On the show today we have… Maxing Your Lendable Income with Albert Bui!
Listen on: Apple Podcasts | Stitcher | Spotify
Show Links:
– Albert Bui – 425-951-5300 – albert@avenue1cap.com
– Our last podcast with Albert Bui was A Deep dive into lending and investing
– Checkout our podcast with Mark Canton on Real Estate Accounting
– Checkout our podcast with Keith Pitsch of Loan Depot
– Checkout our podcast with Natalie Kolodij A Deep Dive into Real Estate Taxes & Accounting
– Get your tickets here for the PNW Big Badass Real Estate Wealth Expo (July 2020)
Show notes for Maxing Your Lendable Income with Albert Bui!
The Vantastic Life is…
– is in Massacre Rocks State Park ID!
Julie is in her new podcast location downstairs and Joe is somewhere in Idaho after snowboarding at Grand Targhee, which was the best day of the year. And Julie found her bike rack keys!
Julie
We are going to talk with Albert Bui with Avenue 1 Capital, and we are going to increase your buying power!
Albert is the man!!!
Where are you Albert?
Albert
I’m in sunny California, where I stay for part of the month. And ready to do this.
Julie
Joe
Give us a brief background and people should checkout seattleinvestorsclub.com/33 to get your full story.
Albert
Yeah, my main dream is to create cash flow, and to do that through lending. I was broker and went through several companies, and have now started my own company.
So today we are going to talk about how to improve your borrowing power. I’ve always thought about how buying a property can actually increase my ability to buy more property.
Julie
I actually don’t hear anyone talking about this topic as much as you. You are the worlds expert on this topic.
What does it mean that someone doesn’t set themselves up properly?
Albert
I take them one at a time…
Most lenders with 1-4 unit properties, they lend up to half of your monthly income (before taxes), and how they calculate it, it can get technical.
When someone buys one rental I’m thinking about how it will position them to buy the next and the next rental.
Julie
So lenders will let you borrow 50% of your TOTAL income, including rentals.
Albert
Yep. But the lenders will always use the tax returns. So if you have write offs that make it look like you didn’t’ make money… that’s what they look at.
Julie
What do you look at?
Albert
What they’ve done so far.
What is their grasp on the topic.
Are they working with CPA’s. Like Mark Canton, I love them!
This allows us to just go right from there!
Julie
So, first is to find out if they are working with a professional.
But what if they aren’t?
Albert
I will work with their tax advisor.
Julie
Right now it’s St Patricks Day, and you might not have your taxes done yet.
What are some tips you can share about how to property do your taxes to setup a win?
Albert
The days the property is in service. If it’s up for rent… that counts as days in service. Most people put 365 days. But that’s a disadvantage.
As a lender we take that whole income and divide by 12, instead of only the 8 months that it was rented. I will also look at this and ask those questions.
Julie
The point is that it bumps up your monthly average income.
Albert
Right!
Julie
This is dynamite info here guys!
Albert
I’m trying to help clients qualify for more, and less expensive money.
Julie
What if you want a HELOC?
Albert
Every lender calculates that differently, but yeah.
Also there are times that your tax return could look negative, but that it’s not. The lender can add your write offs back in.
Julie
How do you know if the lender is calculating this correctly?
Albert
You have to call them out! Call a JC or JB on them!
I didn’t know how deep you wanted to get into this one…
Julie
We want to go deep!
Albert
It has to do with appreciation and we are speeding up what we can write off. And it’s on the different part of the tax return.
The problem with doing cost segregation is that most people miss it. But I will add that back in.
Julie
And these are things that you should be asking your CPA.
What types of cost segregation?
Albert
I have a client that was negative to having roughly 14k per month to use for lending.
We add everything that’s cost segregation or depreciation back.
Julie
What types of things would people…
Albert
I just did one that will save me 80k in taxes.
Julie
Is there a cost benefit?
Albert
Yeah, it was costing me $8500, and I was getting $80k back, and that was my goal.
I believe that the location of the cost segregation doesn’t matter. They can always fly out.
Julie
What else?
Albert
You don’t always have to use the tax returns. You could use 75% of the gross income. The tax return might not always be the best.
You’d have to explain that the taxes were incorrect, and explain that to the underwriter. So your lender needs to know how to talk to the underwriter. And that difference is key.
Julie
Let’s go into that. There are people that are doing the boarding rooms, and airbnb.
Albert
Renting by the room… I’ve had underwriters use it. The issues is that if you’re living in the house. Then they don’t count it. If you aren’t living in the house, you can use it. But how we calculate it varies. It’s a non-subject property.
If you live in the property that appraises at 3000, but you rent rooms and make 4500… you can only use the 3000. But if you don’t live in the property… you can use the whole 4500.
Julie
What’s delayed financing?
Albert
It’s when you buy it with all cash. And there are no leans recorded. Then you do a refinance to recoup your money. You can get up to 70% of market value up to what you paid for it.
Julie
And are there tricks to jack up the cost?
Albert
You bring all your costs. Purchase, repairs, closing costs.
Julie
How about tips for real estate agents/brokers?
Albert
I’ve been getting a lot of agents that are representing themselves. They get 3%, so with as little as 3%, you have 100% paid for.
There are some agencies that won’t allow you to use the commission.
You are using the commission for your down payment.
The cool part about VA is that you can use the seller concession to help you qualify for the loan.
Julie
You would think that the lender would bring that up.
Albert
I have agents that think that VA is bad, but I tell them it’s not actually bad at all.
Julie
What’s the difference between Fanny, Freddie, and FHA?
Albert
They do lend differently. From income to…
FHA is nice because they are very lenient.
Julie
Do all lenders have access to these?
Albert
They do, but you know lenders are always in squirrel mode.
Julie
What should people be asking about?
Albert
It depends on what they are looking for.
I’m always looking to help people build their portfolio.
There are all kinds of lenders out there.
I like accountants, and real estate investors.
Julie
You should ask people where they spend most of their business.
Albert
Yeah.
Julie
What about quit claim and LLC stuff.
Let’s say you went back to your personal name and then want to put it back into your LLC… would that be advisable how soon people do that right now?
Albert
You want to be able to let the lender be able to sell the loan. I was advised to give 3-6 months. Usually it’s less time. But lenders are taking forever to close right now. So you want to give them enough to time to sell the loan.
You risk them calling the note due.
Julie
How do we know? Can we check.
Albert
Some internal companies you can look up and see, but the sure shot way is that when you get the letter from Fanny/Freddie.
Julie
So if you just did a loan and want to put it into your LLC, you need to wait for the letter that you loan was sold.
What’s your opinion on investors maxing out their HELOCs today?
Albert
I’m conservative about this because I worked during the last foreclosure times. And a lot of time you didn’t get a high percentage on a short sale.
There are people that will do the HELOCs incorrectly, and I’ve had this happen before.
Julie
I’m going to move on. Maybe we get two people to debate this, that would be fun.
How about a lender recast your loan and why they would be good?
Albert
Basically stretching it out. So let’s say you get a 100k inheritance so yo pay down your mortgage, but your payments are still the same. So they stretch it back to 27 years lower your monthly payment.
It’s managing your cash flow.
Usually you can do this once for the life of the loan, and it’s like $250-500 one time.
The reason you do this is to increase the cash flow. It would also increase you borrowing power.
Julie
Do people do this?
Albert
Yeah, usually when people come into a large sum of money.
It’s usually when people wanted to increase their lifestyle.
Julie
Good one!
Why would someone choose a cash out refinance instead of a HELOC?
Albert
There was a big difference in rate.
You get a fixed rate with a 30 year, no matter what.
The line of credit is that you don’t pay interest until you actually use it.
It depends on how you’re using the money.
Julie
What do you see changing if we’re heading into a big recession?
Albert
Well, it’s corporate debt, but I don’t think it can tighten up any more.
Julie
How do you think it will slow down?
Albert
Lenders will still close in 21 days, but they will charge a premium.
There are a lot more refi apps clogging the pipeline right now.
If you can pay no cost on the original purchase, you could come back for a refi.
Julie
Right now rates are lender by lender. Keith Pistch taught me this. Think of the 10 year treasury as a stock that just bounces around. When a lender goes to lock the rate, they grab the rate and then add their spread on top of it at that time. This is dictated by their workload. This is the difference that you see between different lenders.
What do you think about what I just said?
Albert
The difference in rate all depends on how the lending shop is run. If the lender has a lot of employees they might be lower. If you are ok with them being overworked and getting back to you slower, but want a lower rate…
We have a software that can see how busy a lender is.
Julie
If you were inline to get refinanced and the lender says the rates went up… that’s just temporary. Don’t give up. Just wait with your prepared file.
Albert
When your lender calls and asks you to update your file, do it quickly because that rate can change quickly.
Julie
One last question.
Income is income but each type of income is different based on how you receive it and for how long.
Albert
If you’re trying to do a transaction you need to understand how long you are paying or receiving the income, and how long you need to receive it for a lender to be able to use it.
We have to constantly stay up to date with changing laws on this topic.
Julie
How far ahead do you like people to plan ahead? 1-2 years?
Albert
We want to help everyone, but sometimes we can’t. I have people that I want to serve, and I want to help them first.
I also refer to people that are a better fit.
Julie
Good stuff! How can people contact you?
Albert
425-951-5300
albert@avenue1cap.com
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