I am looking to rehab several multi unit residential properties over the next year, and instead of focusing on selling them, I plan on refinancing them, pulling out some of the equity and keeping them as rentals. These properties will primarily be in Michigan and some in Indiana.
I need someone that would be able to take care of this refi for me on a regular basis.
Probably will have to be no doc as I am self employed(less than 2 years) and be able to pull cash out, preferably up to 80%LTV. I currently own 6 properties already including my own residence and have a 700+ credit score.
No Docs are getting tough my friend. Who know's where the guidelines will be in the upcoming months.
My recommendation still is to team up with a mortgage professional who specializes in investment loans. They're always going to stay on top of the changing guidelines as you move forward.
As ben said but I will go one further and say maintain acurrate cash flows in and out of personal bank accounts. this is an altenate way some lenders will calculate your income. Don't expect the lowest rates,but much better than a no doc. Just priced a no doc at 13% for a 665 borrower!~! no kidding.
Depending on the size of the deals you can use a variety of solutions. Commercial lenders tend to have specific requirements in terms of the minimum or maximum loan size plus the specifics of the property. Get some advice before you decide how you will focus your searches.
In some cases the local bank's commercial department will be the best way to go if you want to avoid lots of detailed documentation. Not all the time but certainly well worth checking.
Hey John, I appreciate your response along with everyone elses. Can you be more specific with " commercial lenders" and " local bank's commercial department." I am speaking of doing multi-unit residential properties.
I have found a local bank that I believe can help me out with both the rehab and then do a cash out refi for me after the rehab is done. He was explaining this as a " portfolio" loan. Not really sure what he meant by this. Maybe they will lend to me for holding my portfolio with them. He did say that I would have to stick with SFRs and Duplexes as it is very hard to do 3 and 4 units right now.
To all investors. As you expand you need to learn the terminology.
Residential - 1-4 unit residential properties with 1 title.
Commercial - 5 unit residential or larger plus all the other obvious types of commercial (offices, industrial, warehouses, etc).
Commercial lenders do not operate in the same way as residential lenders. The commercial loan officer in a bank works to different rules compared to the residential loan officer in the same bank.
So, a commercial lender will care a lot about the property's income. The loans are less easy to resell and are more likely kept on the bank's books. DSCR and other things become critical where a residential lender will not even look or will only casual look at the income vs. the debt.
A portfolio lender is a lender who originates loans and then adds the new loans to their portfolio. The lender does not have to fit the loan to what the resale market will buy (Fannie, Freddie or otherwise). Portfolio lenders may allow a residential investor to have more than 10 loans where a lender who is reselling a residential loan knows that they can not easily sell a loan when the borrower has more than 10.
Keep the questions coming if you have more. If I do not reply hit me with an email (preferred) or PM.
You'll need to lower your LTV expectations given the reduced documentation approach you are desiring---there are still lenders that allow for STATED cash out refis for investors ranging from 70-80 LTV.
I apologize, I realize why you were talking about commercial loans. I never specified residential or commercial. Yes, I am looking at residential not commercial properties. And I am pretty familiar with the fact that commercial lenders have different guidelines, even though I have never crossed the line from residential to commercial yet.
Thanks for the clarification on the defintion of a " portfolio loan." Sounds exactly what I am looking to do. I will defintely email or pm you if I have any other questions.
Scott- I do know that I will have to expect a lower LTV, would like to stay at 75% or higher if possible though. I do plan on buying very cheap, so that will be a plus.
I tried to explain this to you last week---it's difficult to forecast where guidelines will be in the future so what I tell you today, probably want be so in the future...
Expect low/no doc lending to continue to detoriate along with high LTV/low FICO and or high LTV/NOO financing.
If you are going to buy and hold, you might be better served to evaluating future deals on the worst possible scenario like:
- A lower LTV allowance for cash out refinances for investors
- The likelihood that you will only qualify for a rate and term refinance to get you out of your HML.
- The need to sell the property instead of holding it (in case you don't qualify for either circumstance listed above).
- The need to postpone your capital investment/profit capture until you sell the property (or the lending enviroment improves).
It's more important then ever to make your money on the buy---getting a positive cash flow every month and cashing out when you sell is still a viable business model for the days to come for buy & hold investors.
Because I'm familar with your background/history, I have some ideas on how to maximize your profits that I'll send to you personally.
As John pointed out, brick/mortar banks that offer portfolio loans may be the way to go. One additional point on that, commercial loans can still be made to residential 1-4 unit properties. You'd be getting a loan in the business name with much of the evalutions focused on the property.
My recommendation is to open up the yellow pages to the banking pages. Just start making calls to the commercial or business bankers (not retail loan officers). Explain your goals and they would be able to tell you whether this is something they do on a regular basis. Just keep checking off down your list of banks and I'm sure you'll be able to find several to go meet and build a relationship with.
I looked through all your information again and clearly you'll need a no doc loan as you expected. Have you thought about possibly just wholesaling some of your deals out? This would still get you cash needed so that properties you plan to hold can just be rate/term refinances of the purchase loan.
Hello Scott, I guess I do not understand why you are saying that you " tried to explain this to me." I thought I was pretty clear that I did understand and I appreciated it. I defintely know how bad the lending market is right now and how worse it might get in the future. I only was looking for answers from professionals in the lending market for my possible scenario. I apologize if you thought I was not listening to your advice as I do appreciate it along with everyone elses.
Doing a cash out refinance on my properties will be just one of my exit strategies. I will be marketing my properties to other buy and hold investors at a discount. I hope to keep at least half of the ones I rehab for my portfolio and the others will be sold off.
Thanks again for your help Scott and everyone else.
Thanks for the advice Ben, seems like going with a local bank might be my best route right now until I have more time being self emplyoed. I am hoping it works out with the current bank I am looking at, but if it does not I will defintely look at contacting more banks to see what they can do for me.
Also, I did not know you could use a commercial loan for a residential property. Is this something that I could look into with having a new business? Can you use commercial loans for refis?
I frequently use commercial loans to refinance my residental income properties. I am currently seeing loans at about 70% LTV, 20 year amortization, and interest from 7.5-8%. Keep in mind this can change daily.
It is true that commercial loans use completely different guidelines. One issue I have run into is local lenders being reluctant to loan to an owner that does not live in the same state as the property that they are looking to refinance, so this could possibly be an issue for you. I am sure there are lenders out there that ar OK with that, so make those phone calls! I'll let you when I come across lenders that may be able to help you.
Contact me directly if you have any more questions that I may be able to help you with.
you might want to consider Shore Bank out of Chicago. They lend throughout the midwest on NOO property and can sometimes be more creative than many institutions.
Aug 28 '07, 10:34 PM
