Q. I have heard of investors taking advantage of today's low interest rates by refinancing properties that have been bought "subject-to". In one example that was discussed, a "partner" was brought in (somebody with a factory job with good credit and good income) to qualify for a loan. This can be done to pull cash out or to maximize monthly cash flow.
Any recommendations on the best way to do something like this? I'm assuming the lender is going to have to be savvy enough to understand Land Trusts to see that this is a refi and not a new purchase. Can you provide any guidance?
A. Great question!
First you need to look at the costs. What will the refinance cost and is it worth it?? It may be beneficial if you can greatly improve your cash flow and you plan to keep the property long term. Or you may be trying to get some cash out of the deal now.
We also factor in the hassle costs. Even if someone has great credit it is a hassle to jump through the hoops to get traditional financing. That is why we like purchasing subject to because the hassles are much less.
Also consider the benefit of owning a property that has a loan on it that does not show up on your credit report. There is a limit to how many loans a person can get. If you do not put loans in your name, then the number of properties you can aquire is unlimited.
Having said all of that, you may still want to refinance a subject to loan with a credit partner. Most lenders will require you to pull the property out of the trust to complete the refinance. They almost always require that the property deed be in the name of the individual that is getting the loan. I
have heard that some lenders will consider refinancing properties in a trust but I have never seen it happen in reality. Lou covers the theory of financing a property in a trust in the Land Trust Training Manual (page 146 in my book).
Most mortgage brokers do not think outside of the box and you will need one that thinks VERY creatively to make it happen without taking the property out of the trust.
The few that we have done were very simple. We had the refinance closing attorney complete the deed for the person doing the refinance and hold the deed in escrow. After the refinance closing, the attorney is required to file that deed by the lender. We then immediately file the deed placing the
property back into a trust.