My Personal Finance Blog

Funding has dried up for residential investment property (1-4 family), but it’s plentiful for large multi family projects.

1. Funds are available for large multi family properties, but not for residential investment homes.

President Obama said during his Economic Recovery Act Speech, “there is no money available for you speculators” and he meant it. Try to get a loan for a residential (1-4 family) non-owner occupied property and see the results for yourself. There are no more stated income loans available for residential investors. If you have been in the residential investment game for a while, you already know it, if you are just starting out; you will experience this problem on your first residential investment deal. Its cash, hard money at 12% and a 65% LTV or you’re done.

The good news is that government backed funds are plentiful for larger, multi-family properties. This presents tremendous opportunities for those who know how to access the funding sources.

2. You don’t have to personally qualify for the loan the properties qualify.

Imagine that! Anyone who has ever attempted to purchase a residential investment property (1-4 family) has encountered the issue of personally qualifying. Sure the rents may cover part or the entire mortgage, but the lender only considers a percentage of that income toward your ability to pay the new mortgage. You need, tax returns, financial statements, proof of funds for down payment, etc. Not only that, but of course your FICO score becomes a big factor. Get through all of this and every time you buy another residential property your FICO score drops and you are viewed as more of a risk to the lenders. The more successful you become in this arena, the harder it gets……

With commercial financing, the properties qualify for the loan, not you. The loan is not reported to the credit bureau’s. The more successful you become, the easier it gets…..

3. Most loans on large multi family properties are fully assumable.

Ever try to assume a residential loan without having to qualify for it? Not happening, at least not since the early 80′s when FHA and VA loans went from “fully assumable” to “qualifying assumable”. It’s the same as having to secure a new purchase money mortgage, so unless the interest rate is very attractive, it’s never done. The first home I ever purchased was a little bungalow for $25,000. It was 1980, I was 20 years old and didn’t qualify for a $200 limit MasterCard, but I assumed a $23,000 VA loan, no questions asked. The same criteria hold true to this date for large multi family projects, but very few know about it.

The financing on many large multi family buildings are fully assumable. Remember, the properties qualify not the buyer. You can buy 100 + unit apartment complexes without qualifying, no verification of funds, no credit report, no tax returns, just knowledge.

4. You ARE NOT personally obligated to repay the loan.

Try getting a residential mortgage and tell the lender that you don’t want to personally guarantee the loan. Not happening! We are accustomed to all loans carrying personal guarantees. It’s incorporated into every residential mortgage, by every lender in the country. Of course they want recourse if you default, they get the property and then have the right to a default judgment for any balance that may be due after they liquidate the property. Residential loans carry “FULL RECOURSE” to the mortgagee.

Larger commercial loans are “NON RECOURSE” to the borrower. The property and its ability to generate cash flow is the lenders security, not you personally.

5. Multi Family Properties are built to CASH FLOW, single family homes are not.

Single family homes are designed, built and price for owner occupants, not for cash flow. Study the numbers on almost any single family home and you will discover that after you pay the mortgage, taxes. Insurance, utilities, maintenance, etc, you will lose money every month. Single family homes are terrible for cash flow despite what the residential guru’s on TV tell you.

Multi family properties are designed, built and priced to do one thing and one thing only, “make money”. Lenders lend based on the fact that there are sufficient funds to cover the debt obligations, not on what your credit score is, or what the house down the block sold for or what your personal income was last year, etc…..

6. Professionals manage the property- No tenants and toilets to deal with.

With residential investment property YOU generally have to manage it. The property has negative cash flow to begin with; there probably is no budget to hire a management company to run it. You go from watching the guru on TV sitting by the pool telling you how great your new lifestyle is going to be once you buy a couple of homes, to fielding leaking roof calls and clogged drain problems on Saturday nights.

With the larger properties a professional management company handles all of that for you. It’s budgeted in just like taxes and maintenance. The lenders require a professional management contract be in place at closing. They handle all the problems; they are staffed for it and deal with repairs, collecting rents, renting vacant units, etc. They send the funds to you. You never have to deal with a single tenant, yet you reap the rewards. Now you have a lifestyle.

There are many more reasons to move from residential to large multi family including dramatically increasing the property’s value by simple rent increases, etc. I encourage anyone investing in residential property to take a good look at moving up to larger properties. It’s easier than you think when you acquire the knowledge.

Copyright (c) 2009 Joe Florentine

There are times when you get an overview and then it hits you, “Somethings just don’t add up.” Well, you remember Wellpoint, don’t you? This is the friendly company that, around January or February, announced it was going to increase premium rates by up to 39% in a number of states around the Union. President Obama got himself all worked up, citing them as the real reason why all the Democrats in Washington should band together and take a stand against the insurance industry. Then, sure as eggs is eggs, there was a stampede to get the healthcare reform bill to the President for him to sign it into law. Those Democrats sure did have fun beating on Wellpoint. So the big question is what happened next? Here’s one of the largest corporations in the insurance market demanding premium increases. Did it get its way?

The answer starts off in California where the maximum rate of 39% was due to take effect. The state referred the proposed increase to independent auditors for an opinion. The answer came back negative. It seemed Wellpoint couldn’t add up. Well, that’s oversimplifying things a little. But the reality is that the numbers Wellpoint offered to support their premium increases were based on some very shaky mathematical assumptions. When news of the report became public, Wellpoint withdrew the proposed increase. Acting on this, Kathleen Sebelius who is Secretary of the Department of Health and Human Services sent out a letter to all state insurance commissioners encouraging them to review every proposed premium increase. This is the first sign that the balance of power is shifting against the insurance industry and in favor of the consumer. For too long, insurance companies have hidden behind complicated mathematical explanations and gamed the system. With the Affordable Care Act now law, Sebelius is encouraging every state to give itself the power to approve rate increases. The first sign of continuing good news for consumers comes out of Connecticut where Attorney General Blumental forced an audit of Blue Shield and Anthem Blue Cross, both Wellpoint subsidiaries. Connecticut’s Insurance Commissioner Sullivan rejected these companies requests for increases last year. It seems likely the same thing will happen this year.

By moving so quickly to encourage states to review all proposed rate increases, Secretary Sebelius is demonstrating one of the key advantages now available to the Federal Government under the new laws. That the interests of the consumer will be put before the interests of the health insurance industry. This means every state should be going through a routine of analysis every time premium rate increases are proposed. The assumptions, evidence, claims histories and trends asserted should all be rigorously tested. If there are any problems, the increases should be denied. The aim should always be to ensure affordable individual health insurance plans are available to the majority of people living in the US. For too long, the insurers have been allowed to bamboozle regulators with math and complicated explanations. With independent audits now coming into play, the kind of success enjoyed by the citizens of California should be felt around the US.

CHIP stands for Children’s Health Insurance Program and was initiated by the Congress in 1997. It is a special program connecting federal and state government with the aim to provide additional health coverage to uninsured children and future mothers who don’t have the financial abilities to purchase a separate individual policy but still don’t qualify for Medicaid.

On February 4, 2009, CHIP was expanded by President Obama’s passing of law on Children’s Health Insurance Program Reauthorization Act (CHIPRA). This expansion raises the number of children within CHIP from 7 million to 11 million and extends its payment through 2013.

Who qualifies for CHIP?

CHIP is something between Medicaid and private insurance plans. Those who have too much income for Medicaid but still can’t afford private plans may use CHIP.

CHIP eligibility rules are different in each state. Still, in the majority of states, children who are younger than 18 years old and whose families earn $44,100 or less a year are eligible for CHIP.

The number of family members strongly influences the income value making it possible to opt for CHIP. For instance, a family of four can earn up to $44,100 while a family of two the upper income limit for being eligible for CHIP is $29,140 a year.

What is the cost of CHIP?

It all depends on the place you live in and how much your family earns, but in most cases you will have to pay a small fee on a monthly basis in order to receive coverage. In some states you may also encounter start-up fees and co-payments for each service received. For instance, it will cost you $35 to start the coverage in Colorado and each doctor visit or service will cost you between $2 and $5.

With CHIP health insurance you get very low fees for the services, but they are quite often related to your family’s income. For example, the monthly fee for CHIP coverage in the state of New York is only $9 and children from families with higher income may apply. In the state of Illinois however, having an income between $44,000 and $66,156 per year will result in a $40 monthly premium paid for each child.

What are the benefits provided by CHIP?

The list benefits you can get through CHIP varies from one state do another. However there’s a minimum set of requirements the program is obliged to provide regardless of the location:

• regular check-ups
• immunizations
• dental services
• hospital care
• emergency room services
• laboratory and x-ray visits

As said earlier, in some states you will be required to pay certain fees for getting the coverage or cover a part of services provided through CHIP. Still, it is a strict requirement that preventive care is absolutely free in all states through CHIP.

CHIP can be a possibility to get cheap health insurance for those who really need it. Children are very important to us and having their health protected is very crucial for parents. Don’t try to save money on health insurance coverage for your children because there are programs like CHIP and Medicaid that can help you if your income doesn’t allow you to get medical coverage from a private insurance company.