Steve Bighaus explains how to get past having the limit of 10 financed properties.
Whether you’re single or married, there’s a few different ways to get more than 10 financed properties. Steve also elaborates on what needs to stay separate if you’re having your spouse have their own set of financed properties.
Mike: Welcome back to the flipnerd.com REI Classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. Now, let’s meet today’s expert host.
Steve: Good morning, everyone. Steve Bighaus with the Security National Mortgage, host of the REI Classroom. Today, I think, is an important topic, but we’re going to discuss maximizing your buying power.
Mike: This REI Classroom real estate lesson is sponsored by uglyopportunities.com.
Steve: Now, this is going to . . . it’s really a good question to ask because I get a lot of people that are single, they’re married, maybe they’re domestic partners, is there a way that they can get past the 10? And there is. So there are a couple of different ways we’re going to discuss that.
First, let’s talk about if you’re married or if you’re in a domestic relationship. So what you can do in that . . . what we try and do in that, we want to see if we can qualify the borrowers individually. So in the guidelines, it states that you can have up to 10 financed properties per borrower. It’s not per married couple or per partnership. So let’s just put that aside. So what we do is when we’re looking at that as far as the qualification, we’re looking at can one individual, can they qualify and cover their existing housing expense, which is rent or first mortgage payment, or any installment revolving debt that they have. Now, you can utilize rental income to offset the payments. So that’s great. So it basically washes that out.
Now, if the answer is yes, they can do that, then we can qualify them individually. But it’s very important, and I tell my clients that, that when you do that, when we qualify, you have to make sure there’s a clear division between both. And when I say that, I’m talking about the properties. So in other words, if one spouse buys a property, what they’re going to do, the property needs to be in their name, their name’s on the loan, okay, and that . . . so really important . . . if they form an LLC and they move the property to an LLC, it has to be a 100% owned by that individual. So a single-member LLC.
The other things people will get out, they’ll put properties in a trust, which is fine. But the problem is, a lot of times, in the trust box document, both partners or spouses are on the trust document. Again, it ties you back to that property. So clearly defined is really important. I mean, it’s an absolute must to be able to do that.
Now, there are some things that we want to take into consideration when we’re doing that. At first, sometimes, lenders will come out and say that you have to file separate tax returns, you’ve got to have separate bank accounts. That is not correct. You could file joint tax returns. All we have to do in that is when we’re doing the analysis, if you’re on other rental properties, determine who owns what, what income we can give you, then that’s it. Perfectly acceptable.
As far as assets, joint bank statements, so you’ve got that joint account, husband and wife, or domestic partner, what you’re able to do in that is the person that is not actually buying writes an access letter that that other person has 100% access to those funds.
So it’s easy to do. It’s just a little bit of work on our end, you have to ask the right questions to be able to do it. Very important that when we do this, that all through the process while we’re doing this, that they stay in contact with somebody like myself to make sure that they don’t step out of that. Because occasionally, they’ll hear somebody with a great idea that it’s going to work for them when in all actuality, it doesn’t and it shoots them in the foot.
So again, and then . . . so the other thing that you can do is, let’s say you’re single, you’re not married. So you get up to that number 10 financed properties. How can you proceed on? There are a couple different ways you can do it. The first thing you can do is you can move on to a portfolio lender. That’s something you definitely can do. And there are some portfolio lenders that are out there to do that. Understand that you’re probably not going to get the same rates, the same terms, and the cost will be a little bit more expensive, but it is an option.
The other way is you could actually form a corporation, either an S corp or a C corp. Now, I highly doubt that you’re going to form a C Corp because of the double taxation and the number of stockholders. So the logical solution would be to form an S Corp. If you were to do that, you could take and you could bundle all of your investment properties, move them into the S Corp along with the financing. So now, all of a sudden, you’ve got all of your properties are in your S Corp, they’re titled in the S Corp. Now, what you can do is you can come back to me and you can start over again with your Fannie and Freddie, simply because of the fact anything that’s in that S Corp is not counted as financed properties.
On an ending note, let me clear up a misconception. I get so many people that call me up and tell me that they’ve looked online, they’ve talked to another loan officer who says if you moved into an LLC, they don’t count. That is an incorrect statement. I repeat, that is an incorrect statement. LLC, a limited liability company, it has some of the aspects of a sole proprietorship, partnership, and a corporation, but it is not a corporation. The only thing Fannie Mae recognizes is an S Corp or a C Corp where that’s going to happen.
So, hopefully, this has been informative. If you’ve got any additional questions, you can always feel free to give me a call. Again, Steve Bighaus, Security National Mortgage. And take care and everybody have a good day. Thank you.
Mike: HomeVestors, the “We Buy Ugly Houses” folks, is a franchised system of hundreds of real estate investors that have purchased over 65,000 houses. If you’d like to learn more about the most powerful real estate investing system in existence, whether you’re a pro looking to take your business to the next level or whether you have no experience at all, but a burning passion to be successful in real estate investing, please visit flipnerd.com/ugly to learn more.
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