Please help beginner w/two financing questions :)

Hello. My husband and I are relatively new to REI. I used to sell real estate . . . about to return to the biz . . . and we own 4 rental properties (including one duplex) . . . all earning just slightly more in rent than the mortgages. We consider ourselves new b/c we have never flipped (would love to do that) and we’ve always used conventional financing (no HMLs, no private money). So we don’t know all the ins and outs, but we have some experience.

Anyway, at the moment, we are trying to do two things, one more important than the other. We are trying to buy an OO home for ourselves (long story, but we moved out of state, rented our home, returned . . . now renting short term from family, NEED place to live! :slight_smile:

We are also considering another property we found for a flip (incredible edible edible deal . . . I think if the bank will deal could be an incredible deal, has been sitting, cash only b/c no cabinets, toilets, etc).

So . . . we get preapproved for the OO . . . get a deal on a bank foreclosure (both are incredible deals in my hometown I know the prices around here from selling and living . . . even in this market they are just unbelievable and realtor screwed up one of hte listings which is why I think we are able to get the deal).

Anyway, we have excellent credit, but need stated income/stated assets(self employed). So my questions:

(1) on the OO . . . one mortgage broker has told us that we can’t get another mortgage, no way, no how, b/c we have four properties that are financed. CW representative has told us that we can get the mortgage, no problem, because it will be OO and the four property rule only applies to investment and second homes. Which is true?? Are we going to lose this house? Or are we okay b/c it will be OO?

(2) on the second home (potential flip/investment) . . . can anyone give me a primer on pros/cons of HML? And how can we find a private money lender? And what’s the difference? We would hope to flip in a few months, but need money for renovations. I just read a horror story thread about getting reimbursed for renovations from a HML. . . . is that usually a problem? And I guess refinancing (should we choose to buy and hold/rent) is out of the question given this new four property rule, right? Can we form an LLC and tranfer these rentals w/o any money in the LLC BUT with history of rental payments?? We are just trying to figure a way around this four property rule.

Sorry to be so long-winded. Would appreciate any advice . . . question one much more important than question two. Thanks!!! :help


The rule does not apply to OO residences. Also, the four property rule is a Freddie Mac rule, not Fannie Mae so you should have no problem acquiring more properties in the future. Keep in mind the Fannie limit is 10. I hope this helps.

Tina, you can look to see if there are any HML’s in your area by asking mortgage brokers or looking in the phone book for lenders that advertise things like “investment loans” “bad credit loans” . This could indicate they deal with Private and/or HML. You can also click on the HML ont he left side of this site. Find ones that work in your state or nationally. Then you can call them and get info from them. Some have programs where you can use their HML and then refi into conventional financing with them.

Thank you both, so much!

If you don’t mind a few more questions, as I’m starting to get more and more curious about REI. We have some success at the landlording business but we can’t keep paying these hefty down payments.

Is there any way around always paying 20% down? Most (at least on the MLS) do not seem to offer owner financing.

Also . . . what’s the deal with LLCs? Why are they better than plain old corporrations? And, if we already own one business (a commercial a/c business) can we use the established good credit with credit lines to get credit for a new LLC in REI?

I know this is a lot of questions . . . but appreciate any feedback on how to take this REI to the “next level” for us.

Also . . . any dangers with HMLs that aren’t apparent . . . other than putting money in escrow??

Thanks! Great forum, great posts. Thanks again for the replies.

A HUGE part of REI is buying from MOTIVATED SELLERS. When you have a motivated seller, you have the possibility of HUGE discounts and/or flexible terms. One option is to find a property that needs work. Get it at a great price. Do some rehab then sell or refi & rent. The key is to find a STEAL! I think if you can find a deal that you can buy, rehab and hold/sell for about 75% of the After repaired value, you have a deal. Keep in mind that your aquisition,rehab & holding costs should be add up to 75% or less. That’s my personal idea of it anyway. For instance, if you buy a house that has an ARV of $100k, you should have no more than $75K invested TOTAL at the very minimum. If you’re looking to rent, you need to make sure the rental income will produce a positive cashflow. When it comes to financing this, you can use a HML that will loan you anywhere from 50% to 75% of the ARV. Then you can pay off the HML when you sell or refi. You may have pay some money at closing or out of your pocket during the rehab. But not as much as adown payment. Then you can use the profit for your next flip. Keep reinvesting your profits.