Investment Property Financing suggestions? - Posted by Kim W.

import · October 25, 2004, 11:32am

Posted by Rook on October 26, 2004 at 08:49:00:

To expand a little on what Matt said the reason lenders base their LTV on the purchase price is because who’s to say once you get your cash from a purchase you won’t just take the money and run. That is also the reason most lenders require PMI at higher LTV’s. The less equity you have in the property the easier it is to walk away from the loan. Your best bet would be to do what both Michael and Sam have suggested, which is refi after the purchase. Hope that helps clarify a little.

import · October 25, 2004, 11:32am

Posted by Kim W. on October 25, 2004 at 11:32:00:

My husband and I are extremely interested in three properties here in the Jacksonville, Florida area. This would be our first investment property venture. One is a duplex selling for $55k (will appraise for $75k) with $1100/month Section 8 income potential. The others are SF homes selling for $43k (appr at $67k) and $49k (appr at $70k) with about $600/month rent income potential.

We have a combined annual income of $121k with monthly debt of $2700. We have great credit with credit scores above 700.

We would like to finance as close as possible to appraised value with little money down - we have full intent to use the cash out to payoff some of our monthly debt, thereby increasing our cashflow to put toward the new mortgages. We have checked with our local credit union and they will only lend up to 80% of the purchase price.

Can someone offer some suggestions quickly? These properties will not last.

import · October 27, 2004, 4:21pm

Re: Investment Property Financing suggestions? - Posted by Amy

Posted by Amy on October 27, 2004 at 16:21:50:

Hi Kim,

As everyone has mentioned, lenders WILL NOT use the appraised value for your PURCHASE. However, as I have shown you in the spreadsheets that I made for you, you can purchase the properties with 100% financing and 3% seller’s contributions, and then refinance for 85% of the appraised value. After all of the loan costs, and potentially prepayment penalties, you are still netting some cash. If you have questions about the numbers, email me at ach325@yahoo.com.

Amy Cheng
Mortgage Consultant

import · October 26, 2004, 9:24am

Plan C - Posted by TrailerParkTrump

Posted by TrailerParkTrump on October 26, 2004 at 09:24:55:

As you mentioned, this is your first foray into real estate investment. Rental properties should be able to exist independently of your income (ie, you shouldn’t have to feed them). Let’s use the duplex as an example. This duplex has the income POTENTIAL of $1100/month, so I have to assume that the duplex isn’t fully rented or is rented for less than $1100 month. How long will it take you to bring the rents up to market rates or fill the vacancies? How long will you have to feed this alligator until you can turn it into a cash cow? If you take all of your equity out, you’re only making the problem worse, you’re turning your pet gator into a Florida man-eater.

This is what I would suggest, and it’s probably worth exactly what you paid for it…Buy the duplex, don’t cash out. Get to know the business, get your systems solid (screening tenants, showing properties, maintenence guys, business banking acct, you probably don’t need a separate legal entity at this point w/ 1 property (some will disagree with this), but this would be a consideration in the future, what to do about dead beats, late rent, pets, deposits, etc, etc)

As you are learning the business and enjoying the positive cash flow from your new duplex, pay off that debt! Get focused, you have become financially flabbly, it’s time to shape up! I know you realize it, that’s why you’re anxious to pay off the debt by cashing out. Borrowing money to pay off debt is heading in the wrong direction. If you want to get out of your property later, it’s going to be tough to not have to pay to walk away. You need a well thought out budget, a debt reduction plan, and the hardest part, the dicipline to keep at it.

Again, this is just my $.02.

import · October 25, 2004, 4:54pm

Re: Investment Property Financing suggestions? - Posted by Sam

Posted by Sam on October 25, 2004 at 16:54:38:

I work for a mortgage company in Washington. You’re not going to get over 100% financing on a non-owner occupied property. However, you can get 100% financing because you guys seem like a strong borrower. I’m not sure what the market is like in Florida but if those properties are fixers you can always do a rehab and then refinance it with the new appraised value. Any questions feel free to email me.

import · October 25, 2004, 2:02pm

Re: Investment Property Financing suggestions? - Posted by Michael Rice

Posted by Michael Rice on October 25, 2004 at 14:02:09:

we can do 90% possibly 95% but it won’t go by the value. It goes by sales price. You would have to buy them then do cash out refi to get $$$ out.

import · October 26, 2004, 12:25pm

Re: Plan C - Posted by Kim W.

Posted by Kim W. on October 26, 2004 at 12:25:43:

Thanks for your comments. The duplex is not currently rented; it is being rehabbed. Section 8 FMR says I could charge $732/month for each unit. There is such a waiting period here in Jacksonville that the local HUD office is no longer accepting applications for housing assistance. As to how long it will take to fill the vacancies, I don’t think anyone can say for sure.

Based on your feedback, I’ve re-thought things a bit. Considering buying the duplex for 90% appr value and the other property (FMR is $918) for 80% appr value, giving me enough $$ to pay off two closed-end debts (that I currently cannot deduct from taxes) and still have equity in each property. Does this sound better?

import · October 25, 2004, 10:29pm

Re: Investment Property Financing suggestions? - Posted by Kim W.

Posted by Kim W. on October 25, 2004 at 22:29:03:

Sam, thanks for the reply. I am not trying to get more than 100%. What I’d like to do is get 100% financing of the APPRAISED value - these homes are not fixer-uppers; will be ready for move-in by renters.

I guess I don’t understand why you could refi for 100% of appraised value when you cannot originally purchase for that amount? What is the difference? Thanks again!

import · October 25, 2004, 10:30pm

Re: Investment Property Financing suggestions? - Posted by Kim W.

Posted by Kim W. on October 25, 2004 at 22:30:39:

Michael, same question to you as I posed to Sam. If I can do a cash-out refi, why can’t I just to the cash out when I originally purchase the property? What is the difference? Thanks for your help!!

import · October 26, 2004, 1:10am

Re: Investment Property Financing suggestions? - Posted by Matt

Posted by Matt on October 26, 2004 at 01:10:57:

Because on purchases, lenders base LTV off “the lesser of the price or appraised value”. Most, but not all, lenders will also want to wait a year since purchase to take cash out on the appraised value. However, there are no seasoning programs which could allow you to cash out right away.

Matt