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REAL ESTATE Duplex vs. Two Units in Single Building

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Corrado79

New Contributor
Sep 24, 2007
86
4
12
Santa Monica, CA
I am looking at a development now for a potential investment purchase involving a 2 unit building. Each unit is a 3d/1.5 ba. Each cash flow nicely.

All along I figured they were titled as duplexes since that is how they physically are designed. It turns out that they are titled individually and would need two separate loans. :bgh:

So my question is, what should my concerns be? I understand that this second loan would hurt my chances of getting the loans at "second home" rates and they also may affect my minimum LTV. Also, I will be getting closer to my 10-loan cap on my credit report.

Other than that, what should I be worried about? I wanted a duplex because of the economies of scale, but it looks like these are run like a duplex so the economies will be there anyway.

Please provide your helpful thoughts. :notworthy: TIA!!
 

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andviv

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you are buying two SFHs, for financing perspectives.

You do get some economy of scale as the property management will involve a great colocation advantage. Lawn care (if the lawn is shared, as it is in many of these cases) should land you a small discount on a maintenance contract.

I don't know about insurance. For what I recall, when I bought one like these the insurance was concerned about the wall dividing the property... has it a 'firewall retardant effect' or something like that --meaning: fire next door will take longer to get to the other house.
 

Starsky

New Contributor
Aug 29, 2007
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Hello,
Maybe im reading it wrong, but are you stating that it would hurt your chances of getting a second home interest rate? Why would it matter, it would be for investment purposes not second home purchases so I hope you would not untruthful on your application. Investment property rates are running about a point over owner occupied rates..

I am in negotiations on a similar type of deal, where 2-4 sfh's are located on the same block w/renters in place. I dont see it being much different than a multi unit situation when all id have to do would be to walk less than 200 yards to collect all the rents.. Also would have the option of tapping equity on each if need be...
 

phlgirl

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Read Millionaire Fastlane
Aug 29, 2007
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Hey Easy -

Could you tell us a bit more about this product at Wells Fargo? I am very interested, as a couple of us here (including myself) have been maxed out at 10. I called and spoke with a few reps and they tell me that at one time they had a limit of 10 but it has now been dropped to 6.

I have a call into their commercial department as well.....waiting for a return call.

Perhaps, I am talking to the wrong people.....wouldn't be the first time.

Thanks!
 

jimculler

New Contributor
Sep 14, 2007
63
3
13
Tampa Bay, FL
*Struggling not to hijack this thread into getting loans over 10 properties or blanket loans*


To the OP, you definitely dont want to tell them the house right next door is a second home. If your LO or Broker or realtor or anyone suggests that, be very wary of dealing with that person. Lying on a mortgage application is Federal, and its really not worth it in the end.
 
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OP
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Corrado79

New Contributor
Sep 24, 2007
86
4
12
Santa Monica, CA
*Struggling not to hijack this thread into getting loans over 10 properties or blanket loans*


To the OP, you definitely dont want to tell them the house right next door is a second home. If your LO or Broker or realtor or anyone suggests that, be very wary of dealing with that person. Lying on a mortgage application is Federal, and its really not worth it in the end.
I actually think my broker was confused with how I posed the question to him, but I agree with your points. This would definitely be done as an investment property with an investment loan, but my concern was just if I was missing anything in the analysis (i.e. what is the real difference between a duplux and two single properties in the same building?).

Also, feel free to hijack the thread re: the 10 loan issue. That is quite relevant in fact. I've also heard that it's now limited to 6 for some banks (from someone at Wells Fargo actually). That is not good. What are our options?
 

jimculler

New Contributor
Sep 14, 2007
63
3
13
Tampa Bay, FL
I have found multiple products that are available through a handful of lenders (from reading their underwriting guidelines carefully). The biggest snag is that they will ALL require that you fully document your income, and the overall debt ratio is no greater than 50%. In addition programs want to see anywhere from 6-9 months of PITI in liquid reserves per investment property owned.

Most people I find in need of a refinance or purchase loan that owns 10+ properties, usually will have a ton of deductions on their personal or business tax returns. A lot of brokers will stop there, assuming that their borrower cannot document enough income. I dont do that, because there are paper losses on tax returns that can be added back (depreciation, amortization etc..).

That being said, plenty of people will not be able to document enough income or assets to qualify for these niche programs, and are therefore truly stuck unless they can get a blanket loan (will be discussed in my next post).

I still have my feelers out for a stated program that doesent have the 10 properties financed rule. My guess is we wont see a product like this for a long time, there needs to be more confidence in the Mortgage Backed Securities market before guidelines loosen back up.

By the way, you can have as many free and clear properties as you would like. The financed ones are the only ones being counted towards the 10.

Blanket loan info to continue on the next post.
 

jimculler

New Contributor
Sep 14, 2007
63
3
13
Tampa Bay, FL
Blanket loans are a commercial loan product. Along with simpler guidelines (LTV, Credit, Reserves (just ask if you need to know these)) the most important qualifying factor is a Debt Service Coverage ratio of 1.2 or greater.

Once you know you are qualified for debt service, you still arent out of the woods yet. An appraisal will need to be performed on each property included in your portfolio. You can mix commercial and residential properties, but you will only want to put properties in that are cash flowing. Obviously this appraisal process is not inexpensive, so please make sure you have a LOI before paying for these.

The biggest issue investors usually have with blanket loans is getting a partial release during the loan term. The best lenders that do these loans still will only approve a partial release on a case by case basis. Others wont offer partial release at all. A partial release is when you wish to sell one of your properties that is encumbered by the new blanket loan.

For this reason it is best that you only encumber properties that you wish to hold for the remainder of the time that you owe the lender.

Blanket loans will pay off those mortgages on your credit that are keeping you from purchasing more property, and put the new loan in the name of your LLC. You will be expected to Personally Guarantee, but the loan is not reported to your credit file. This frees you up to go get 10 more fannie mae loans, and gives you less personal liability by holding the property in your corporate entity.

Please feel free to send me over questions if you need.
 
OP
OP
C

Corrado79

New Contributor
Sep 24, 2007
86
4
12
Santa Monica, CA
Blanket loans are a commercial loan product. Along with simpler guidelines (LTV, Credit, Reserves (just ask if you need to know these)) the most important qualifying factor is a Debt Service Coverage ratio of 1.2 or greater.

Once you know you are qualified for debt service, you still arent out of the woods yet. An appraisal will need to be performed on each property included in your portfolio. You can mix commercial and residential properties, but you will only want to put properties in that are cash flowing. Obviously this appraisal process is not inexpensive, so please make sure you have a LOI before paying for these.

The biggest issue investors usually have with blanket loans is getting a partial release during the loan term. The best lenders that do these loans still will only approve a partial release on a case by case basis. Others wont offer partial release at all. A partial release is when you wish to sell one of your properties that is encumbered by the new blanket loan.

For this reason it is best that you only encumber properties that you wish to hold for the remainder of the time that you owe the lender.

Blanket loans will pay off those mortgages on your credit that are keeping you from purchasing more property, and put the new loan in the name of your LLC. You will be expected to Personally Guarantee, but the loan is not reported to your credit file. This frees you up to go get 10 more fannie mae loans, and gives you less personal liability by holding the property in your corporate entity.
Rep +++. Wow, your last two posts were amazingly helpful. Sounds like you are well dialed into the industry. Your last point reminds me of another question:

What would it take to be able buy a MFH and get the loan under my LLC, as opposed to being on my own credit report? Is it simply a matter of having sufficient assets in the LLC and good credit, or does the LLC need anything else?

Please feel free to send me over questions if you need.
Count on it. Thanks!
 

jimculler

New Contributor
Sep 14, 2007
63
3
13
Tampa Bay, FL
Mobile Home lending is tough. I only have sources that underwrite per FHA or Fannie Mae / Freddie Mac guidelines.

That being said, my guess would be that you would have trouble financing one and keeping it off of someones credit report.



However, Mobile Home Parks would be a great commercial product to be financed under your LLC with no trade line being reported to your credit. And they are great for your cash flow portfolio!

So if you wish to buy only one Mobile, you are looking at FHA or Fannie Mae guidelines. But if you can buy more than 4 of them on a parcel, then we are commercial, and guidelines are completely different than in residential.

Hope this helps!
 

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Corrado79

New Contributor
Sep 24, 2007
86
4
12
Santa Monica, CA
Mobile Home lending is tough. I only have sources that underwrite per FHA or Fannie Mae / Freddie Mac guidelines.

That being said, my guess would be that you would have trouble financing one and keeping it off of someones credit report.



However, Mobile Home Parks would be a great commercial product to be financed under your LLC with no trade line being reported to your credit. And they are great for your cash flow portfolio!

So if you wish to buy only one Mobile, you are looking at FHA or Fannie Mae guidelines. But if you can buy more than 4 of them on a parcel, then we are commercial, and guidelines are completely different than in residential.

Hope this helps!
Oops! By MFH, I actually meant multi-family homes, not mobile homes :smxB: I was specifically wondering how you purchase 2/3/4-plex houses and get the loan on your LLC's credit report, not yours.
 

EasyMoney_in_NC

Contributor
Sep 9, 2007
399
31
31
Wilmington NC
Hey Easy -

Could you tell us a bit more about this product at Wells Fargo? I am very interested, as a couple of us here (including myself) have been maxed out at 10. I called and spoke with a few reps and they tell me that at one time they had a limit of 10 but it has now been dropped to 6.

I have a call into their commercial department as well.....waiting for a return call.

Perhaps, I am talking to the wrong people.....wouldn't be the first time.

Thanks!
sure PG. What I know (and this is via my mort, broker) is that they are willing to execute loans for customers over the F/F 10 loan limit, with as mentioned, full doc. At the time ('bout a month ago) I was in need of refi'g 5 loans without having to pay anything off first. Wells was good for at least 2 and maybe 4 loans for me (over and above the original 10). I also found another broker in town via a regional bank, that had another regional bank....who had an "investor" lender that would do up to 4 loans (via the bank) no matter the current holdings. We were trying to find out who the lender was so we could go strait to that person since the bank was capping thinbgs at 4.
There's certainly money out there for well placed people and good deals. I would suggest that those looking, start looking to smaller outlets and turn over the smaller pebbles for what they need. With very little effort I found two lending outlets and I found a construction lender (locally) who would be willing to fund me 100%. Its out there........
 

jimculler

New Contributor
Sep 14, 2007
63
3
13
Tampa Bay, FL
Oops! By MFH, I actually meant multi-family homes, not mobile homes :smxB: I was specifically wondering how you purchase 2/3/4-plex houses and get the loan on your LLC's credit report, not yours.

Sorry about that! :rofl:

I cant treat 2-4 units any differently than a single family home unfortunately. ONce you get to 5+ units, we can do the loan commercial and put it under your LLC.

Unless of course you are doing a blanket loan with multiple 2, 3, or 4 unit properties.
 

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