Establishing a LOC/Making Cash Offers - Posted by ODD

import · September 14, 2008, 9:40am

Posted by AmotoXracer on September 14, 2008 at 20:20:29:

Yes on the first question.
Yes on the second question.
If memory serves, you will have 45 days after the close of the sale of your first property to identify the properties you are willing to purchase. You then have 180 days to pick one and actually close on it. So this can mean you have up to 180 days to sell all five of your existing properties and roll the money into your purchse.
If you get serious about this, then obviously seek the correct advisors, escrow company ect…
The truth is you wouldnt really have to use the 1031. I just mentioned it because im sure you dont really want to give up a bunch of equity in the form of tax.

import · September 14, 2008, 9:40am

Posted by ODD on September 14, 2008 at 09:40:32:

My situation: My wife and I both work full-time and both make around $100K/yr, with my credit score being around 680 and hers around 720. I currently have 5 rental properties, each with roughly 15-20% equity. I had purchased my principal residence 3 years ago with an 80/20 loan, so I don’t have much equity there. One of my rentals was purchased with seller financing, the rest of them are conforming conventional mortgages in my name only (so that we could put new purchases in my wife’s name only when we hit the FNMA/FMAC max number of mortgages).

My goal is to continue with building up passive cashflow (and equity) to the point where we can replace my wife’s income and allow her to care for our daughter.

The last 3 rentals that I purchased were REO’s. I purchased them at a discount with conventional financing, rehabbed them, then refinanced to pull out my costs, and rented them with roughly $200/mo. positive cashflow each. This method has worked pretty well for my gameplan so far, but I am concerned with my ability to continue with this method due to the recent changes regarding conforming loans/cashout refi’s/seasoning requirements.

My ultimate goal is to have a line of credit available to me so that I can buy houses for cash, then refinance with a conventional mortgage after fixup is complete. This would save me the hassle (and cost) of having to go through the headache of conventional financing twice (on the purchase and then the refi), 2 appraisals, etc.

My question to the veterans out there is, what is the best way for me to get accomplish my goal (given that a HELOC likely won’t work with the small amout of equity in my principal residence). My understanding is that Fannie has now reduced the number of allowed mortgages to 4 from 10, and has tightened up the cash-out refi requirements to the point where my previous method likely won’t work.

I’ve considered writing a business plan to take to a smaller bank to see if they would give me a line of credit, but wanted to hear other suggestions before going through the time and effort of writing it and pitching it to banks, and dings on my FICO from them pulling my credit.

Sorry this is such a long message, but I want everyone to understand the full picture. Basically I want to be able to write cash offers, close quickly, and still be able to pull my costs back out through a refi if possible. Any suggestions?

Thanks in advance for your time.

import · September 16, 2008, 9:53am

Re: Establishing a LOC/Making Cash Offers - Posted by BigAl

Posted by BigAl on September 16, 2008 at 09:53:26:

Just establish a line of credit against the equity you have in your properties. That’s what I did.

import · September 15, 2008, 10:22am

Re: Establishing a LOC/Making Cash Offers - Posted by David Krulac

Posted by David Krulac on September 15, 2008 at 10:22:40:

your wife can have 4 mortgages and you can have 4 mortgages for a total of 8.

some banks have different rules, such as you can have 4 mortgages with THEM as long as none are more than $1 million.

other banks have portfolio loans that are not sold on the secondary market, therefore never get to FNMA/FHMAC

seller financing is always an option

ciommerical bank loans are not under FNMA/FHMAC.

second mortgages

private lenders

HML

import · September 15, 2008, 4:58am

Re: Establishing a LOC/Making Cash Offers - Posted by brandoncbsre

Posted by brandoncbsre on September 15, 2008 at 04:58:06:

Dont waste time doing 1031’s when in the end all you want is more rentals not less. It’s not worth the legal fees, closing costs and hassle.

Go to a small local bank and talk to the guy/gal doing commercial/business loans. There are NO silly limits as to how many you can have. They may even allow you to base the loan on ARV. So there would be no need to refinance when the rehab was complete.

Small banks havent been hit as hard by mortgage losses. I have a theory on this…they loan their own money, so they actually care whether the borrowers can repay it. They still need good places to invest their cash, if you show them you are a good investment for them they continue to loan to you.

Good Luck

import · September 14, 2008, 7:30pm

Re: Establishing a LOC/Making Cash Offers - Posted by AmotoXracer

Posted by AmotoXracer on September 14, 2008 at 19:30:43:

Heres a thought, and im not sure if it will work for you because of the limited info in your post, but you might want to think of selling your existing rentals if you actually have 15 to 20% equity. Utilize the 1031 exchange mechanism, buy another rental at a very low ltv (cause of the 1031 money) and then after you have it rented and the rest of the smoke clears, pull the LOC on that property. The truth is if your rentals are at 80% ltv, then by selling all of them and buying just one (or two) and having them paid off (or nearly so) then probably you will cashflow almost the same as long as the loc balance is at zero. Its sorta complicated, but if you really have equity in your existing portifolio, then its doable.

import · September 14, 2008, 7:57pm

Re: Establishing a LOC/Making Cash Offers - Posted by ODD

Posted by ODD on September 14, 2008 at 19:57:35:

That is an interesting approach- I will consider it. A question on the 1031 exchange… Am I correct in thinking that a 1031 has a limited amount of time from the sale of the property and that the equity must be rolled into a property of equal or greater value? If this is the case, then would it be possible to have the combined proceeds from the sale of 5 properties roll into the purchase of 1 new property?

Thanks for your reply- I appreciate any ideas.

Thanks,
Owen

import · September 15, 2008, 6:30pm

1031 Exchange - Posted by Rich-CA

Posted by Rich-CA on September 15, 2008 at 18:30:10:

You do not have to do a 1:1 on an exchange. I did 2 1:5 purchases and 1 1:3 purchase. The main thing is that the equity position cannot decline or its taxable. You have 45 days to identify the property (you can provide a list of potentials) but closing escrow within the 45 days is legal identification. I start looking as soon as the sale property goes on the market and start making offers when the sale property closes.

You have a total of 180 days to finish (that is NOT 45 days plus 180 days, its 180 days total).