All Forum Posts by: Zach Wain

100% agree with Nicholas. Some markets are cash flow positive for STR's, but you need experience and a great realtor and team around you.

The cheapest money and least amount down is a Primary SFR purchase, live in it for 1 year, and then rent it out. If you can buy in area that will be great for STR, that is a win.

You can buy a new primary home every 12 months and rent the old one out, and you only need 3%-5% down depending on the scenario (Jumbo requires more down).

@Anne-Marie Singer - When looking at DSCR loans and getting generic rate quotes, I think it is 100% crucial to ask how long is the prepayment penalty and what are the origination fees!

A 5 yr Pre payment penalty with massive origination fees for a low rate is most likely not a good deal. DSCR loans have lower rates with long prepayment penalties, so the rate can sound more appealing but the rest of the deal can be detrimental.

Always ask that if you are considering DSCR! Conventional will usually have a better combo of rates/fees with No prepayment compared to DSCR

@Marcus Auerbach - 100%.  I can definitely feel the difference in the forums over the past few years.  Definitely ebbs and flows depending on buyer/investor sentiment.

If you are getting a conventional (full doc) loan, the delta in rate between primary homes and rental homes varies depending on the downpayment amount.  Long term and short term rentals are priced the same on conventional.  These numbers will change daily, but it gives you a ballpark idea

15% down, 1%-1.25% higher rate and high PMI

20% down, 0.75% higher in rate

25% down, 0.5% higher in rate

30% down, 0.375% higher in rate

If you are talking about DSCR loans, that is an entirely different animal with different pricing options and prepayment penalties to consider. Jumbo rates will look different as well.

@Anthony Jimenez - Jason made some great points.  Seller credits (or your realtor commission as a credit) to have closing costs paid for you or using them for a temporary rate buydown are different tools you can use depending on your short term financial goals. 

An example of a temporary rate buy down is a 2-1.  If you get a 6% 30 yr fixed loan with a 2-1 buydown, the first year your mortgage payment is based on 4% (2% lower than the base rate), and the second year it would be 5%.  6% in years 3-30.  The seller or realtor credits basically subsidize the difference in interest for those first 2 years.

Offering a fast closing is a great negotiating tool as well!

Being pre approved for a 2-4 unit property can be tricky, because VA will allow us to use 75% of the proposed long term rents from the other units towards your income. The more units the more income we can count, which means you can get pre approved for a larger loan size on a 3 or 4 unit. You need a little extra reserves for a multi unit as well.

The other catch, VA wants to know you have experience renting properties or being a property manager to be able to use rental income from the other units. That is an important item!

If your goal is add as many doors as possible, a 2-4 unit home is a great option.  But, see how the supply looks of 2-4 units homes available.

@Kwanza P. - Almost any residential loan (conventional, FHA, VA, Jumbo) can close in a revocable (Living) Trust. We do this all the time! DSCR loans typically require you to vest title in a LLC, but some of our lenders allow us to close in your personal name, revocable Trust, or LLC.

@Eimen Ung - Commercial loans will not count towards your "financed Property" count.  Keep in mind, the Fannie Mae 10 financed property rule only counts when you are buying a second or rental home, you can still buy a new primary even if you have 10 financed properties.

Here is the exact Fannie Mae guideline regarding commercial properties -  

"The following property types are not subject to these limitations, even if the borrower is personally obligated on a mortgage on the property:

• commercial real estate,
• multifamily property consisting of more than four units,
• ownership in a timeshare,
• ownership of a vacant lot (residential or commercial), or
• ownership of a manufactured home on a leasehold estate not titled as real property (chattel lien on the home)."

@James Holmes - it has been a few years since ARM's were competitive. When the yield curve is inverted (2 yr treasury rates are higher then a 10 yr treasury bond) that usually means ARM's will not be priced better then 30 yr fixed loans. The yield curve has recently uninverted, so ARM's are starting to make a comeback. But, I think we need a little more time before they are available and attractive.

FHA ARM's are priced well at the moment, some Jumbo products as well.

Generally speaking, an ARM needs to fit your personal timeline for when you want to refinance or sell, and of course it must offer you some benefit with a lower rate compared to a 30 yr fixed.

@Scott Miller - How many units are you looking at for your initial purchase - 2-4, 5-16, or larger complexes?

2-4 unit homes will be easy, you can purchase those with DSCR loans and get competitive rates across the board.

5-16 can be done with DSCR loans, but you will need to shop a little more to find a lender that is priced well

Larger complexes you will need to do some loan shopping as well, and lenders will be a little pickier 

@Linda Weygant 100% what Patrick said.  But out of curiosity I asked a few of my lenders and one of them said they would accept that version of IRS confirmation for a conventional loan, as long the borrowers name was listed (in the blacked out area I assume).  Is it possible to use this, yes?  But many lenders will not for all the reasons Patrick listed.