Building Wealth Through Investment Properties€¦ · Building Wealth Through Investment Properties...
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mortgage.car.org [email protected] (213) 739-8383 Building Wealth Through Investment Properties Valuation & Lending Basics Insights by Homebridge & Yellow House Services April 10 th , 2019 9:30 a.m. – 10:30 a.m.
Transcript of Building Wealth Through Investment Properties€¦ · Building Wealth Through Investment Properties...
(213) 739-8383
Building Wealth Through Investment PropertiesValuation & Lending Basics
Insights by Homebridge & Yellow House ServicesApril 10th, 2019
9:30 a.m. – 10:30 a.m.
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(213) 739-8383
Building Wealth Through Investment PropertiesValuation & Lending Basics
Insights by Homebridge & Yellow House ServicesApril 10th, 2019
9:30 a.m. – 10:30 a.m.
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Transaction Rescue fka Finance Helpline B2B Webinar: Building Wealth Through Investment Properties –
Valuations & Lending Basics
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Abel Fregoso Jr
Loan Originator
Homebridge Financial
NMLS #1567894
Robert Bloom
Senior Counsel
CALIFORNIA ASSOCIATION of REALTORS®
Vinny Disanza
Appraiser
Yellow House Services
WHAT TO EXPECT
▪ Insights to Investor Property
▪ Acquisitions
▪ Getting Started as a New Investor
▪ Building a Portfolio
▪ Investment Opportunities
▪ Renting a unit or space in your home
▪ Renting a Non-Owner Occupied
▪ Air BnB, Vacation Rentals, etc.
▪ Key Differences with:
▪ Owner & Non-Owner Occupied
Purchases for You and Your Clients.
▪ Key Contract Differences
▪ (RPA vs. RIPA)
▪ Valuation Insights & Pitfalls
▪ Valuations Mechanisms & Differences
▪ 1004,1007, 1025, & 216 Forms
▪ What Makes a Good or Bad Rental
▪ Fees, Expenses, Locations
▪ Dollars Make Sense?
▪ Understanding Cashflow
▪ Lending Insights & Pitfalls
▪ Management Experience
▪ Financing Limitations
▪ QM vs. Non-QM Requirements
▪ Property Ownership Limits
▪ Underwriting Criteria
▪ Loan Program Availability
WIIFM – WHAT’S IN IT FOR ME?
• Starting with Your Owner Occupied Property
• As 1 – 4 units fall into Residential (FHA & Conforming loan options) you can
tie these same plans to your owner occupied units
• Find Rentals to Sell & Market to Your Database
• Stocks (Unsecured) vs. Rental Property (Secured)
WHAT MAKES A GOOD OR BAD RENTAL?
▪ What Makes a Good Rental?
▪ Good Cash Flow/ Rate of Return
▪ Low Liability
▪ What Makes a Bad Rental?
▪ Poor Cash Flow/ Rate of Return
▪ High Liability
▪ Cashflow - HOA, Taxes, Repairs, etc.
▪ Rate of Return – Alternatives, Up-Front Funds, Out-Of-Pocket Expenses
▪ Liability - Pools, Safety Hazards, etc.
WHO IS THE INCOME BUYER
• They are not looking to buy a home; they want to buy a product
• They don’t care about obsolescence, they don’t care about location, they
don’t care about anything but a return on their investment. A return on their
SECURED investment.
• Owner occupied: live in 1, rent the other(s)
• Non-owner occupied: total rental product
WHO IS THE INCOME BUYER (CONT’D)
Non-Owner occupied:
Does not want to buy a home; wants to buy a financial PRODUCT
People rent all sorts of habitations- mansions, trailers, caves
How Does the Rental Perform?
You have to know the financials
INCOME COMES IN 3 WAYS
• Market Appreciation (From WW2 until the crash the market (~2005) averaged
well over 6% per year)
• Cash flow (rent minus costs or expenses)
• Mortgage payoff
• (The silent 4th way is in tax deduction but this is not always the case anymore
and so I’m not going to teach it)
HOW TO CALCULATE PROFITABILITYFOR INCOME BUYERS
• Gross Rent Multiplier (GRM)
• GRM= Market value divided by monthly rental amount
• But there are other factors (expenses such as HOAs, special taxes)
• You have to look for properties for an income buyer according to the return
on the investment.
• Cash-on-Cash
MAKE A KILLING BUYING RESIDENTIAL RENTALS
Gross Rent Multiplier (GRM)GRM = Market Value/Monthly Rent1st Year GRM = 147,000 / 950 or 154.7
• Residential Rentals SFR’s usuallyoccupied longer Term.
• Years 20-25 has extra mortgage payments so that the house is paid off in year 25
Market increase approx. 4%/yearWe will use a conservative 3%/year.
YEAR 1
Annual Rent $11,400
Annual Mortgage Payment -$6,155
Annual Property Taxes -$1,470
Annual Mello Roos/Special Assessments -$155
Annual Insurance -$756
Annual Repairs -$620
Annual Property Management -$1,200
Annual HOAs -$744
Vacancy Rate -$228
Additional Mortgage Payment(s) $0
Annual Cash Flow $72
YEAR 30
Annual Rent $26,865
Annual Mortgage Payment $0
Annual Property Taxes -$2,610
Annual Mello Roos/Special Assessments -$155
Annual Insurance -$1,782
Annual Repairs -$1,461
Annual Property Management -$2,131
Annual HOAs -$943
Vacancy Rate -$517
Additional Mortgage Payment(s) $0
Annual Cash Flow $17,266
▪ Single family homes
▪ Straight SFR rental
▪ buy it owner-occupied and live in it until you have enough equity then keep it and move on
▪ buy it non-owner-occupied
▪ most buyers DO NOT pay cash because the leverage of lenders renders them more profitable
▪ Live in 1, rent out the other (duplex, three-plex, four-plex)
▪ AIRBNB (slide below)
▪ You need to look at annual data and statistics
▪ Some owners share the home with AIRBNB
TYPES OF RESIDENTIAL INCOME PROPERTIES
AIRBNB EXAMPLES
▪ Valued by Sales Comparison Approach (if data is available of similar sales)
▪ If not, then use the Income Approach (GRM)
VALUE OF RESIDENTIAL INCOME PROPERTIES
Investing in Real Estate with QM Products
FOR INTERNAL DISTRIBUTION ONLY
Abel Fregoso Jr (619) 572-3316
CALIFORNIA ASSOCIATION OF REALTORS®
April 10, 2019
QM Product Highlights
OWNER OCCUPIED & NON-OWNER OCCUPIED DETAILS
• Owner
• LTV 97%,95%,90%,80%
• Credit score <620
• Min loan amount $50k
• LTV >80.01 req MI
• 1-4 units, Warrantable condos,
PUDs
• No reserves req
• Standard risk based pricing
• Non-Owner
• LTV 85%, 80%, 75%
• Credit score < 620
• Min loan amount $50k
• LTV >80.01 req MI
• 1-4 units, warrantable condos,
PUDs
• Reserves req w/DTI >45%, 6
months
• Slightly higher risk based pricing
• Purchase
• Rate & term refinance with limited cash out
• Cash out refinance: 6 months on title from acquisition to application
• AUS finding Approve/Eligible recommendation
• Eligible borrowers include:
– US Citizens
– Permanent Resident Aliens (Green Card)
QM Product Highlights
ELIGIBLE TRANSACTIONS & BORROWERS
• Full Documentation
• Lease or Form 72/1000: 75% of gross monthly rent
• 2 yrs. personal tax returns with Schedule “E” (Sch E)
– Net rental income for each individual property calculate from Sch E, as follows:
– Rents received-less total expenses
– Add back:
– Insurance, Mortgage interest, Taxes (prop only), Depreciation/Depletion, HOA
dues, One time loss
– These expenses can only be added back if they are included in the payment
amount being used to establish the debt payment-to-income ratio for that
property
• 2 yrs. Business tax returns (if self-employed)
• 2 months bank statements
QM Product Highlights
QUALIFICATION HIGHLIGHTS
Investing in Real Estate with None-QM Products
FOR INTERNAL DISTRIBUTION ONLY
Abel Fregoso Jr (619) 572-3316
CALIFORNIA ASSOCIATION OF REALTORS®
April 10, 2019
• Non-owner
• LTV 80%, 75%, 70%
• Credit score 620-680 depending on LTV
• Min loan amount $100k
• No MI requirement
• 1-4 units, warrantable condos, PUDs
• I/O products reserves 12 month, all
others have 6 month reserves required
• DTI = N/A
Non-QM Product Highlights
OWNER OCCUPIED & NON-OWNER OCCUPIED DETAILS
• Owner
• LTV 85%, 80%, 75%
• Credit score 620-680 depending on LTV
• Min loan amount $100k
• No MI requirement
• 1-4 units, Warrantable condos, PUDs
• No reserves requirement
• DTI – Max 50%
• Purchases
• Rate and Term refinances (including the following):
• Technical refinance
• Cash out to complete recent renovations
• Payoff seasoned second (no draw last 6 months >$5k)
• Cash Out refinances-Cash out MUST be used for business purposes only (i.e.
acquisition of additional investment properties, improvements to the subject
property). Intended use of cash out proceeds for personal purposes would make
the transaction ineligible. No title seasoning required as long as one original
purchaser is on title/borrower on loan. Otherwise 6 months on title from
acquisition to application.
Non-QM Product Highlights
ELIGIBLE TRANSACTIONS
• Qualify on debt service coverage ratio (DSCR) of the subject property
• DSCR defined as gross rents divided by qualifying PITIA. Use 100% of rents.
• DSCR must be greater than or equal to 1.0
• Purchase transaction: lesser of market rents (per appraiser) or current rents (if
property is leased). Units do not need to be leased, but if they are, lease must
be taken into account.
• Refinance: lesser of current rents or market rents (per appraiser). Leases must
be provided. Short term leases permitted, leases over the most recent 12
months must be provided and divided over 12 months (regardless of any gaps
between the leases). Use the market rents for vacant units.
Non-QM Product Highlights
QUALIFICATION HIGHLIGHTS
• 2 units, market rents $1,000 per unit ($2,000 total), both vacant
• Rents to be used: $2,000 per month (based on market)
• PITIA: $1,900 (as an example)
• DSCR=1.05 ($2,000/$1,900)=ELIGIBLE (Meets Program Requirements)
Non-QM Product Highlights
EXAMPLE – DSCR (RENTS VS. MORTGAGE PAYMENTS
Investor Insights & Pitfalls
OWNER OCCUPIED & NON-OWNER OCCUPIED DETAILS
• Owner Occupied – No Experience Required
• Management Experience on Non Owner Occupied
• Limit on # of Financed QM (Conventional or High Balance Units)
• Limits on Non-QM Properties
• Use of a Property Manager
• Overall Property Ownership Limits
• What differences or requirements make a Commercial Loan necessary
Abel Fregoso jr.
Abel Fregoso JrMortgage Loan Originator
NMLS# 1567894
c: 619-572-3316
f: 877-592-0950
27450 Ynez Rd, Ste 320
Temecula, CA 92591
Branch NMLS# 153645
This is a business-to-business communication provided for use by mortgage professionals only and is not intended for distribution to consumers or other third parties. It is not an advertisement; as such term is defined in Section 1026.24 of Regulation Z. Homebridge Financial Services, Inc.
194 Wood Avenue South, 9th Floor, Iselin, NJ 08830. Corporate NMLS #6521. Rev 07.31.18 (0718-2540)
Investment Property Purchase: - Residential Income Purchase Agreement (RIPA)
◦Use RIPA even if single family property
◦RIPA default that tenant will remain in possession
◦Buyer takes property subject rights of tenants
under existing leases
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Disclosures under RIPAParagraphs 11, 12 and 13
◦Paragraph 11 – Legally required disclosures for all
residential income properties
◦ In addition to paragraph 11, Paragraph 12 adds legally
required disclosures for all 1 – 4 residential income
properties
◦Paragraph 13 – Additional contractual disclosures
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Disclosures under RIPA: Paragraph 11– Required for all income properties
◦ Lead based hazard – Pamphlet and form FLD
◦ Natural and environmental hazard – NHD report
◦ Earthquake booklet & questionnaire (1-4 Res, pre 1960, if not TDS exempt)
◦ Withholding taxes – Form AS. Usually handled through escrow with qualified substitute
◦ Common Interest disclosures (Forms HOA-IR, RS and RN)
◦ Material fact and water conserving plumbing device – Form SPQ or ESD
◦ Disclosures that are preprinted in contract: ◦ Megan’s law database
◦ Gas pipelines
◦ Elevated elements
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Disclosures under RIPA - Paragraph 11
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Disclosures under RIPA - Paragraph 11 (cont’d)
Disclosures under RIPA: Paragraph 12– Additionally required for 1 to 4 income properties
◦ Transfer Disclosure Statement (Form TDS)”fully completed”
◦ Seller Property Questionnaire – Form SPQ (or if TDS exempt Form ESD)
◦Agent Visual Inspection – Either AVID or TDS
◦NHD disclosure statement – NHD report
◦Mello-Roos and other assessments – NHD report
◦ Buyer is required to sign and return these disclosures
◦ Statutory cancellation right
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Disclosures under RIPA - Paragraph 12
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Disclosures under RIPA: Paragraph 13– Contractually required disclosures
◦ Tenant Estoppel – Must be checked
◦ Rental/Service agreements
◦ Income and expense statements
◦ Survey, plans and engineering documents
◦ Permits
◦ Structural modifications
◦ Seller representations: ◦ Pending lawsuits, mechanic lien’s, tenant in BK, unpermitted improvements, violations
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Disclosures under RIPA - Paragraph 13
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Disclosures under RIPA - Paragraph 13 (cont’d) & 14
RESOURCES
▪ Conventional Loan Limits▪ FHA Loan Limits▪ Cashflow Evaluation▪ HomeBridge▪ Yellow House Services▪ Appraisal Forms for SFR 1004, & Condo 1007▪ Appraisal Form for 2-4 Units is 1025▪ Operating Income Statement – Form 216▪ Investor Loan Application▪ Legal Sales Disclosure Chart▪ C.A.R Webinars for Legal & Mortgage Topics▪ Transaction Rescue (Mortgage Assistance)
KEY TAKEAWAYS
▪ Building Wealth in your Own Home, can start with adding an ADU (cautious with
current fees & charges), Purchasing a 2-4 unit property to live in, as well as, utilizing the Equity, as your seed money for an Investment Property purchase.
▪ Always Secure financing first before making an offer.
▪ Understanding leverage is key to building wealth with investment properties.
▪ Analyzing the Market, (including being aware of local government restrictions & requirements)
is the best way to find appropriate Properties for your Owner Occupant and Non-Owner Occupant Income Properties.
▪ Utilize the correct documents or Purchase Contract (RIPA) for your Acquisition.
▪ Always establish the best means of communication, up front to strengthen your partnership with your lender.
Mortgage Rescue fka Finance Helpline B2B Webinar:Building Wealth Through Investment
Properties – Lending & Valuations - The Basics
8
Abel Fregoso Jr. Loan OriginatorNMLS #1567894
Homebridge Financial
Direct: (619) [email protected]
Vinnie Disanza
Appraiser, SRA
Yellow House Services
Direct: (951) [email protected]
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