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Super Contributor
returningson
Posts: 347
Registered: ‎02-24-2012
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Can I finance a rental property?

I am planning to return to the Bay Area in 2014.  I will sell my primary residence in the Wash DC area this summer and will net around $500 cash from it.  I also own a condo in Canada and have about another $500 equity in it after deducting the capital gains taxes from its sale but for tax reasons  I don't want to sell that in the same year I sell the primary residence.  

 

The condos I am looking are are in the $900,000 to $1 million range.  My concern is that if I wait until mid-2014 to buy a condo in San Francisco prices could be at least $100,000 higher by then - maybe more.  

 

One hedge against price inflation would be to buy a condo now and rent it out until I am ready to move into it.  I could put down about a 50% down payment, borrow the rest and the monthly rent would still cover the PITI plus HOV and a management fee.  Will I have a problem getting a loan based solely on the projected rental income?  

 

My Canadian condo produces about $12,000 in cash flow (profit before depreciation) but my income from other sources is relatively low, e.g., less than $100,000, and I will have to pay out something in rent until I sell the Canadian condo move into the SF condo.

 

Investors, got any advice?   And no, I am not interested in taking out a reverse mortgage!

Gold Trusted Contributor
Jil
Posts: 2,746
Registered: ‎10-24-2011
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Re: Can I finance a rental property?

[ Edited ]

Will I have a problem getting a loan based solely on the projected rental income? ==> It can be done, but bank will have their own rent appraisal and take 75% of their appraised amount for accounting.

 

Review this thread

http://forums.redfin.com/t5/Bay-Area/Would-I-be-eligible-to-buy-a-another-home/td-p/396887

 

CLTV must be 75%, overall DTI 40% MAX. consult a good lender to review the situation.

 

Regarding speculation, it is up to you to decide.

 

 

Platinum Super Contributor
buyinghouse
Posts: 5,877
Registered: ‎04-23-2011

Re: Can I finance a rental property?


returningson wrote:

I am planning to return to the Bay Area in 2014.  I will sell my primary residence in the Wash DC area this summer and will net around $500 cash from it.  I also own a condo in Canada and have about another $500 equity in it after deducting the capital gains taxes from its sale but for tax reasons  I don't want to sell that in the same year I sell the primary residence.  

 

The condos I am looking are are in the $900,000 to $1 million range.  My concern is that if I wait until mid-2014 to buy a condo in San Francisco prices could be at least $100,000 higher by then - maybe more.  

 

One hedge against price inflation would be to buy a condo now and rent it out until I am ready to move into it.  I could put down about a 50% down payment, borrow the rest and the monthly rent would still cover the PITI plus HOV and a management fee.  Will I have a problem getting a loan based solely on the projected rental income?  

 

My Canadian condo produces about $12,000 in cash flow (profit before depreciation) but my income from other sources is relatively low, e.g., less than $100,000, and I will have to pay out something in rent until I sell the Canadian condo move into the SF condo.

 

Investors, got any advice?   And no, I am not interested in taking out a reverse mortgage!



Psssttt..........What are you going to buy with $1,000 from the sale of your 2 properties?:smileyvery-happy:

 

   Yes, I am just kidding you! :smileyvery-happy:

Platinum Contributor
elt1
Posts: 4,171
Registered: ‎01-04-2010
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Re: Can I finance a rental property?

try hard money..50% down plus 1 or two points...8% interest,   Better than a reverse mortgage....Refi when you sell the other properties....ACM, Herzer, Eand F financial are all hard money lenders..

Super Contributor
returningson
Posts: 347
Registered: ‎02-24-2012
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Re: Can I finance a rental property?


elt1 wrote:

try hard money..50% down plus 1 or two points...8% interest,   Better than a reverse mortgage....Refi when you sell the other properties....ACM, Herzer, Eand F financial are all hard money lenders..


Eight percent interest is like a loan from the mob.  That would be my absolute last resort if I found a screaming deal on a property.  

 

But thanks for the input.  

Silver Regular Contributor
Michelle1x
Posts: 748
Registered: ‎02-17-2008
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Re: Can I finance a rental property?

I'm shocked that someone would need one of those hard money loans if they have 50% down ($500K) on a million dollar house.  Seriously?

 

In the 90s when lending was still pretty tight you could buy a house with almost no qualification IF you had 50% down.  Friends of mine where were consultants with non verifiable income from Europe did that.  This was before the securitization of mortgages so not exactly easy money.

Platinum Contributor
elt1
Posts: 4,171
Registered: ‎01-04-2010
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Re: Can I finance a rental property?

Thanks to all the government over regulation due to over reaction to sub prime, if you don't fit into th W2 box, loans are hard to get... Hard money lenders loan money at 8% for owner occupied 50% ltv and up to 11% on hard construction money.... Investing in hard money loans is a good way to get a higher rate of return.... The lack on stated income loans has created a business opportunity.

Gold Contributor
manch
Posts: 1,837
Registered: ‎05-18-2011
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Re: Can I finance a rental property?

Tangential topic: which investment is "better"? Hard money lending or buying liens. 

 

There are so many ways to define better thus the scary quotes: risks, returns, degree of hands-on, tax efficiency etc.

Super Contributor
returningson
Posts: 347
Registered: ‎02-24-2012
0

Re: Can I finance a rental property?


Michelle1x wrote:

I'm shocked that someone would need one of those hard money loans if they have 50% down ($500K) on a million dollar house.  Seriously?

 

In the 90s when lending was still pretty tight you could buy a house with almost no qualification IF you had 50% down.  Friends of mine where were consultants with non verifiable income from Europe did that.  This was before the securitization of mortgages so not exactly easy money.


That was true when I purchased my Canadian condo back in 2005.  No income verification was needed because I put down 40 percent and the monthly rent fully covered (although barely) the PITI, HOV and management fee.   My mortgage broker told me that the Bank of Montreal was very happy making the loan, which was a variable rate and a 6 year term (30 year fixed rate mortgages are rare in Canada).  

 

When I refinanced in 2011 the new lender, CIBC, wanted to see my income tax return even though the property was not producing substantial positive cash flow even without depreciation (which I did not take on my Canadian tax return).  Obviously times have changed - even in Canada which had not experienced the foreclosures that the US has.  

 

I have no doubt that I can finance ONE rental property, but two may be a stretch.  I hate to sell that Canadian Condo until I am sure I really want to permanently live in San Francisco.  

 

I know, the obvious answer is to rent a place in the interim but the rising prices in SF give me pause.  

Platinum Contributor
elt1
Posts: 4,171
Registered: ‎01-04-2010
0

Re: Can I finance a rental property?

Non owner occupied rentals cost at least 4.5-6 percent interest if you go to a bank( with a min. of 30-35% down).. It is another reason why their are so any cash buyers... Banks only want W-2 owner occupied buyers with 800 credit... Even then they will make getting a loan very tedious and painful... There is a huge demand for hard money...Hard money is cheaper than having to pay partners or setting up a REIT..To buy a non owner occupied rental without a rental history is very hard to do if you try to get a bank loan.  Most cash buyers are refi-ing existing property to get the cash for the next deal.