Real Estate Investment Guidelines Overview Buy and Hold rules. David Wright

Transcription

1 Real Estate Investment Guidelines Overview Buy and Hold rules

2 Financing Fannie Mae Residential (traditional fixed Rate mortgages terms can be from 8-30 years) Commercial (terms vary) Bank Portfolio Residential

3 Financing Maximum number of loans allowed: Fannie Mae Residential (10 financed residential properties) Commercial (depends on bank) Bank Portfolio Residential (depends on bank)

4 Financing TECHNIQUE: alternate loans to DOUBLE the number of financed properties Partner 1 Partner 2 Primary Res Primary Res Investment 1 Investment 2 Investment 3 Investment 4 Investment 5 Investment 6

5 When you own 1-4 financed Residential Properties Purchase Refinance no cash out Refinance cash out Delayed financing exception (this is a cash out option)

6 When you own 5-10 financed Residential Properties Purchase Refinance no cash out Delayed financing exception (this is a cash out option)

7 Purchase: Purchase and put money down Property 1-4 Property unit 20%+ down 25%+ down (80% LTV) (75% LTV) 2-4 unit 25%+ down 30%+ down (75% LTV) (70% LTV)

8 Question: Why can t we use the equity in a purchase? Why do we have to put money down off the sales price? Market Value = $160,000 Sales Price = $120,000 Equity Unused $40,000 20% down ($24,000) The equity has no value? 80% financed ($96,000) Basis of the loan

9 On a purchase, the lender must Use the sales price as the basis for the down payment (equity), Not the Market Value Because the sales price IS the market value FOR THE BUYER

10 What are at least two primary shortcomings to traditional Purchases? Keeping in mind that often the goal is to pick up distressed and/or properties at a bargain BECAUSE they need some work 1. Lots of cash out of pocket 2. Cannot buy properties with conditions that make them un-financeable (cash sales only)

11 Refinance No Cash Out: Pay off existing lien only NO SEASONING ON TITLE you can refinance the day after you buy it Property 1-4 Property unit 75% LTV 75% LTV 2-4 unit 75% LTV 70% LTV

12 Refinance Cash Out: Pull cash out for any purpose 6 month TITLE SEASONING you must be on title for 6 months before refinancing ** ** unless using the delayed financing exception Property 1-4 Property unit 75% LTV not allowed *** 2-4 unit 75% LTV not allowed *** *** unless using delayed financing exception

13 Delayed Financing Exception: You may pay cash or cash equivalent and refinance the entire purchase price back out of the property (Cash Out) if you do all of the following: 1. NO lien on the property at all after purchase 2. The refinance must close no later than 6 months from purchase date 3. Maximum loan amount is limited to actual purchase price + closing costs (not to exceed the loan to value limit) this means that any rehab costs are out of pocket 4. Arms length transaction NOTE: The funds used to pay cash CAN be a lien secured against another asset, but that lien must be paid off with the refinance

14 So we can t use the equity in a purchase But we can use the equity in a refinance Buy it for the $120,000 Refinance $120,000 Purchase Equity Unused $40,000 Refinance Equity Utilized $40,000 Market Value = $160,000 Sales Price = $120,000 20% down ($24,000) Basis of the Loan 80% financed ($96,000) 75% financed ($120,000) Basis of the Loan

15 So we can t use the equity in a purchase But we can use the equity in a refinance Buy it for the $120,000 Refinance $120,000 Buy it Then Refinance it Equity Utilized $40,000 Market Value = $160,000 Sales Price = $120,000 Private Loan 100% financed ($120,000) OR 75% financed ($120,000) Basis of the Loan Cash 0% financed