a lender gave you an 80% loan to buy the land PLUS 100% of the cost to build the property on it in the form of draws... theoretically you'd be walking away with MORE than 100% financing. its just done in a round about way, and you would still need to bring in some "skin" as @Brandon Croucier mentioned. 

*disclaimer* i'm not saying you could get those specific terms, its purely for example purposes.

effectively, you'd either need to look for a lender that would let you use the other property as collateral (cross) so that you can avoid actually taking the cash-out (this is rare in terms of institutional DSCR lenders, but fairly common in the hard money or private money space)... OR you'd have to do 2 separate transactions and incur 2 sets of closing costs/ transactional costs.

i dont think its a bad play, a lot of people leverage one to help them expand to the next. another challenge you will have, though, is pulling something small like $50k out. most lenders rn have a $100k min. you might be able to find less but then fees/ points will be a little excessive. 

im in Orange County CA and there is a huge market here for room by room rentals here. i've been doing this for quite some time (over a decade now), and it certainly has its pro's and cons. 

my advice if you go about this is make sure you do proper vetting before moving someone in... not only for financials/ credit-worthiness, but also for temperament and expectations in a co-living space. 

we ask a lot of questions like "how do you handle conflict?" "what is your experience living with room mates?" "what does your M-F schedule look like" "how do you decompress at the end of a long day?" in a vast interview process with many steps before allowing someone to move in. a new roomie is an everyone-decision, not a landlord-only decision; if you're expecting people to co-exist in a space together (for longer than just a few months), you have to make sure they all have some things in common, or at minimum have the right expectations in terms of cleanliness and routine habits.

someone working the night shift and someone else having a 5am rise-time, or someone who works from home in a call-center job is not going to jive well for example. and someone who doesnt handle conflict well is not going to jive with someone who is brutally honest and up front about issues. 

happy to go into more deets on how we do things if it will help. this can certainly be lucrative in terms of cash flow, but there are huge mud puddles i have stepped in over the years which i have had to learn to navigate.

sounds like a good deal. a couple things of note to hopefully help: 

SFR w/ ADU is fantastic, you don't want this to be a triplex on paper. do your DD here, and make sure those ADU's are properly permitted as such.

if you intend to live in the property you will have to qualify w/ some type of ATR rules (income/ Ability to Repay). This doesn't mean you're stuck to conventional/ FHA, although those will give you the best terms (lowest down and best rates). there are NonQM options you could look into as well.

DSCR is a great option if you do not intend to live in it. DSCR will not allow for owner-occupancy, and also will require much larger down payments. BUT you can skip the income piece, as "qualifying" will be based on rents received, not your personal income.

this one doesn't look to have the equity to do it, even if the outcome would give you lower payments overall. 

if the construction is complete on the property where the construction loan was taken out on, i would look to refi that one asap into something long term (30 fixed). that should get you somewhere likely in the 7's and 8's in today's market. hopefully lower once the project is done. 

 are they two separate loans on the same property? or two separate loans on 2 separate properties?

you're correct on the boarder income for primary residence, but if it's an investment property, there is 2 ways you can classify the rents on your taxes. or rather, your CPA will, depending on how you're doing it. 

From my understanding, if its passive income, just a room-by-room rental, it would go on your schedule E just like any other rental. if its active, like a short term rental situation or mid-term, something like an airbnb or bed and breakfast where you're actively including extras, it would be filed on a schedule C. disclaimer, im not a tax person, so double check this with your tax pro. 

when you go to qualify for your next purchase, whether that's for primary or inv., using a full-doc loan... if its schedule C, you would need to do a 2 year average of this income in order to use it. its looked at as a business, and self employment income. if its schedule E, theoretically you could use the schedule E income calculations just like any other rental even after the first filing. HOWEVER, be prepared that an u/w may find the numbers higher than usual for the area and may scrutinize this further. if there is indication this is room-by-room, it likely will be a no-go, and you could end up being hit for the expense of the property without any income to help offset it on your DTI.

When that time comes, i would suggest getting one lease from all the tenants in there so the whole home is leased to all of them instead of trying to produce multiple leases for the property.