Posted by Luke on September 07, 2006 at 24:11:34:
That was supposed to be “angle”. My bad.
75% rent income-sub2 & Seller finance - Posted by luke
Posted by luke on September 06, 2006 at 22:49:53:
I was having lunch today with a really knowledgeable local investor and an interesting point came up.
We were talking about seller financing and sub 2’s and then we switched to conventional loans and
bank financing and rental income.
Generally banks will take 75% of rental income minus PITI. What if you took control of the property
using sub2 or seller financing? The mortgage wouldn’t show up on your credit report so it would appear
to the bank that you own it free and clear so would they count the full 75% minus just insurance and taxes?
I suppose if they pulled title (not sure why they would) they would see what you purchased the
property for but you’re not trying to refi the property you took sub2 or bought with seller financing. We are
looking at a whole new property.
Sorry if I didn’t make this very clear. If you do understand what I’m asking, I’d love your feedback.
Thanks,
Luke Hoppel
Re: 75% rent income-sub2 & Seller finance - Posted by AlexCO
Posted by AlexCO on September 06, 2006 at 23:45:15:
With Sub2 …
Why would your individual name show up in the official title record? You usually don’t want to record your name with the county registrar as the owner of the property by either delaying the “recording” of the deed transfer, or using the previous owner’s trust as the owner (you may be a beneficially of the trust, though), because if the bank finds out that the owner of the property and the morgagee are diffrent, it can call the loan.
With owner financing …
It is true that the bank usually can not find out your debt with the previous owner, but if you don’t disclose “any and all” outstanding debts when applying for a new loan, it can be considered as a “loan fraud”.
In any case, you WILL deduct these payments as the “COST” of owning the investment property in your 1040 to obtain maximum tax benefits. But, if the bank decides to check out your tax return, your story doesn’t match with the evidences.
Not record the deed? - Posted by Don (VA)
Posted by Don (VA) on September 07, 2006 at 12:20:31:
If I were taking a property subject to, I’d certainly want to record the deed. I’m taking the deed; it’s mine. And if I don’t record it and the seller decides to take another offer as well and that one gets recorded first, I’m out of luck…and out of any money I’ve paid, as well.
Alex is correct (and colvegas, our friendly land trust promoter) that you can either acquire the previous owner’s trust (if the property was in one) or have the owner create one (with your assistance), move the property into it, then come into it as the investor beneficiary, and so the property, formerly owned by Joe Blow, still appears as owned by the Joe Blow Land Trust. But, one way or another–either by taking the deed and recording it, or by acquiring the trust that holds the deed–I want to make sure I’ve got an ownership interest in the property. And if that happens to trigger the “due on sale clause” (might with a Sub-2…colvegas is right, it should’t with a trust), that’s still far better than losing the property because the deed wasn’t recorded.
Re: 75% rent income-sub2 & Seller finance - Posted by colvegas
Posted by colvegas on September 07, 2006 at 24:21:01:
Alex had some good comments and in a normal sub2 deal you would not be on the financing the seller would so your credit is not affected by the debt ratios however if the bank did find out about the unauthorized transfer it could call the loan especially with interest rates on the rise but in most cases if payments are made on time it usually will not.
The trust route is the best way to go in my opinion due to avoiding legally the due on sale by virtue of the Garn St Germain Act of 1982 under section 8a.
As to seller financing if you did take on that debt and as Alex stated do not disclose it may be loan fraud or inaccurate loan application and that can get you into trouble.
If however in a trust you lease the propety out on a triple net lease basis to your tenant you can in most cases actually qualify for a 100% dti with the lender if you can show the tenant is making all payments, maintenance and upkeep on the property and this letter is sent via your trustee to your broker who forwards it to your next lender…
Re: 75% rent income-sub2 & Seller finance - Posted by Luke
Posted by Luke on September 07, 2006 at 24:10:39:
Good answers. I didn’t think about the tax return angel.
Have you had experiance with this or is theory. I’m fine with it being theory and I think your provided a great answer, I’m just curious.
Thanks,
Luke