I own my primary residence and a rental home. I want to buy a few more rental homes. I like the buy and hold method because I am looking at cashing out down the road. I am newly self-employed with an 800 FICO, wife has been employed with same company for 7 years and has an 803 FICO. My son is employed with a 750 FICO and could be a co-signer if necessary. So here is my plan and I would love some feedback.
Buy Fannie Mae homes - They have good inventory here in the Tampa Bay area.
There are three homes I am looking at:
Fannie Mae asking $90K, comps are $160K
Fannie Mae asking $100K, comps at 160K
Fannie Mae asking $90K, comps at $140K
I would move into the home as my primary home and put my current primary residence up for rental. This allows me to only have to put 5% down, instead of 10%. The houses are in good shape, they need just a little work. I am very handy and would do the work myself.
Take out a HELOC on the Fannie Mae home. My current rental and primary residence don’t have enough equity to get a HELOC. So a couple of questions:
How much are the LTV requirements on HELOC’s for owner occupied?
How soon after I take ownership can I get a HELOC?
If I decided to buy the home and not occupy it, are there HELOC’s for
investors? If so, what is the LTV and how soon can you get a HELOC after
purchase?
Use the money from the HELOC to buy another Fannie Mae home. This would be a rental of course.
Get a HELOC on the rental, buy another Fannie Mae home - lather, rinse, repeat.
Any thoughts or guidance? Thanks, in advance, for your help.
First off, this is a creative real estate investing board…Im guessing most of us dont put up even 5 percent. Im closing on a package of 3 pretty nice duplexes here in NE Indiana for $250,000 with around 6-6.5k in cash to close it. That includes legal, title, and a couple months of insurance. So less than 3 percent in this case.
Make friends with Chris from FL on this board…read some of his stuff here before you buy. If you can use the seller or a private investor to finance your deals you may be better off. Find out what small local banks are working with investors in your area and get to know the lenders. The problem with what youre wanting to do is that you are going to run into a wall with financing that you wont hit as hard with a small bank or private financing.
Thought I would mention that while it’s true that this is a “creative investing site”, the point of all of this is to make money. And while I have done my share of creative deals using various creative techniques, I would say the best deals that I have made have generally come from buying with cash. Cash meaning either my own cash, because I could move quick and close quick. Next down the line might be either cash from a partner (because I would give up part of my deal either via interest or equity partnership) or from a bank loan where now I have to meet the bank criteria.
The problem I see with using the technique the original poster mentioned is probably going to revolve around the heloc’s. I’m no expert on helocs. But right now the lending industry is as tight as I have seen in my career. And therefore, I’m guessing that the combined debt of a first mortgage and the heloc might not be able to exceed 80-90%. Whether that is going to work out for you is going to depend alot on those market values…which I have a hunch you have overstated. You’d be wise to recheck those yourself based on recent comps in the area.
The next problem with the heloc idea is that there’s a good chance that the banks aren’t going to go along with your idea of buying, obtaining a new owner occupied mortgage, and then placing a new heloc, then moving on to the next deal. I doubt that is going to fly is today’s stricter lending climate, especially in regards to multiple helocs.
Finally, without knowing more, my guess is that your status as “newly self employed” may be a problem for the banks. They like to be able to verify, and in a newly self employed situation there isn’t going to be anything to be verified.
Nothing wrong with buying and holding. Nothing wrong with buying with a loan if the deal you’re buying is really at a substantial discount to market value. And in your case you and your wife have excellent credit, which is a distinct asset for you. But you’re going to hit the wall soon with this strategy.
If I were you, I’d take a good look perhaps at buying subject to where you take over an existing loan (read some of the how to articles), or perhaps lining up some private investors that would like to make a higher rate of interest on their money. You might also be able to eventually work yourself towards a line of credit on the commercial side of a smaller bank, but right now, everything is very tight, and one category that no one seems to want real bad is the real estate investor.