Mortgage lending questions for 2020 w/ Graham Parham


Unknown Speaker 0:00
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Unknown Speaker 0:34
This is a story about a dude named Lane he moved to the mainland and bought one place to stay. And then one day he went to try to rent them out. And then he became one real investor me this evening wanting to impart on the fool is a lending officer. Can I close? In an LLC? Can I want to own a rental property in an LLC? The answer is yes

Unknown Speaker 0:57
and no. So I want to get a two hats here. One as a as a lender, one is an investor as a lender, Fannie Mae and Freddie Mac does not allow to fund the loan inside an LLC Limited Partnership escrow anything other than your individual name, and or a trust. authorized or what I personally do 99% of my clientele does in about $1 every time I had this conversation, I have a lot of money but the fact of the matter is, typically what will happen is will fund the loan in your individual name. My about three to four months because at that point, we’re delivering the loan out into the Fannie Mae community. The people that are purchasing these loans are going to go through and do a due diligence, underwrite the loan again, wait for the dust to settle, wait for the servicer to get a couple of invoices, send it on your bill. Then take your deed of trust and your LLC documents and send them over to your attorney and or an escrow officer and Alan retirement. Now of course you don’t want to pick up the phone All the servers are going to say, hey, guess what I’m doing today because they’re going to read a story of Sam. Yeah, we may have to call us know do. Typically Fannie Mae and Freddie Mac has a due on sale clause, which means that if you transfer the title of anything other than what’s on the promissory note, the servicer has the line to call the No dude. I’ve been doing this 20 years once again, I have never seen a noticable do. So that’s just what I do. I’m not giving professional advice, but it is a little bit of a work around. If people want to have the asset protection, they can still do it. Through the Fannie Mae and Freddie Mac loan

Unknown Speaker 2:36
system. I would be a lot more afraid of getting sued than worried about this supposedly due on sale clause happening 10 to one and I’m also a lot more worried about getting hit by the bus to with that can I know people are getting a little tricky here. Can I close and I trust some of these guys use these Land Trust know the answers. Yes.

Unknown Speaker 2:59
We can close and a remarkable trust. I highly encourage you to upfront when we’re going through the pre approval process to send me a copy of that dress because sometimes the verbiage the way some attorneys will draw it up. The Fannie Mae may not like the way it’s drawn up but I’ve seen probably less than 1% of trust that we get that we turn down or it’s not acceptable by Fannie Mae. So yes, Family Living Trust we can do we do not do Land Trust and the beneficiaries have to be human beings not LLCs some of the investors out there will do it that way.

Unknown Speaker 3:40
Yeah, some of these guys they want to pick up some multiple rental properties because each rental properties just a few hundred bucks, nothing to quit the day job over but what if they want to pick up you know, three, four or five six houses at once? That all network

Unknown Speaker 3:56
it’s not a problem what we do typically once we get the application will look at Like a particular property we normally plug in. So yeah, 150 sales price is kind of a sweet spot for most operators around the country. And if we can approve you, for one, we can approve you pretend, because are all income properties, they all have income, they’re talking to each other, which means they’re offsetting the liabilities associated to the properties, in addition to you’re gaining more income, you know, per deal. So it’s not a problem we do for all the time.

Unknown Speaker 4:30
Just following up, but kind of on the last question here, someone had a question just so we just transfer the trust beneficiary to the LLC after closing, that the best practice

Unknown Speaker 4:43
if you so choose to go that route you can. Another way of looking at it is and this is how I personally have mine set up. And a lot of people you know, disagree or agree. I have each one of my property set up with their own LLC, but I actually have my family trust. Owning all the LLC, I do that not only for asset protection, but I do it for probate reasons. But if you want to transfer from you and trust into an LLC host flows, once again, you know, we have no control over that

Unknown Speaker 5:13
segue into some of the lending requirements and you know how to qualify how do we get qualified? Graham First you need income, right? Where’s the funding options for folks with self employed or no, no w two income?

Unknown Speaker 5:28
Well, I mean, W income is not a must.

Unknown Speaker 5:32
Self Employed is just as good as w two, we take a look at the net net income. Obviously people that are self employed, they want to do everything they can to write off as much as they can for tax limitations. But we do take the net net number so if you know your land 31 as you’re on it, chances are we’re not going to be able to help you because we do do the fully documented loans. Most of the investors that we work with they have very strong and GM very strong credit and very strong assets. Typically solve a problem. So I mean, all I gotta say is, let me take a look at your 1040 tax returns for the last two years. Let me see what kind of incomes associated to it. And then we’re good. Another question

Unknown Speaker 6:12
here is the limit of 10 Fannie Mae Freddie Mac loans still the same What’s that? What’s the maximums here?

Unknown Speaker 6:21
Yeah it’s still there it you know people every now and then will call me Hey, I heard a rumor it’s going to go up and I’ve been hearing that rumor since Moby was a minnow so it’s probably not going to change of course you know, back in Oh, wait. Whoa Fannie Freddie knee jerk from 10 down before and then fenny Amelie followed back up to 10. And eventually if any are Freddie Mac can I create themselves back up to Tim and that is the limit. A lot of times husbands and wives were trying to maximize their their loans. Well, they’ll do you know husband will do the wife and do 10 as long as they both qualify, they can do it that route. And they like the husband does 10 they can still do the wife entirely. So that’s a good thing that recently changed, right used to say, if you own a wonderful family property, and it has a leverage against it, it’s counted against you. So that’s not a way so that’s a good thing. So the husband can do 10 the wife can do 10 you know, post loads if you were to go the LLC, if you just want to put this file song on the title, they go that route.

Unknown Speaker 7:22
And if somebody has some commercial loans, non Fannie Mae, Freddie Mac, do those count against the 10 fanime, Freddie Mac.

Unknown Speaker 7:33
commercial loan is separated by froggies. Okay, any one to four family loan that has leverage that you personally are the guarantor of counts against you. As an example if you have an apartment complex 99% of the time the apartment lenders or the commercial lenders are going to require you to put it into an LLC in a very high percentage of the time. It’s non recourse. Okay. So we do not count those against you. Only the wonderful we had a guy the other day, he decided to put six properties into one commercial loan and thinking that he can accomplish what we’re discussing now and kind of wipe it off the plane so he can still row. Well, the problem is that the lender still had him as the guarantor, the note on a non recourse commercial loan, the individuals not a guarantor, the note the LLC is

Unknown Speaker 8:29
that makes sense.

Unknown Speaker 8:30
Got it. So that loan, guarantor, that’s the trigger

Unknown Speaker 8:34
besakih in a wonderful category is there you know, guarantor of a apartment complex, we don’t count that against because it’s not a one to four family, which is considered so you know, residential and you.

Unknown Speaker 8:47
Alright, so I got another question here. And if your network is under $500,000, or you make less than $400,000 a year, put your earmuffs on because this does not apply to you and just confuse you. Even more. But going back to the whole w two income thing. Say you’re using conservation easements to deduct your some active income via some passive losses or some charitable donations with a conservation easement. Does that affect your AGI? to getting that loan? Does that take into account? I’m not sure I understand about

Unknown Speaker 9:23
the easy part.

Unknown Speaker 9:24
So some of these guys, what they do is it’s like this little trick, this tricky loophole that’s used by the rich where they’ll go and they’ll buy a conservation easement to get a big deduction off their taxes. The question is, have you ever seen this people do it or do not even cares is you’re just looking at the AGI or what is the lender looking at the qualify

Unknown Speaker 9:45
really comes down to the 10 40,000 terms, okay? Because there’s several different schedules that are within the 1040 tax returns. If we see that you’re making these tasks and actions, as you say, which will ultimately affect your AGI. Yeah, that can come back to her she almost inductions. The people that come in come, rarely do I see or rarely.

Unknown Speaker 10:11
Yeah, I mean, they they are what they’re probably doing is they’re probably bringing it down to 100 $200,000 of AGI at that point. And that’s probably more than enough to get specific here. When a bot when a lender looks at a profile, are they looking at the AGI? Are they looking at top line revenue? Or?

Unknown Speaker 10:32
No it’s not? No, it isn’t. That will take into account all schedules. If you hit schedule, you write a bunch of write a bunch awful schedule you that can come back to haunt you. But yeah, once again, it’s all math. And again, that’s just my turn. I’m fine. But I mean, like this guy tonight, I was talking to him and his wife were doing a huge exchange about a million dollar change and they want they want maximize their lending ability. So you want to do 10, the white one and do 10 he made about 200,000 a year, the wife made only about 50. Well, the primary residence payment of their house in California was close to $5,000 for that Crusher, or she was doing it by yourself, which again is all math. So we’ll move on to what is today’s date is November 20 2019. And I say that because these lending terms will change from time to time. What What is the current debt to income ratio that the lenders are looking for and the credit score, and then what are some other and those will vary depending on the lender? When we have the Dodd Frank release in 210. Everybody says nobody saw we’re going to solve it. 45 other lenders said we’ll go and do exactly what the D you funding said D findings is the desktop underwriting engine that’s used by Fannie Mae, what all lenders We’ll do the collect the data, they’ll put it into our loan origination program, they upload the data into the deal engine in the sky, and we get a response back immediately. And a lot of times those red debt to income ratios can exceed the 45. Right now, our maximum is 50, over 50, you know, 5101. Now, we can’t do it right at 49. And some change will do it all day. But that’s what we do as a lender. A lot of lenders have their own flavor for risk, and will say, No, we really want to solve 45. So, yeah, it just, it just depends on the lender. And you had another question here

Unknown Speaker 12:35
was how do you calculate the debt to income?

Unknown Speaker 12:38
We take whatever the gross monthly income is, and take it whatever their monthly debt is, from the credit report, the primary reasons excite expense and we just it’s simple math, okay. And then there’s our front end ratio on the back end ratio. The friendly ratio is just calorie counting the primary residence payment into the income and then the back end right. She was counting that, in addition to, you know, her famous suitor loans, whatever total debt, and they come up with a number via the division and comes up with a percentage. And once again 50 esoterically the backend for us.

Unknown Speaker 13:13
Okay, so it’s one or the other, then either the front or back end epi calculation,

Unknown Speaker 13:20
typically the back end is the most important,

Unknown Speaker 13:22
how are we sitting in terms of credit score, what is the minimum that people need and once again that

Unknown Speaker 13:27
and that’ll vary as well. Depending on the lender, I see lender, some little shop six at some don’t go below 700 on the majority of around 646 60 will go down to 620. Okay, that’s where the threshold is, and where’s like

Unknown Speaker 13:44
the best rate at

Unknown Speaker 13:46
740 or higher. And the way that rates work and a lot of people don’t understand this is work categories that make up rate. There’s obviously credit score, the percentage of downpayment loan amount and property type. So as an example, if you got a 740 credit score or higher and you’re doing a single family, let’s just say the race today is probably on a 20% out somewhere in the upper floors, the 25% down is going to be somewhere in the mid fours, okay? Whether the interest rates are determined by the FICA scores, and those are separated by 2027 42 727 22 700 once you follow that 700 the adjustments really start to get aggressive. That’s when you know I’m starting to have let’s just say pain points so we try not to charge

Unknown Speaker 14:39
so 740 is really what you really want to try and get Oh, yeah, any more than that is, you know, squeezing too much lemon juice out of the lemon, big thing. So so if you guys haven’t caught on to this little other website, it’s creating simple passive cash slash trade lines, but I’ve been renting out my credit to run them other people. And they pay me a commission for that. But you can use something like that you can go out as an authorized user, just someone who has a really forward account, and you can possibly boost your credit score a little bit to get you above that 727 to 40, wherever that magical score card you’re looking. But that’s, that’s something that I see a lot of other people doing not not warranting that it works, but other people are doing it. So I thought I’d mention it. So next question here. Do I need prior landlord history to apply for Fannie Mae Freddie Mac loan?

Unknown Speaker 15:41
It’s a great question probably before the bus, the answer was yes, they like to see at least two years. And one of their credit means is what are we going to give you back on the property as far as the income the way it is today. We will give you Sunday. 5% of one of the properties been leased for or what the average market rent analysis will be from the appraisal typically are about the same, okay? years ago and you say okay, you had had two years land or said we couldn’t give you credit. Now, although come December the seventh, it’s changed just a little bit like it used to be before and this is kind of hope I don’t lose anybody. Let’s try to put it into simple math. Let’s say you have $100,000 property, and you were not. And then the way it simulates in the new guidelines, doesn’t matter. My landlord matters. Do you have a mortgage? Have you been paying a mortgage? A lot of guys that I know that you know, live in Hawaii, West Coast, they can’t afford their primary residence because the prices are ridiculous. So they’re renting, okay. So it’s really for these kind of individuals that were renting. We have no mortgage history. They’re coming to buy their first investment property. Well, how we address those can be super south, according to Fannie Mae That, let’s say you buy $100,000 house, you’re doing a 1% rule, you’re getting $1,000 rent. So we’re going to give you 75%. Now we’re coming into $750. Jackie letting your principal and interest tax and insurance, you’re now at $650. So when the 7500 or $750, you’re $100 ahead with having mortgage exchange will give you $100. with not having mortgage experience, we will not give you the hundred dollars, but we will offset the debt. That makes sense.

Unknown Speaker 17:34
Right. Go back to the last question. Which cycles are we using either the three years at an average

Unknown Speaker 17:42
we will alter egos and we use the middle score, whichever the middle score is for all three. game winning and these guys are out there freezing their credit, make sure you unreason before you get to us

Unknown Speaker 17:54
down payment amount. mentioned 20 25% What is your Take on, which to go with

Unknown Speaker 18:03
is a personal preference. The way I look at it is there’s a lot of people that are starting out and they want to grow their portfolio as quickly as possible, you’re going to get a better rate with a 25%. I personally go with the 25%. But let’s just say was referenced individually and described a moment ago, guys a bunch of money makes for years, there’s a strong chance that he’s got quite a bit of money in the in the bank, that doing the 25% is not going to faze him whatsoever. But then again, there’s other individuals that are you know, they may have 100,000, they want to build three, four hours out really quick. They may want to spread that out. 20% down. Okay. So I highly agree and I asked him that question, I mean, we get a better rate, because you take that 5% and go get another property with that made more sense for you and let them make that decision. But the down payment form is right now or 20% for single families all the way up to 10 in the two to four years duplex to four Plex 25%

Unknown Speaker 19:02
okay, right, all this other FHA stuff, that’s all this VA stuff, that’s all for owner occupied properties.

Unknown Speaker 19:10
Now we can do 15%. But we have to get the PMI on top of that the rate, there’s a rate adjustment. And I can certainly send anybody a copy of mine guy that kind of shows an example. It’s just not worth it on paper, you know, 15%, stay the extra 20% avoid PMI.

Unknown Speaker 19:29
Yeah. And I’ll chime in on that whole discussion of, you know how much down payment you want to put down. I sophistic investors don’t really pay attention to the interest rate too much. That’s a secondary thing. They they’re not going to pay or sunk down an extra 5% just to pay an extra quarter. Again, it’s when you put down less use use your return on investment, of course, that can be dangerous, right. So you have to go into deals that cash flow, so you have adequate buffer. So what is would use to do is just 20% and make sure that the deals cash flow

Unknown Speaker 20:06
that’s what it’s all about

Unknown Speaker 20:08
that that PMI? So I mean, we’re not we’re not flipping

Unknown Speaker 20:11
and we’re not doing, you know, trying to gain appreciation, we’re trying to get cash

Unknown Speaker 20:16
flow. Right. So how does the closing process work if you know guys out in Hawaii or California or soul has nothing can’t buy anything that cash flows out there, but they’re buying out of state, right? I mean, is this all done online? How does the like walk us through the process? I mean, demystify this for us. Well,

Unknown Speaker 20:39
people that are a little nervous at first, okay, and quite frankly, when I jumped in and did my own rental property back 15 years ago, I was a little bit nervous myself. Once you stick your toe in the water and get one on your belt, trust me, it’s real easy after that. What we do in everything can be done online. The only thing that cannot be done online is closing documents which has to require mobile notaries are mobile you know by the way it works is we gather all the information from the over the internet. You fill out the application online will send you a list of items that we need to validate your earnings and assets like tax returns bank statements. Once we get a set, it takes about a day and a half to get credit approved. But you back in your court lane you at that point, send them out to an affiliate. Once they find a property and secure a contract. The property is appraisal ready, we you know, close within 21 to 30 days. So once we’re ready to close, we coordinate those efforts with the escrow title company to have a mobile notary come to the borrower’s place of business, home hours, weekends, whatever is convenient for them. The mobile notary shows up they signed the papers they’ll take the documents with them and overnight it back to the escrow company. The borrower’s responsibility at that point is just to make sure they get the wire over to the title company for the downtown My mother so really everything you know, living in the white side, I mean deal. I close the one a couple months ago and lol how silly I just see that.

Unknown Speaker 22:12
I’m super excited about a new program I’m rolling out that’s going to reinvent scammy Real Estate education programs. So excited like Marie Kondo cleaning stuff up excited. And announcing my new mastermind program which consists of a closed members site with 27 packed weeks of content, plus bi weekly group video conference calls to us whatever half of the calls will be centered around granular investing tactics, and the other half will be holistic wealth building strategies that I have learned from the wealthy. That’s 25 plus hours of group coaching and masterminding and a secret Facebook group too. I know what you’re thinking, none another flippin Facebook group. Well, this one’s gonna be different, more intimate, exclusive, and no cheapskates or shady vendors and I’ve been coaching individual clients over the past couple years and I figured out what you guys need. In a way to provide it in a cost effective way, learn more go to simple passive cash backslash journey and join before the first cohort fills up, an introductory pricing goes away. Like when I was starting, like my biggest fear is like I’m buying a property and it’s not really like I’m buying a property everybody is colluding against me to buy this like nothing fake piece of property. But, you know, when you’re working with a lender, the lender is your biggest partner in this they got 80% to lose. So they’re doing the research on they’re doing the appraisal, they’re doing the title research. So there’s some nice peace of mind, which is why I don’t like buying things cash, or doing anything for I mean, I don’t know why you’d like to waste your time unless your net worth is under $200,000. I

Unknown Speaker 23:53
must say as an investor as well as a loan officer. Leverage is your friend use it. Once again. I can shoot you a copy my game I can show you an example. Somebody taking 150,000 and paying cash for a property and seeing what their their rental income is from that property with cash. Or they can take that hundred and 50,000 spread it over five houses at 150,000 throw 20% down, their cash flow is more than doubled and we’ll do we’ll do doing just straight cash. So use use your leverage, you know, I mean, cash is king was so use the leverage.

Unknown Speaker 24:31
At this time I’d like to open it up for if anyone’s got any basic question. We have some doozies put in there by people. I don’t know why they’re still buying single family homes that take some tricky things. But first question Can I love multiple properties into one law? Unfortunately, no.

Unknown Speaker 24:49
Freddie Mac does not allow that there was a alones years ago before the bus they would allow for that. very tricky. Some people On a commercial basis can do that today, but their terms are not as favorable. And if you do find somebody making sure that you have release clauses that you bundle one under one blanket, and you want to sell one and they don’t have a lease losses, your stock you gotta sell all 10 or not. But I mean, they’re very hard to find the terms another great

Unknown Speaker 25:21
said that this next question is about duplexes, triplex or quads I’ll caveat saying like if you make a pretty good salary, and your net worth is like a half a million dollars or more, you’re probably going to go to bigger syndications or you’re probably going to unload these properties soon. That’s why I advocate for those type of guys that go after single family homes because the exit strategies are stronger. Despite Yeah, they do cash flow better on paper, but usually have like a subpar tenant at $800 rents or less. But my opinions aside, Graham, maybe talk to us about lending on those two four units you can still get Fannie Mae, Freddie Mac, right?

Unknown Speaker 26:03
Well, since you get your opinion I’m gonna have to give you mine You know, doing a loan for for blacks is just as easy to do it for single family it’s all numbers. If there’s some built in tennis and built in leases it’s only going to help them with their income my theory about about several four plexes and your wife the type of that you seen a four Plex is versus a single family may not be quite what you’re looking for only from a stability standpoint, being very transient. Because if you think about it, you know, you got a four unit quote building and many times you’re you have a common area for for parking, and maybe a common area for a backyard. But they’re generally a two two scenario or two one scenario where a lot of trains up well and it’s almost like apartments, okay? apartments have a great deal of turnover just like the form like you know, once you get and this is only my opinion, but when those things are terrible, they are chaos. I mean, they really are So it’s to each his own

Unknown Speaker 27:03
right so the down payments are a little bit different right when you go above one unit single family yes 25% now there is not like a price it just plus 5% down payment is what they want

Unknown Speaker 27:16
correct and there’s a price adjustment like 25% down on a single family today and let’s just say it’s four and a half. I can still give the four and a half to the the new players but they require us to charge a point lot of times we can premium price offset the point by raising the rate a quarter percent versus not charging points.

Unknown Speaker 27:36
Have you filled that four Plex yet Graham?

Unknown Speaker 27:41
Yes, I did. I’m personally down the single families I do have one duplex I like duplexes. So if you think about that, you know as I got a three to two, you know, to her eyes, you know site to single family site together. I just have a common wall and the you know, Genesis a firewall

Unknown Speaker 28:00
Yeah, I mean, my argument is just like the single family homes, you can fix them up nice and sell it to a retail buyer who’s emotional where the two to four units you’re selling it to another cheapskate investor who watches a webinar late into the evening. was a good price.

Unknown Speaker 28:24
Yeah, maybe somebody’s got the local Ria here. That’s what they’d like to buy. Yeah. So after somebody has exhausted their 10, Fannie Mae, Freddie Mac loans, other than having 20 properties, what is their options after that in terms of portfolio loans?

Unknown Speaker 28:47
Well, I’m sucking their job right now. There is my understanding. They’re generally non recourse summer harshal rehearse. But the underwriting very much like a commercial lender. They will Do it on the DCR. Take a look at the property. So what kind of income is coming out of the property? And then that’s how they make the judgment of your down payment percentage. Do they like the property, so forth and so on. Typically, you’ll see a range anywhere from 25 to 30%. Down on these properties. And oddly enough, some of these guys do not like turnkey, yes. Which is weird. But for the most part, they all are welcome most the turnkey providers. And there’s a probably a handful of them out there that do a good job, the rates are not as favorable, this will be prepared. I mean, you know, you’re not going to get a 30 year fixed rate, you’re going to be somewhere in the upper sixes, lower sevens. Be like five your arms and get into the fours. So there is life after chanting.

Unknown Speaker 29:43
So what is what is like a good Fannie Mae, Freddie Mac rated four and a half these days for 30 years.

Unknown Speaker 29:49
4384 and a half is pretty much where we are. I mean, of course you get online and find all kinds of craziness going on. But that you know, for the respectable winners, that’s pretty much where we are today, with a 25 We should know single family.

Unknown Speaker 30:01
Yeah. So maybe add when people are playing around with their spreadsheets at two and a half percent for portfolio loan at additional 5% on the down payment and still 30 year amortization? No,

Unknown Speaker 30:16
no. Some lenders will throw you back to 20 or 25. But there’s a lot of good ones out there. So be 30. And those are the ones you might want to think about an exit strategy, me versus five your arms. So I’ve got to find your exit strategy on those priorities.

Unknown Speaker 30:33
That’s another question when underwriting for a new property and you’re looking at the old leases on the properties, how do you show on the lease if it’s a year old, but the lease was renewed without a new lease? It was just auto renewed from the following year. What kind of paperwork does the underwriter need to see? Show that continuation of the lease?

Unknown Speaker 30:55
The lease says it’s auto renewed, the underwriter will look at that generally. Mostly says will not say that. Okay, so you would have to reach out the least the least doesn’t have to be current, but is a hard shop.

Unknown Speaker 31:10
And there’s a lot of it will go month to month and that’s fine. Give us a month to month agreement.

Unknown Speaker 31:17
Right? So we’re going to go here and the top mistakes, but if you guys have any questions, feel free to type it in, and especially if they’re dumb questions, ask them now. This is a problem I have in the mastermind and nobody says anything because everybody doesn’t want to look stupid in front of other people. But don’t worry, nobody knows who you are here. The only dumb person is finding out when you’re on the eve of closing that you screwed something up. We’ll kind of go through some of these top mistakes as selling a property with a 1031 exchange and not having it titled in their individual names and we can talk about that.

Unknown Speaker 31:54
What awesome. A lot of people will want the asset protection like we talked about earlier. And I’ll be entitled it into their LLC. And then they just forget all about it. They hold on to their property three or four years, okay, it’s time to sell the art, they sell it. And the next thing you know, they come to me saying I want to do an exchange, and the title of that property was in an LLC, the way the 1031 exchange rules read, there’s a thing called like ads, which means it has to go from john and Mary Smith to john and Mary Smith. JOHN and Mary LLC, john Mary LLC. You can’t go from john Mary LLC to john and Mary Smith because the Fannie Mae will not allow us to fund an individual name. So this got an Al sovereignties got a monster exchange first thing out of my mouth, have have you sold the property? How is the title and there’s a good percentage of the time I will catch the back of this in anything other than the name and it’s pretty simple though. The so the escrow company or title company retitle out of their name into their ended rstp out of the LLC, or Whatever entity that is in and put it into their individual names, closing their individual names, and then if they want to go through the exercise that we described earlier, they can do that.

Unknown Speaker 33:12
So you guys can check out a simple passive cash flow comm slash 1031 Guide. I’ve got all the nuances of 1031 I’m not a big fan of them. I write about it there. It’s It’s a tool to be used in the right situation for sure. Here’s a good one. You quit here, Graham. People quitting their job after starting the loan process you that story on that one.

Unknown Speaker 33:37
Someone of the smartest people do the dumbest things they really do. I had a lady with a tech company was in East Coast. And she was moving to the west coast to continue to work with the tech but she knew she was retired. So halfway through the process is retired. She was why you know, I got plenty of money to make I’m good. Well guess what? Right before closing we do a verification Employment will call your employer say is this person still there? Yes. Thank you very much we close alone. On a times we call them up say, Oh no, they let two weeks ago you talk to the barbershop Oh, yeah. We were going to go in retire. So it’s not a big deal. Well, it is a big deal for Fannie Mae, Freddie Mac, because you don’t have the ability to repay the loan. Even though you may have millions in the bank. It’s not kicking off any income. It’s not showing up on your 1040 tax returns. It’s not going to work.

Unknown Speaker 34:32
Thinking back on like my experience when I was picking up these properties, and it was like, it’s always very complicated process. But but the whole like Fannie Mae, Freddie Mac doesn’t just want to see they want to see seasoning have fun. They don’t want to see like money showing up out of nowhere for a non owner occupied property. They don’t want to see your mommy and daddy just putting 50 grand in your bank account, and they want an explanation for every What is it like half your paycheck or something like that.

Unknown Speaker 35:03
It’s a percentage and I’m believing it’s either 25 or 50. I’ll have to ask. I don’t get involved with that too much. But yeah, I mean that I see that all the time. can graduate from college dad’s no real estate guru. Harrison. Here’s 50 K, go buy your first rental property calls me. Let’s go. Thanks. You know, really the biggest danger comes 50 grand on one of his bank statements were to cover well, dad gave it to me. Sorry, I can’t use it as calling gift. Gi ft. Yes, they’re only allowing primary residence transaction not on investment. Okay, so yes, you’d have a lot of those funds sit in your account for 60 days. Because when I looked at your last few months bank savings, I don’t want to see that 50 grand coming in there. I want to see it sitting there for two months.

Unknown Speaker 35:48
But as soon as that sitting in there, you’re good to go.

Unknown Speaker 35:51
We don’t want to be on that. Money. I don’t care how they got as long as they’re.

Unknown Speaker 35:56
So I tell people I don’t care how you make your money. Hopefully it’s legal. But then you got these deals like other than the down payment, you need some cash reserves for some of these.

Unknown Speaker 36:05
There’s a new formula Fannie Mae came out with gosh been a year and a half now. It used to be six months on the only semi property and then six months on every property thereafter, what that means six months as principal and interest tax and insurance, I’m six. Now what it is it’s an aggregate loan amount of anything that’s leveraged as an example. You got two properties, and they’re both 50. Then the balance on those two loans are 50,000. For the one to two robberies, the they require a 2% reserves 2% of 100,000 $2,000 and graduates up from thing is what the last one to four, and then five is six is another I think that goes to 4%. And then I think it’s seven to 10. And they’re after 6%. Now the noodling around that is you can use your 401k non liquid accounts for that. So a lot of times people do kind of freaky I go, I don’t have enough reserves will do a 401k or something I reserve retirement. Well, yeah, we’ll take that all day long 100% credit, you should be only 60% our be able to monitor reset.

Unknown Speaker 37:18
Here’s another one that actually came up with one of my clients. They borrowed opened up new debt, started the loan process and did not give you guys the heads up.

Unknown Speaker 37:33
The way it works is

Unknown Speaker 37:35
we will call and do a verification point. But we’ll also do a soft will not our full credit. When we do loans, our company will call it once if you want to do like we described earlier, do four or five loans in a period of 120 days, you only get a column once okay. But at the end before we go to close we’ll do a software which will not impact your credit score. Just to make sure there’s a No additional liabilities. Bottom line is, your job as a bar is to be forthright with me as possible. Because the barb and myself we’re going to write a book, I’m going to present it to sort of an underwriter. But you don’t show me that chapter and all of a sudden Here comes that chapter at the end was you get you know, get a new car, buying a boat or whatever completely blows your ggl the water, that’s your fault,

Unknown Speaker 38:22
right? And I always say have this conversation over the phone, try not to put in an email. Something may not be right, or she likes

Unknown Speaker 38:34
she likes her right example that a lot of people want to use the equity that’s built up in their properties like in Hawaii, as you say there’s a bunch of it and they’ll get Ely on their primary residence. They want to use those funds. So that equity to go buy properties crane, you have to show me what those funds you extracted from that Eli, which makes your balance go up to $50,000 balance and you want to extract I know they’re saying 25 $30,000 Now it’s 80,000 will just show me the same as Sean was a new payment is continued interest only suicidal affect you that much. But show me first

Unknown Speaker 39:11
clarification on the cash reserves does that include money in your equity as primary residence

Unknown Speaker 39:19
request question it does not.

Unknown Speaker 39:22
And what about some like if you got money and some private note funds or syndications? No,

Unknown Speaker 39:30
no, that’s not it’s not a lien against the property.

Unknown Speaker 39:35
It’s not a lien against a primary residence or a wonderful family loan, which was shown on your credit. So no, that does not count.

Unknown Speaker 39:44
But for for cash reserves, does it count? If you’ve got money in these other places, other alternative assets there.

Unknown Speaker 39:55
Not in one of your channels, probably not.

Unknown Speaker 40:02
syndication is going to have somebody else’s name on it.

Unknown Speaker 40:05
Right? You don’t have you don’t have the ability to cash it out in 30 to 60 days. I think I’ve heard that before. I don’t know if that applies. But

Unknown Speaker 40:15
if you cash it out of a syndication and as your money goes into your account, just show me a paper trail will use those funds. It’s all about you know, prove

Unknown Speaker 40:24
some other mistakes or plans to go out of country and vacation, which always seems to happen because you guys are traveling, living your life. I’ve actually got a tutorial on how do you get a notary done in Japan, if everybody ever needs it, you can send me a bottle of kms and I will send that to you right away. Bar does not get pre approved prior to signing a contract yet a story behind that one gram

Unknown Speaker 40:53
can have already pre approved no contrary Absolutely. We do it all the time. And I’m a Blow Your secret, you can if you’re in Japan, do it as long as you go the constant are the BMC. And that’s so big secret lane you should know that there’s a few other tricks to

Unknown Speaker 41:11
it and got like going to 711 and getting some money there and stuff like that. But it’s just make sure you guys sign your stuff here or what I’ve done in the past is you get a power of attorney with your closing attorney and that’s that’s an option.

Unknown Speaker 41:28
When I was talking about the the power of attorneys are allowed for investment properties, but they’re only allowed for a relative your closing attorney cannot do your power attorney. It has to be a relative. Those are Fannie Mae guys,

Unknown Speaker 41:43
I see.

Unknown Speaker 41:44
And we actually will prepare roddis for you MPLA versus you having to go to an attorney or title company that pays you know $350 to prepare will actually do that for you.

Unknown Speaker 41:58
So you had another bar Purchase multiple properties were you and some other folks and did not tell you

Unknown Speaker 42:07
gotta be honest, I miss a minute ago, you gotta be forthright on everything you’re doing. I want to know everything about your life regardless if you want me to or not. So, once again, if you if you do purchase another property the same time you’re purchasing with me, all the documents that you’ll be sign does not indicate that that’s what you’re doing, then, in essence, you know, you’re committing the effort, and you don’t want to do that you don’t want to get into harm’s way. Okay.

Unknown Speaker 42:36
I will also say if you’re working with a big bank that has a big bank at your corner, and they give out free coffee there, you probably don’t want to be using them for these investor loans because number one, they don’t have a clue with buying things out of state. And number two, there’s probably really expensive I mean, that’s how you pay for all those big institutions. So

Unknown Speaker 42:58
Well, a lot of mistakes. A lot of and I run into this all the time. I work with turnkey providers all over the country. And they do, they won’t allow the banks to come in with a contract without, you know, Bank of America pre approval and the because they’ve had too many nightmare stories to deal with. But one of the things that has, I guess, evolved since the 2008 mortgage meltdown is that there was a lot of fraud that was taking place before that that was detected. Fannie Mae rewrote their guidelines and basically says if you are the seller and you’re managing the property and post close, we don’t like it. So a lot of interpretations from a lot of the lenders out there, they all do the loan because of that. Well, if you think about it, the turnkey concept that’s all about you know, having somebody buy the property, put a tenant in there you know, do the rehab and managing and post clothes because people like to sell full time job I don’t need to go out and man is different. I don’t need to rehab that soul successful Turkey, but a lot of them Shannon,

Unknown Speaker 44:02
while you were with

Unknown Speaker 44:03
so let’s switch to some of these questions people have typed down. Let’s go to key locks lock question here. I have a simple passive cash flow calm slash key lock. And then if you’re in Hawaii slash key log, I have a little cheat sheet of where to go to get a keylock. But if you’re on the mainland Graham, where does one get a HELOC other than their local bank? I mean, what do you get the best rates the best prices from?

Unknown Speaker 44:31
Great question. I just bought a new house for my family in December. Turn around in January and put another hundred $50,000 he lock on it just to say stay away from the big banks. Your best are like you see our local banks are like credit unions. Because typically what it is its prime plus something. And I’ve seen he likes go from crying plus two, which is pretty expensive. I lucked out I got prime it was zero You just got to figure out what the prices on those and how easy it is to get them once again the you know these banks to underwrite self employed people to figure out that this kind of concept blows their mind. So stay away from the big boys you know credit games are good local small banks are good, especially when you back

Unknown Speaker 45:18
you and sorry just clarification on that that is on investment properties right? No primary residence I’m a residence

Unknown Speaker 45:27
investor properties. I don’t know anybody out there doing a good job or anybody that I would do business with, because it’s like prime plus five, which is ridiculous, but I don’t want to be a one person doing that.

Unknown Speaker 45:39
I know when I was in Seattle bc you did them but they you need to have like 70% London hour and at that point, it’s like you should just sell the property or you should get a new loan on the property and not use a healer because you got 30% of equity, debt equity, at least in there. And the tricky thing that I found with these key locks is these Guys, they always get a really conservative appraisal to benefit them and try to cover them that you really get as much equity out of it Then you really should.

Unknown Speaker 46:12
Rachel, they really are I highly recommend them all the time I let’s say I’m running short of funds for whatever reason some guy comes to me says, Hey, I got this great deal this property over in Indianapolis Can you want to buy one? Yes, I’m just short funds as idle time. I hate locking off I go. So and then I just turn around and pay it off in a couple months down the road. So it’s a great little tool. gotta buy the daughter new car graduation by a payback. That’s great thing about you bought to use it and then my iMac.

Unknown Speaker 46:40
Do you fund short term rental properties? Is there a Freddie Mac program coming out for that or

Unknown Speaker 46:46
No, those are private money. That’s hard money. Because it’s all long term. That’s why eration the way they are short term money. That’s the way the way the breather ways are there in the 1012 13% rate. Our costume business.

Unknown Speaker 47:02
So no, no long term financing on short term rentals, they’re going to look at it like a long term, right? I think for those of you guys who missed that, some, you know, for a lot of these rental properties, you’re going to have to show rents what what is how much is this property going to bring in as a condition of the loan or you know, like, they’re going to look at that make sure the asset kind of performs but some people don’t want to show the short term rental income, which looks amazing on paper. But that’s what we’re saying you can’t use what are some so you don’t meet the 50% loan to value because you didn’t listen to land and you buy your house in California or Hawaii or some posit hobby you shouldn’t be living in, I guess, your higher than $2 million network you can do whatever you want, I guess but if your debt to income ratio is getting Hi there, what do you do? What options do you have?

Unknown Speaker 48:04
Well, you got to go with like the title winner that I have to use. Now, I’m using kind of a non recourse type, what’s partial recourse, but they look at credit, and they look at the property, they do not get any income docks. And that’s the portfolio

Unknown Speaker 48:19
alone that we’re talking about

Unknown Speaker 48:21
portfolio. Yeah, you can call it whatever you want more folio. Non recourse, but they’re not. They’re not sold directly because we look at three categories of income is want to

Unknown Speaker 48:34
say again, for those who’ve missed that, it’s you’re looking at a rate that’s two, two and a half percent higher than the Freddie Mac, Fannie, Freddie

Unknown Speaker 48:44
30 year comparables, which you can get, oh, you know, Bobby arms is gonna be a little bit more competitive.

Unknown Speaker 48:50
But if you’re buying something that was kind of fringy, it’s definitely not going to cash flow at that point.

Unknown Speaker 48:58
Yeah, you’re not gonna You’re gonna products,

Unknown Speaker 49:02
and you’re gonna need to come in with a lot more down payment more like 30%

Unknown Speaker 49:07
or more.

Unknown Speaker 49:13
Someone else said they got their key lock from hand-fed.

Unknown Speaker 49:19
That’s a good one. I’m in looking to circle back with them. I hear that they’re doing and he didn’t share that with us. I think it was priceless to maybe. And I think that’s the only one out there that’s doing it against investment properties. But today to get one on the vessel privacy wouldn’t be though,

Unknown Speaker 49:40
says prime plus three. But explain the first what is prime. And what does that all what does that secret ninja code mean? prime is

Unknown Speaker 49:47
an index. Okay. Removing the adder is the margin. That’s where the institutions make their money. Okay? And this case you know, they’re the Fed is my 3% margin, so other with the with the loan, so it makes sense for them because it is a high risk loan because it’s investment property.

Unknown Speaker 50:08
So and Feds got prime plus three and that’s 80% loan to value on a non owner occupied investment not primary residence right oh let’s get into the first stuff they have an option to season the funds in there and do a cash out right away so let’s you know, let’s use the example the guy buys like a piece of junk property for 50 they put another 50 and and and all the books tell them that the properties now probably going to be worth 122 140 or whatever. So they want to go and get a loan for 140 below all their equity and say our hashtag for

Unknown Speaker 50:55
the summer and only give you a hard time by this murder thing.

Unknown Speaker 50:58
I don’t advocate cars because I think It’s just too risky. I mean, unless your network is under a quarter million dollars, I mean, I don’t advocate

Unknown Speaker 51:06
for it. Let me tell you how the cash out refinances work, there’s a season in a non season. Let’s take an example you buy a house for say 60 you put 20 into it. Right now you’re into it for 80 you get an appraisal for 100 we will give you fully full praise now you are only going to give you 75% of that for refinance. So now you’re down to 75,000. Well, I’ve got 80 into it. I’m gonna have to pay the difference. That’s true. After the first six months in the first six months, I’m willing to get the appraised value came in 100 and now we’re at 75,000. I can only give you what you pay for it which is 60,000.

Unknown Speaker 51:55
What about what about you put some you got some contractor receipts

Unknown Speaker 52:00
Now, here’s where here’s a way around, go get a private money, put a lien against the property, there is no seasoning for lien that’s called a rate and term refinance. That’s not cash out which cash out has more stipulations to. So the hard money loan through, you know, gave you a loan for cost plus, in this case at your end, and we have $100,000 appraisal, we will give you a $75,000 loan, you just got to pay that $5,000 off. That’s the only way to do it in six months after six months to same thing of us.

Unknown Speaker 52:35
So the investor needs to read it needs to decide if they want to take that 75% LTV or waste another half a year of their life and making anything

Unknown Speaker 52:48
they want their money An hour later. That’s what they decide.

Unknown Speaker 52:52
And that’s where I’m like, Well, if you want to just suck your money into a cash flowing property you could have made up and making all that money for six months. This is all in a good scenario where this all works out. Right? Right.

Unknown Speaker 53:05
Quite a bit. Yeah, there is a trick to that non season.

Unknown Speaker 53:11
But anything else we think we miss that, you know your guys, lot of the

Unknown Speaker 53:18
kind of jumped a little bit all around the place too long. Maybe people if they’re alone I’d suggest listening to this again. I mean a lot of this is very complicated when you’re first starting out, but you know, for a lot of folks, they’ve heard this several times and they can pick up on the nuances they can and they can pick up when things change, like for example, the retirement your 401k used to be worth 60%. Then when I was saying it was what 80% now it’s worth 100% for cash reserves, like nuances like that you start to pick up

Unknown Speaker 53:50
what I encourage Blaine is

Unknown Speaker 53:54
tell them how they can get in touch me. I’ve been dealing with investors for 20 years now and for some crazy reason. You guys all asked the same questions over and over. So I said fine I’ll go ahead and put it into a guide it’s a 7583 Believe it or not, but it’s a good guy and touches on a lot of things we talked about tonight but if you want to get a little bit more knowledge I’ll be glad to send you a copy solutions free of charge.

Unknown Speaker 54:16
Yeah, yeah sure. Um, how about people either you know shoot me an email or if you grab me want to put your email but either way you know shoot me an email and I’ll connect you guys with Graham you guys can get access to that. Read it and hopefully maybe it puts you to sleep if your insomnia or maybe you

Unknown Speaker 54:33
got a lot of compliments on my legs so they’ll go there

Unknown Speaker 54:38
but yeah, if you guys are into the burst stuff and and want to get around other people doing the same thing, I’m starting a no spin off group up the mastermind. Those of you guys and be half a million dollar net worth and below, shoot me an email at Lane at simple passive cash flow if you want to pilot that out. But if you guys are looking for to do More syndication stuff more passive investor stuff general wealth building check out the the main passive investor accelerator and mastermind simple passive cash flow comm slash journey and I grabbed me when you get your email out there just people can take

Unknown Speaker 55:17
Jesus George P isn’t Paul is an apple ours and Roger he hasn’t had a is an apple Amazon Mike at Highlands mortgage com so g car him at Highlands mortgage com or you can call me direct I have a toll free number 8553 to 66802 it brings my cell phone after hours so if you want to know you guys out there on the left coast or in Hawaii, you’re welcome to call me after hours I am 24 seven if I’m available I’ll take your call.

Unknown Speaker 55:49
Yeah Money Never Sleeps and I came this is for closers will talk to you guys next time

Unknown Speaker 55:57
this website offers very general information Certain real estate for investment purposes every investor situation is unique always seek the services of licensed third party appraisers inspectors to verify the value and condition of any property you intend to purchase. Use the services of professional title and escrow companies and licensed tax investment and or legal advisor before relying on any information contained here and information is not guaranteed as an investment there is risk the content found here is just my opinion and things change and I reserve the right to change my mind. Above all else, do your own analysis and think for yourself because in the end, you’re the only person who is going to look out for your best interests.

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