One of the biggest challenges for those starting out in real estate is financing their real estate purchases. Banks prefer to lend to individuals, not entities. And they want to see as much income as possible so they can be assured their loan will be repaid.

From the investor side, the investor wants to maximize the number of properties he/she can purchase with cheap bank financing. In our last Ask Tom Live call, I mentioned to Harold that he and his wife should purchase their properties separately instead of jointly. June wants to know why.

Q: You told Harold (the farmer) that he and his wife should buy houses separately because they would be able to buy more. If they have the same pile of funds to draw upon to purchase the houses, how would they get to buy more if they did it separately and not jointly.

A: Most banks want to qualify their loans under the FHA rules. FHA guidelines restrict the number of loans held by any one borrower. If you purchase the homes jointly, you are both charged with the loans. So, you can effectively double the number of homes you can buy using cheap bank financing simply by purchasing them in the name of a single spouse. Of course, you still have to meet the income requirements of the bank, but for many couples this is a fairly easy test to meet for each spouse. So we suggest you always purchase the properties in the name of one of the spouses to maximize the use of cheap bank financing.

Warmest regards,

Tom