All Forum Posts by: Jon Holdman

For most mortgages having he value fall below the loan balance is not an issue as far as that loan.  It can be an issue if the loan has terms that allow the loan to be called or it has a balloon.

Lenders will look at your tax returns (if available) or use the 75% rule if not (i.e., "net rental income = 75%*rent - PITI") to determine the effect of rentals for qualifying for a new loan. So, even there the value doesn't really come into play.

It does hurt your net worth, and that is a factor for commercial loans.

Buying a house then renting it after a life change is usually not a problem. It can be a problem if you're buying with a program that has an explicit residency requirement. But if you get a conventional OO loan, and end up moving for a job change, usually renting the property is not a problem.

Buying with an OO loan with no intention of living there is a problem.

Selling on a lease option with the expectation your buyers will not buy the property is also a problem.   Lease options can be a reasonable way to buy.  Less so for selling because it violates the due on sale clause.  While its rare, lenders do sometimes call loans in situations like this.  If that happens, can you fix the problem?  That is, pay off the house or somehow raise money to deal with the call?  Because if you cannot and the bank forecloses and your buyers lose the house then the buyers will come after you.  You also want to be sure the terms are such that you can pay off your loan if the buyers do choose to exercise their options.

Lease options can be structured in very predatory ways.  For example, putting a lot of conditions on the option that a buyer can easily violate.  You keep their option money, kick them out, and repeat the cycle.  And I've listened to gurus describe doing exactly this.  Crap like that leads to more and more laws on regulations.  Don't be that guy.  If you sell with owner financing make sure you buyer can actually buy and assume they will.

If you're buying a property with an owner occupied loan (i.e., a "primary residence") you are expected to live in it.  Why the talk about renting it out right away?  Claiming a property is a primary residence, getting an owner occupied loan, and then renting it out is mortgage fraud.  Hopefully that's not what you mean.

You don't really "rent" a property with a lease option.   You're effectively selling it.  While there is a lease, the option transfers control of the property to the buyer.  If the property is mortgaged selling an option on it very likely violates the due-on-sale clause in your loan.

@Jeffrey Levy no, I don't definitively know why there is this seasoning period.  I think it is intended to give the bank some security about the value of the property and the ability of the borrower to repay the loan.

Again, tax assessments are useless for this purpose.  Forget about them.  The truly have zero meaning to you.

Fannie Mae guidelines won't apply because you're doing commercial loans to your LLC. You should speak with your banker about the maximum LTV and their criteria for using a new appraisal.

You must be careful with comps.  Its easy to look at 10 comps for a property, pick the best three and claim that's a value.  That's not what an appraiser will do.   Hopefully they choose middle of the pack comps, not the worst ones.  But you can't control that.  So you should be familiar with ALL possible comps and be careful to consider the lower end of the range when seeking financing.  An appraisal for a cash out refi will likely be lower than for a purchase money loan.

You're looking for commercial loans, and for those DSCR (debt service coverage ratio) is often a key metric. That is the NOI / P&I payment. NOI is your rent less all expense including taxes and insurance. Banks vary on what they want that to be. Maybe as low as about 1.2 but could be higher. Ask.

You're paying close to retail for these properties, even using your comp value.  For instance, $87K purchase plus $12K rehab puts you at $99K for a house that you think is worth $126K.  That's 78%.  Honestly, that's not bad.  With small loans like this, the loan costs will be higher on a percentage basis than a larger loan.  So refinancing at 75% of $126K with (guess) $3K of costs will get you $91K.  That's all of what you paid plus a bit of the rehab.  I don't see you doing much better with these deals.  The really low value ones will be difficult to get financed at all.  Banks just don't make enough on these tiny loans and really don't want to do them.

First, tax assessments have only a loose relationship to market value.  They're not useful in this context.

IDK what you mean by "AMV".  Actual Market Value?  What's the value of these properties?  $25K differences will be lost in the noise for a $500K property.  They're significant for a $100K property.  Without knowing the values you're talking about its hard to know if these $25K and $37K differences are significant or not.

Have a look at this . It shows the LTVs in various situations. For a cash out refi on an investment property you are looking at a maximum LTV of 75%. So, if you mean you paid $75K for a property that's worth $100K, put in $5K in repairs, then you should be able to get a cash out refi for $75K. There will be some costs, so you won't get back your entire initial investment. $5K in repairs seems unlikely to significantly increase the value.

The appraisal for a purchase money loan is really about assuring the lender there is enough value to justify your loan.  Its a better value than the tax assessment, but still just one opinion.  That said, be careful when you say "even thought you can see that is not in fact the actual value".  When you purchase a house, the price you pay very much IS the value of that property.  By making that purchase you are putting a stake in the ground for the value of the property.  There can be exceptions, but these are more the case when you're buying a really junky property and making significant improvements.

If I provide the appliance I maintain it, despite similar language in my lease.

If this land is here in the Seattle area you will also need to investigate soil conditions and geological hazards.  A soil and/or geotechnical report may be required as part of your plan submission.

Find the zoning code for the locale where the property is located.  That will give you specific information about setbacks, height limits and any other restrictions.  You also need to look at any recorded restrictions.  Some properties here have significant restrictions on them in order to avoid interfering with other houses views.  All of these factors will control what you can build.   A discussion with the planning and zoning department at the locale is also a good idea.  At some point you will have to deal with this department to get your plans approved.

@Kareem Rombley that comment was from the immediate aftermath of Hurricane Irma.  It was from reports of people who were there at that time.  Perhaps overstated because looters can certainly look a lot like an "armed gang".  Nevertheless the situation was bad enough for the Dutch army to send in troops to quell the situation, so its not like this was a minor incident.  Despite also taking a lot of damage I did not see reports of similar problems in Puerto Rico.  I'm sure the situation has improved now.  Its that period of chaos that concerns me.

We had a stop in Montego Bay Jamaica on a cruise and went to a beach.  I liked it, though some folks refuse to get off the ship there, including some of our travelling companions.  I've looked into going back there, especially Negril.  And I've looked at a couple of small hotels there.  But there are issues that hold me back.  The biggest one is the abysmal health care.  Everything I've read about healthcare in Jamaica comes down to "you go to a hospital to die".  I'm sure its not quite that bad, and not as if health care is great on other islands.  But its a big enough concern to keep me away.  The other big issue is crime.  Its one of the few places in the Caribbean that the state department advises against visiting.  And while the usual advice is crime is mostly directed against residents it does affect visitors, too.