Newbie Scenario

Friday, September 12, 2008

Hello Everyone!

This is my first time posting. Below is my current situation. Any help or advice would be greatly appreciated!

My background:
I am located in Northern California and I am new to real estate investing. I am currently educating myself so I can invest in self-storage and lease-option deals. My other goals are single-family residential homes and then eventually apartment units.

Here is my scenario:
My mom owns a couple properties and recently tenants have moved out of one of her single-family residential homes.

She did not want to deal with locating new tenants and fixing up the house since it is 1.5 hours away. She agreed to give me the property if I fix it up and find tenants. I painted it myself and put new carpet in and now I have one of my friends living it. I now have a grasp of the payments. No profit is being made but no money is coming out of my pocket each month. I have been handling the payments of property for 2 months now.

Here is my question:
I plan on investing in my own properties in the near future, should I put the house in my name?

I am not sure if that would look good or bad on my financial statement, since there is still a mortgage of $185,000. If I applied for a loan for another property would that debt limit me or would the property be used as leverage?

In a year and a half my friend is going to move out and I plan on using it as an assisted living property (it is currently licensed for 6 rooms).

Thank you in advance!


What is the property currently worth vs. how much is owed on the mortgage? If you can show verifiable income from the property with a signed lease, it will look better for you than if you just have that $185k mortgage on your credit. I believe lenders will consider 75% of your rent amount when evaluating your income and credit for additional properties. See some of the other threads about new Fannie Mae and Freddie Mac limits for number of loans you can hold as an individual. If you hold the property in something besides your personal name, you will have to guarantee the loan with your signature, but it would not show up on your personal credit. Read the legal forum for the many discussions about which entity to use and the pros & cons of doing so.

So Justin - when you get a mortgage under your LLC’s name, even if you have to personally guarantee it doesn’t appear on your personal credit report? So in this case the mortgage would not count towards the maximum 4 that Fannie and Freddie allow. Is that right?

Is this the reason why Fanny and Freedi does not allow mortgage’s on LLC’s name? A local banker told me that they would be happy to do a mortgage under my name, but not under my LLC’s name (even if I personally guarantee it) because of Fanny guidelines.



What are the numbers on the rental you took over from your mom? And why would you want to convert it to an assisted living home? All I know from those is that my grand mother used to be in a few and 1 went out of business, one got bought out and the third was just terrible. These type of places Have to be a nightmare to run.

Just my 2cents

Monday, September 15, 2008

Thank you for the responses!

I am currently reading and researching about various topics (entities, legal info and taxes, etc). There is so much information and I will have to talk to a CPA/lawyer for further advice, but first I want to have a basic knowledge of my options.

At this point I haven’t checked out any comps so I am not really sure what the property is worth, but I would assume that it has increased since my tenants (friends) moved in. They repainted the exterior and re-carpeted. Also, we are discussing a new roof. Also, we are one of the two houses in the area that has 2-stories.


The total rent is $2,300 a month (1300 1st mortgage and 1000 2nd mortgage). Like I said earlier, no profit or loss is being made, but right now I have friends living there who will take care of it and fix up the house while living there.

As for the assisted living idea, I don’t plan on dealing with seniors. Mostly likely younger, ambulatory or independent tenants. Before my friends moved in, my mom was contacted by one person who wanted to live in the licensed facility and I believe for each person, monthly cash flow is about 2-5k/month (minus expenses such as on-site staff, food, etc). That idea is still 1.5 years away, so I have some time to talk to actual owners.

Right now, I am still a bit unsure whether it’s best to transfer the deed into my name or to leave it in my mom’s name and continue doing what I am doing and gain experience with the property.

Thanks again for the perspectives and advice!


I know for a fact our investment property is not on my personal credit report. We’ve had the property for about a year and a half. We just bought a house for our family and got the credit report from that. It did not show our investment property. It did, however, show we still owed on our truck we paid for many months ago. Got that cleaned up after we found out about it. I should add that our investment property is through a small local bank that apparently doesn’t report much of anything. I’ve had probably 15 or so auto loans over the years with them and none ever showed up on my report.
I’m not sure about your questions regarding LLCs under Fannie and Freddie. I looked up some stuff, but some of it was dated.
Our banker for our last business acct. told us about people who purchsed multiple properties in their own names and got to the point where they couldn’t borrow much of anything. That was one reason she thought it was best to hold properties in some type of entity rather than in your personal name.
I always ask banks up front if they loan to LLCs with a personal guarantee so I don’t waste anyone’s time checking into a loan if they don’t deal with LLCs.

I have a quick follow up question:

I’m currently working on my personal financial statement and I have arrived to the section where I would list my properties. As mentioned earlier, I do not have any property in my name/portfolio.

If I decided to put my mom’s house in my name, would that help me leverage when submitting a loan proposal to a bank? For example, would a bank lean towards providing funding for a project, simply because the house in my name would be a possible source of repayment?

I’m thinking that the house would highlight some experience in my very early real estate career, since I currently do not have any.

Is my thinking correct?



Putting the house in your name would hurt your DTI ratio. The property would be a liability, making your debt service number higher. Consequently your DTI ratio will be higher and it will be harder to qualify for your own financing.

Wishful thinking, but not correct. For the reasons I mentioned above, having the house in your name will lower the amount of income you will have available to repay a loan. The bank won’t be interested in your “track record”, they are concerned about your ability to repay the loan you are seeking.

A loan to a corporate entity is a commercial loan. Fannie and Freddie do not purchase commercial loans. That is why a loan against property titled in a corporate name is not included in Fannie’s count of the number of financed properties.

As of today, Fannie Mae has a limit of 4 financed properties. Freddie Mac still has a 10 financed property limit. For both Fannie and Freddie, your primary residence is included in the count if it is financed.

Justin/Dave - thank you for the clarification. This makes sense.

I found a local bank that keeps the paper. They don’t care if I get the mortgage in my LLC’s name as long as I personally guarantee it… They also don’t have any limit on the number of properties as long as they feel you have the ability to pay the mortgage.