Home Buying in California>Question Details

Duncan Wright, Home Buyer in Dallas, TX

How to finance a 3rd home - for growth of holiday rental business?

Asked by Duncan Wright, Dallas, TX Sun Jul 10, 2011

hello, my wife and I both have good paying jobs, and live in Dallas (primary residence). We also have a home in Lake Tahoe that my wife has turned into a huge success in terms of rentals and making a profit now, over and above costs/mortgage. We financed only 60% on this home, cash on rest. We have the bug now a little bit and I believe she has developed a model that will work for other areas, with a focus on europe. To that end we are looking to expand and buy an additional property in the Monterey area. Prices seem low to us, as are interest rates, and we like this area to add to our our listings for california. We dont have any additional cash to outlay, but have some $350k of true equiity in our current properties as well as significant 401k investments. Question is whether anyone thinks we could get financing? Ideas? Perhaps even approach a bank with a business plan? thanks

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As Shane mentioned cross-collateralize and/or pledged assets would be one method which you may qualify. Most portfolio lender offer these programs on jumbo loan amounts. This would depend on the dollar amount in your 401K. Significant, has various meanings. Depending on the wealth of the individual.

Also, as Sane mentioned, if you pursue conventional financing, 75% will be the maximum loan-to-value on an investment property for cash-out. You'll need to qualify with all three mortgages. Most lenders require six months reserves on each investment property and two months on your primary residence.

From what you have stated, the above are your options. But, in my opinion, you are not in a position to purchase another property. I suggest you wait until you at least have adequate reserves for contingencies. It will certainly be less stressful.

Best wishes, Rudi
Web Reference: http://www.umboc.com
0 votes Thank Flag Link Mon Jul 11, 2011
You can take cash out on an investment property up to 75% with regular Fannie Mae & Freddie Mac conforming refinance options, and a purchase of a new rental property can be done with just 10% down for homes listed at http://www.homepath.com - otherwise a 20-25% down payment would be the requirement. Not sure how much equity you have in your Dallas home, and there are certain cash out laws in Texas to abide by, but that could be another way to raise some capital.

You can try to cross collateralize your existing home in Lake Tahoe with the new home you'd be buying in Monterey, however options won't be as attractive since the amount of lenders will be fewer, but if you are planning on building up a portfolio of properties in California then after you have run out of the more popular financing programs as options portfolio lending can become very favorable. In addition, or as another idea, you may also be able to pledge 401k assets with the bank to make the cross collateralization financing terms more attractive.
0 votes Thank Flag Link Sun Jul 10, 2011
I would suggest taking an equity loan or line of credit on one of your existing homes. The rates are low & you apparantly have substantial equity. Be careful not to overextend yourself but utilizing the equity you already have can be a great way to secure other properties. Once you have your line of credit you are basically a "cash buyer" in the eyes of sellers & this can give you an advantage when negotiating on the final sales price. Also, you can generally write off the interest paid on an equity line.
Good luck with your endeavors!
0 votes Thank Flag Link Sun Jul 10, 2011
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