Mortgages & Creative Financing

Confessions of an Ex-Banker: How to Get Your Next Loan Approved, Guaranteed.

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Do you wanna hear something not a lot of folks know about me?

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I used to be a front-end personal banker at a national bank.

Yep, I was the guy who sat in the desk and took loan applications and tried to get you to refinance your house. Man, I hated that job. Really, it was awful.

So much sales pressure, so many hours of staring at the clock. So many reminders that I should be out investing my money, rather than working for it.

However, my job did give me some inside information about how the loan process works. Want to know what I found out? Loans were like a gun safe. They could be opened with the right code.  Every time.

I titled this post with the word "guaranteed" NOT because I believe you will always be able to get a loan approved, but because I wanted to demonstrate that the lending process is not a mystery. It's a lock that can be opened with a code. If you enter the right code, you WILL get your loan approved.

Can you enter that code today? Maybe, maybe not.

Unlike the code to a gun safe, this code is not something I can simply tell you; it's something you need to have. But I do know that IF you enter it right, if you have what it takes, you are going to get approved. Whether you are looking to buy your first home, purchase an investment property, refinance a current loan, or something totally different, this post will give you the tools you need to crack that code and hear a resounding "yes" from the banker, every time.

Understanding How a Loan Works

Before getting into the details of just how to get your loan approved, let's talk about the basics. How does a loan even work?

Obviously, there are a lot of different kinds of loans and lenders. There are conventional banks, mortgage brokers, portfolio lenders, hard money lenders, private lenders, and more. Each is going to have their own system. However, let me make a few quick points about the loan process: Typically, the person who you are talking with is just a salesperson (like I was). Here's the secret that makes the entire loan-procuring process 10x easier: They are not the ones ultimately responsible for saying “yes” or “no” to your loan.

When you go into a bank and sit down with the banker, most likely they are simply there to collect your information and be the contact person for you. The real decision-maker is in the “underwriter.” The underwriter is an individual trained to look at all the puzzle pieces that the salesperson gives them and approve or deny a loan based on facts. The underwriter knows all the rules, laws, and regulations and can make an informed decision. However, while the underwriter has all the power, the underwriter is usually not very creative and definitely not emotionally involved (purposefully). Therefore, to get a loan approved, you must accomplish two things:

  1. Convince the front end sales guy about the worthiness of you and your loan
  2. Get the front end guy to convince the back end underwriter about the worthiness of you and your loan

I find that #1, convincing the front end guy, is always easy. They are very quick to say, “Yeah, no problem. We can do that.” I ran across this about a dozen times when trying to refinance my recent 5-plex. Over and over, I heard it: “Yeah, Brandon, no problem. We can do that loan for you, no problem!” Then six weeks go by, and I get that fateful call, “Hey Brandon, this is [insert sales banker’s name here], and it actually looks like we can’t do that loan. You see, our bank will only [insert excuse here].”

I don’t blame the banker, as I used to be one. I had one whole week of training, and I was sent out onto the sales floor to secure multi-million dollar loans. In fact, I was paid commission on loan APPLICATIONS in addition to loan closings. In other words, as a front-end banker, it was in my best interest to get someone to apply for a loan whether or not I thought they could actually get approved. That wasn’t my job; that was the job of the underwriter. I was just collecting leads and acting as “the middle man.”

However, while the banker is not the one ultimately responsible for approving your loan, they are the first (and perhaps most important) person to focus your efforts on. Let's talk about that.

The Banker’s Role in Getting Your Loan Approved

Let me tell you a quick story about myself — not to pat myself on the back, but to illustrate this point. When I worked at this bank, I was able to close twice as many deals as the other banker who worked there. Twice as many.

We both had the same number of leads, the same number of applications, using the same underwriters. But I was able to do twice as much.

Why?

It’s the same reason I am able to buy twice as much real estate as many for almost no money down: Because I was creative. You see, most people don't punch the code in right the first time when trying to get a loan approved; there is something wrong with it. A boring banker or underwriter will simply say, "No, sorry” and hang up the phone. But I was different. Instead of saying, “I can’t get this loan approved,” I always asked myself “How can I get this loan approved?” See the shift in thinking?

Now, I didn't do anything unethical or illegal to get these loans pushed through. Sometimes it was as simple as paying off a small credit card first or changing the loan type. My point is: When you start looking for a loan, look for a creative banker. You want someone who is not simply going to say "yes" or "no" like a computer, but someone who is going to fight to get your loan approved.

Perhaps the best way to find this, at least when looking to get a loan on a piece of property, is to ask some real estate agents who their preferred lender is. In my town, 9/10 agents will all say the same person. Find this person – that's your first step in getting your loan approved.

Now, even the best, most creative banker is not going to think of everything. This is why it’s ultimately UP TO YOU to make sure your loan gets approved. No, you didn't just misread that. Once you finish this post, you'll have no excuse to simply "apply and pray" for loans. You'll be able to know, or at least have a very good indication, of whether your loan is going to be approved or denied. No matter how good your banker is, they still can't turn a pig into a pancake. It must pencil out for the underwriter. To make sure it does, let’s talk about how an underwriter thinks…

Understanding How an Underwriter Thinks

Let me tell you a little industry secret: lenders need you more than you need them.

Think about that. Without borrowers, a lender makes no money. Why else do you think banks and mortgage companies spend hundreds of millions of dollars on advertising? They need us! So why does it seem so difficult to get a loan?

To put it plainly, a lender follows the exact same advice I give new real estate investors: it's better to do NO deal than a bad deal. In other words, they would rather do no loan than lend on something that will go bad. This seems pretty obvious, but it's the first step in getting your loan approved. A loan is a gamble for the lender, and lenders only want to bet on sure things. This is why it appears so hard to get a loan — because you have to prove you are a good bet.

So, what constitutes a “good bet?” Well, I don’t know because I don’t know YOUR lender. However, there is a really easy way for you to find out: Ask them!  Start building relationships with your local banks NOW, whether you plan to borrow this year or not. You never know when that relationship will come in handy. Let’s move on, and I’ll give you some specific on exactly what your banker is looking for.

The 12-Digit Code You Need to Crack to Get Your Loan Approved

Remember: your lender needs to loan out money — you just need to get the safe open!

When an underwriter looks at your loan and is going to issue a "yes" or "no" verdict, they are going to want to make sure you have the right code. This code is the minimum requirements that they require in order to lend. Some of these requirements are set by the bank policy, others are set by the government. Others are simply set by the underwriter themselves. Getting your loan approved is as easy as correctly entering in the code.

Below are 12 digits in that code. Some banks may have fewer digits needed, while others may have more, but these 11 should get you started:

1. Property Type

Certain lenders only loan on certain types of property. So the first thing you should ask yourself is: will the lender lend on this kind of property? For example, if you are looking to purchase a commercial property but the lender you are talking with only loans on residential properties, you'll see a door slam in your face. Trust me, I've been dealing with this.

2. Property Location

Typically, lenders have certain locations they will and will not lend in. Be sure that your lender is okay with the location of your property.

3. Property Condition

Many lenders will only loan on a property in great condition. Why? Because they want to ensure that the property can be sold if they needed to foreclose (and they want to make sure it is not dropping in value because of the condition). Therefore, be sure to check with your lender on what kind of condition they look for. Keep in mind, there are strategies for buying properties that need work, so don't automatically rule out the fixer-upper.

4. Loan Amount

This is something I ran into often in my search for a loan over the past year. You see, the five-plex I am refinancing is a commercial property because it contains five units (anything over 4 is considered commercial). However, most commercial lenders have loan minimums and since I only needed $100,000 for the refinance, I heard a lot of "Nos."

5. Debt to Income Ratio (DTI)

When buying a property, lenders want to know that you can afford it. To determine this, they use a ratio known as “Debt to Income” or “DTI.” DTI is a percentage number based on the relationship between your debt and your income. However, there are two different DTI numbers they care about, so let’s look at both:

Front End Debt to Income Ratio – Front End DTI is the relationship between how much your total housing payment will be and how much debt you have each month. For example, if your primary residence house payment will be $1000 per month and you earn $3000 in gross monthly income from your job, your current Front End DTI would be 33.3%, because $1000/$3000 = .33. For real estate investors trying to buy or refinance rental properties, this number is not as important as Back End DTI.

Back End Debt to Income Ratio – Back End DTI is the relationship between how much TOTAL debt you have compared to how much income you make. In other words: your total monthly debt payment divided by your total monthly income is your DTI. For example, if your total debt payment each month was $2000 per month and you currently earn $4,000 per month from your job (gross) your Back End DTI would be 50% (because 2,000 / 4,000 = .50).

Every lender has a DTI number they care about, and one of the most important things you can do to ensure your loan gets approved is ensuring you are below the threshold of what the bank likes to see. Typically, you probably want your Front End DTI to be less than 28% and your back end to be less than 36%. When checking with a lender on their DTI requirements, you will typically see these numbers in the following format: (28,36) [where the first number is the front end, second number is the back end.)

6. Loan to Value (LTV)

A lender's primary concern is to "avoid risk." To do this, they want to ensure that no matter what happens in the future, they will be okay. If you continue to pay forever, they are happy with the interest. But if you stop paying, they want to know that they are not going to lose money. To ensure this, a lender wants to know that there is sufficient "equity" in the property to cover the costs if they need to foreclose on you and sell the home. To gauge this, the lender relies on a percentage number known as Loan to Value, or LTV. The Loan to Value is a ratio between the total loan amount(s) and the properties fair market value. In other words:

LTV = Total Loan Amount(s) / Fair Market Value

For example, if a property is worth $500,000 and you are looking to get a loan for $400,000, you are looking at an 80% LTV loan, because $400,000 / $500,000 = .80.

Lenders typically have different requirements for maximum LTV based on the property type. For example, for an owner occupied property using an FHA loan, the lender will go up to 96.5% LTV. However, on a commercial property, a lender may not want to lend above 50% LTV.

If you are an investor, you are likely to find 70-80% LTV the norm for investment properties.

One additional note about LTV: the LTV is calculated using ALL the loans that have a lien on the property, including 2nd or 3rd mortgages. The lender will likely add all these loans together to determine the LTV.

7. Credit Score

This one is pretty self explanatory, but banks want to know that YOU are trustworthy to lend money to so they generally have a minimum credit score that they want to see. This number will depend on the lender and the loan type, but if you are below a 600, understand that it can be difficult to obtain any kind of loan.

To check your credit score, I would recommend checking out CreditKarma.com, which allows you to see your score for free (Like… actually free. No free trial, no credit card required. They make their money by selling credit cards. Yes, kind of ironic.)

8. Repayment Source

Lenders want to ensure that your ability to repay the loan will stay consistent. To do this, they will dig in on your repayment source for the loan. For most borrowers, this means they will look into your job. They will want to know how long you have worked there for and how much you have historically made.

If you just started a new job, it can be more difficult to get approved than if you have had the same job for years. If you are a property investor, the lender will also look at your rental income and may be able to use that income to offset your debt. However, most lenders will not give you any credit for this income unless you have been a landlord for more than two years (remember: they want stability).

Additionally, no matter how long you’ve been a landlord, you likely will never get 100% of the rental income counted toward you. They will likely give you 70-80% just to be safe on their end.

9. Experience

Next, they may want to know your experience level. This is especially true on large, commercial or multifamily loans. Why? Because the bank knows that you will not be able to pay the payment if something goes wrong. If the mortgage payment on your new apartment complex is $30,000 per month, the lender knows that there is no way that you could pay that if all your tenants left. Instead, they’ll want to look at your experience level to make sure you have the skills to ensure a catastrophic event like that will not happen.

10. Cash Reserves

The lender will want to ensure you have the cash to weather any storm. Be sure to have at least some cash in a savings account before applying for your next loan. The amount will depend on the lender and how many properties you own, but every lender is going to want to see something.

11. Recent Credit Changes  

A lender wants to know that not only is the property going to be stable – but YOU are going to be, especially in regards to your credit decisions. For this reason, it's important not to do anything crazy with your credit while trying to obtain a loan.

As lender Jeremy David Schachter of Pinnacle Capital Mortgage Corporation says, “What I always tell my clients, especially during the mortgage process, is keep on doing what you are doing when we initially got you pre-qualified. Don’t get tempted by the zero percent credit cards to furnish your home and with new appliances. Don’t change jobs, transfer large deposits into your account that can’t be sourced and don’t increase any existing debt, even after your credit is pulled. Lenders pull a refresh credit report as it is called right before you sign your official documents or close. If there is any new debt or an increase in your balances of existing debt, it could make or break your approval.

12. Compensating Factors

Lastly, understand that in the end, loan decisions are eventually brought to a real, live person, so there could be "compensating factors" if you fall short on a requirement or two. For example, if your credit score is a few points shy but the Loan to Value is exceptionally low, the lender may waive the minimum credit score requirement because the equity in the LTV compensated for it. However, there is no way of knowing exactly what your lender will or won't do, so it's best to simply try to fit your peg within their square box perfectly.

Now that you have a good idea of how a lender thinks, let's talk about how to fit your loan into a package that a banker will be excited about.

Get Your Loan Approved By Making Your Lender’s Job Easier

Earlier in this post I mentioned that getting a loan approved is like a code. If you can get the code right, you can get the door to open.

That “code” was outlined above, but a code does no good if you can’t find the keypad.  In other words, you might know the 12 digits needed to open a safe, but if you don’t know how to punch those numbers in, those digits will be worthless. So let’s crack this safe together.

As I said before, a lender WANTS to approve your loan.  The banker wants to say yes. The underwriter wants to say yes. So why do we hear so many “nos?”

Because people don’t enter the digits in correctly! So what’s the best way to make this process go more smoothly?  How do you get these digits entered correctly? Simple: Do the heavy lifting for your banker.

You banker has a LOT of loans going on at the same time. They are doing a car loan for Bill Johnson, a house refinance for Sally Wiggins, and a broom loan for Harry Potter. Therefore, a banker is likely going to take the path of least resistance and prioritize the loans that will be the quickest and easiest to enter in. So, if you want your loan to get approved and get approved quickly — do the heavy lifting for them, so their job is as easy as possible. You already know the 12 digits that the banker needs to enter, so write these out as detailed and "plain as the nose on their face" simple for the banker, and then provide documentation to back it up. When you speak with the front end banker, ask them for a list of all the items you will need to have. Likely, that will be:

  • Tax returns for previous 2 years
  • W2s for previous 2 years
  • Pay stubs for previous 2 months
  • A personal financial statement
  • Bank statements
  • Purchase and Sale documents for the property
  • Descriptions of all your properties
  • And probably more.

When the banker gives you this list, don't think of it as a "wish list" but as a "must list." Your job is to compile this information in the most organized format possible. If there is one tip from this post you could remember it is this: there is power in presentation. Go overboard. Have fun with it! When I applied for the loan that was ultimately approved for my recent 5-plex refinance, I organized the entire packet in binder I bought from Staples, complete with a cover page, summary, photos, and divider tabs. There was nothing magical in this – but I simply gave him everything he wanted in the most organized way possible.

Furthermore, I ran this property through the BiggerPockets Rental Property Calculator and took the PDF report that it generated and included that on top of the organized packet. This enabled the lender, in one place, to see all the financials of the whole property. Upon giving him the application, besides being blown away by it's organization, he commented how nice it was to see that summary document. And within a few days I had a full loan approval. (If you are not using this calculator to apply for loans or analyze potential deals, you are really missing out. Check it out today at BiggerPockets.com/analysis.)

Wrapping it Up

I can't guarantee that you'll always hear a "yes" from your lender. But I can tell you that if you don't hear a yes, it's because you either didn't have the right code or didn't punch it in correctly. Start thinking of the loan process like a safe to open – and the whole process becomes much easier and you'll be able to finance far more properties.

Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.

    Steve
    Replied about 6 years ago
    Ben, It seems you may be making the assumption that a decision not to entertain Sect 8 renters is based on a preconceived notion about their quality, as a renter or as a person. My reasoning for not playing the Sect 8 game is that I simply don’t agree with most Gov’t programs and do not accept the pervasive influence of Gov’t in areas where they have no business. I will not play a part in any of these programs because by participating, I would be condoning, and I would become part of the problem.
    Terry Pratt
    Replied about 6 years ago
    Steve, I believe that housing prices and rents are artificially inflated by excessive government regulation (including but not limited to zoning (supply control, minimum lot size, etc) and other land use restrictions); Thomas Sowell has shown that zoning redistributes income (generally upward) from renters to owners (Markets and Minorities, Chapter 7, 1981). In this context, I consider Section 8 to be an unfortunate and ham-handed attempt at addressing rental affordability yet one that falls far short of equalizing the upward redistribution effected by government housing regulation.
    Ben Leybovich
    Replied about 6 years ago
    Terry – housing prices are inflated by the FED to engineer wealth for the middle class. That, and other monetary policy meddling, induces price inflation which pushes rents up, presuming there is sufficient velocity, which there is not yet but it’ll come. The only thing that doesn’t keep up is the minimum wage and therefore the only folks loosing are the minimum wage earners…
    Terry Pratt
    Replied about 6 years ago
    Zoning redistributes income from renters to owners, independently of what the Fed does. Pretty hard to argue with Sowell on this.
    Ben Leybovich
    Replied about 6 years ago
    Hey Steve – the entire monetary system and fiscal policy is fiat. Why stop at not condoning Section 8, just get back to gold coins my friend. Or, is there a line in the sand whereby government is OK on one side but not on the other – I’m confused…
    Steve
    Replied about 6 years ago
    Please, Ben. Sure, we could could go down that road… but it will take quite some time to do so. If you are truly confused, let me clarify as succinctly as possibly. Our Federal Gov’t was not designed, nor was it intended, as a vehicle to create a permanent dependent class. That is what it has become, and the existence of policies that create long-term dependency have served some quite well. I choose not to participate or help perpetuate any of it in the few cases where I actually have the opportunity to do so. You are free to participate in Sect. 8, but don’t delude yourself into believing you have not become a willful beneficiary of a broken system. As far as currency goes, since you brought it up, it IS clearly a cause for concern.
    Ben Leybovich
    Replied about 6 years ago
    Steve – I understand your stance on this. I choose to be a pragmatist; It is what it is and if I can profit from it, I will. The tenant is qualified as any other, and if necessary will be evicted as any other. Simple math. To your overriding point – yes, it would be nice to get the government out. This is an impossibility at this stage in the game. We had a HUGE discussion on this topic here in that other article (the one with 226 comments) Thanks Steve
    Horizon
    Replied about 6 years ago
    Very well written Ben! There are sociopaths in all income levels. Just take a look at “Wall Street”. Definitely, income does not determine character. If you have no good values and morals making $ 20K/year you won’t while making a million/ year. I believe that people with section 8 deserve a chance and they need to be assess as individuals when it comes to their moral and character.
    Ben Leybovich
    Replied about 6 years ago
    Thank you Horizon. There are sociopaths at every income level – I love it!
    Curt
    Replied about 6 years ago
    Our business has a model that reduces risk, damage, and increases renewal rates and length of stay and we don’t depend on a Gov program that my fear is that will come to an abrupt end. Folks who say Sec 8 can’t come to an end, haven’t read Nasem Taleb’s Black Swan series of books and probably have a few surprises in their future. What’s the primary goal of being a landlord anyway? I feel it’s to be reliably paid rent as many months of the year as your business model allows while eating a few expenses as possible. Given that it’s income, lack of damage and repeat renewals is what we are after, why don’t we boil down why folks renew, pay on time and don’t damage a place? 1) Folks have an important need to live in YOUR rental’s location. I ask specific questions to dig this info out of each prospect. “why do you want to rent this place?” I’ll never take someone who thinks it’s nice, cheap or they got tired of looking. That can all change. – Good schools. For us we only buy in great schools 5 or better. In fact most are in great schools 8 or better. – the 3 kids aren’t through high school yet so need to say and call this rental “home”. – Relatives live nearby. – there’s some other need that your house uniquely satisfies. I have one house with a day light basement that the renter has turned into a motorcycle repair shop. They will never move! And they are neat! 2) Having in your written rental requirements, 2 incomes, one must be W2. For us income must be 4x more than rent from 2 incomes. Ideally the greater income is 3x more than rent. 3) A history of making smart financial decisions. Of course no evictions but I pull a landlords credit report from “citi renter check”. I look for too much credit card debt. I don’t care about FICO. I look for 100% on time payments. Citi renter check shows on time payments and what’s in collections. It’s not in my written requirements but I don’t like newish low gas mileage vehicles like Detroit SUVs. To me in a lowish income renter this shows poor financial decision making. I look in the vehicle though, it has to be neat as a pin. Messy cars mean messy renters. I’ve seen this rule hold 100% of the time. Good luck. You don’t have to debate sec 8 or not, change your business model to be successful without sec 8 is my view. Even multi-family properties could be repositioned out of Sec-8. It starts with setting that as a goal.
    Ben Leybovich
    Replied about 6 years ago
    Thanks for a thoughtful comment Curt! I agree with you – our assets should be desirable enough to attract stable paying clients. The notion of slumming to Section 8 is ridiculous. As I mentioned in the article, I’ve turned over 14 units in the space of a few months and only 1 is Section 8. Not that I’m opposed to more, but I certainty don’t need Section 8 in my business. This is a choice, which is what this article is about – think about this. Thank you so much Curt!
    Curt
    Replied about 6 years ago
    Ben I had to circle back and say that my comment wasn’t what I intended to say, I was last second affected by a prior anti-sec 8 comment. I’m sorry for my rant. I’ve read all of Nassimm Taleb’s swan books. His last, Anti-fragile might be the best. This blog post refers to Anti-fragile https://www.biggerpockets.com/renewsblog/2013/10/16/antifragile-real-estate/ The reason why Anti-fragile is relavent even critical in a low income rental market is that you are MUCH more likely to have renters get a speeding ticket, have a child need an out of pocket medical expense etc then not be able to make rent. I laud and want to acknowledge a comment you made, that you are re-assessing your view of the path folks end up taking and renting to poor is part of your compassion. I hope to be in your shoes some day!!!! Near term for our business though, we have to be extremely conscious of the fragile corners of various strategies and choose the path that is least likely to run off the tracks. I applaud your comment that poor people can be good renters too. I add to others that you need to consider your business rules from a Fragile vs Anti-Fragile perspective. In our business, we don’t have enough Anti-fragile income to afford taking on a model that may be harboring fragile (risky) aspects. Yet that is. FWIW my view of the sec 8 Black Swan event, is where a catastrophic government event causes sec 8 vouchers to be canceled or the checks to simply to not be auto-deposited. Hey can one imagine such an event given the current federal gov issues? I hope all can say Yes. This could happen on a State or County basis. So what if half your tenants where section 8? Could you take the hit of half your income stopping? Folks didn’t think this could happen in 2006 when alot of rentals turned up empty due to everyone who could walk got a mortgage. LOL Think about your business risk from all sources, is my point.
    Bill Briscoe
    Replied about 6 years ago
    Great comments Curt. I really like your focus on strategy and risk management. I only disagree with your neat car test. My truck (which I use when rehabbing property) is currently trashed. My house is kept very neat though, mostly thanks to my wife. So I don’t think that holds 100% of the time.
    Ben Leybovich
    Replied about 6 years ago
    Curt – 1 Section 8 tenant (even 2,3, or 5) out of a portfolio is not fragile if you subscribe to this which I do not. I recently spoke to a big time landlord (hundreds of units at different locations) and he told me that he not only noticed that Section 8 tenants are not any more troublesome that any other, but he intentionally allocates certain number of units toward Section 8 – he likes knowing the money will be there; it puts a foundation underneath his CF. So you see, it’s all in how you look at it lol Thanks so much!
    Karin DiMauro
    Replied about 6 years ago
    Ben, I think I see another 226 comments coming your way on this one! Thank you for this post, which is thought-provoking and well reasoned. One can only hope that those who need to hear its message will actually hear it. I have an investor friend who conducts the bulk of his business renting to Section 8 tenants. I love his business model – he rehabs his buildings beautifully (w/in reason, of course – they *are* still rentals … and note that I did NOT differentiate between a rental and a Section 8 rental! They are rentals, period.) and provides his tenants with a better product than they’ll find anywhere else. He treats people with respect while still operating a highly efficient business, i.e. late is late and eviction notices go out right away. This guy is very compassionate but he’s no sucker – he does thorough background checks, he has a savvy (and street smart) property manager, etc etc. I think the bottom line is that you find what you are looking for. If you think Section 8 means scummy, bloodsucking tenants who game the system – you’re right. If you think Section 8 is just another option to find respectful, paying tenants – you’re right. (By the way, my investor friend took us on a tour of his projects in his Jag. So it’s kinda working for him.)
    Ben Leybovich
    Replied about 6 years ago
    Thanks so much Karin! I just get so bored writing about “nothing” that it becomes difficult to get motivated to write. I just have to write about “something” – you know?
    Karen
    Replied about 6 years ago
    Well then, you know you’re asking for it, so don’t complain when this is still dragging on 2 weeks from now. 😉
    Ben Leybovich
    Replied about 6 years ago
    Haha – thanks both Karen and Karin!
    Ben Leybovich
    Replied about 6 years ago
    lol 🙂
    Karin DiMauro
    Replied about 6 years ago
    OK, that wasn’t me … an impersonator (w/an “e” in her name), or coincidence? Funny comment nonetheless. 🙂 And I thank you, Ben, for tackling “something” rather than nothing!
    Ben Leybovich
    Replied about 6 years ago
    Haha – thanks both Karen and Karin!
    Ben Leybovich
    Replied about 6 years ago
    Thanks so much Karin! I just get so bored writing about “nothing” that it becomes difficult to get motivated to write. I just have to write about “something” – you know? Reply Report comment
    Tosin
    Replied about 6 years ago
    While income level does not equate to character and/or lifestyle, there are strong correlations. Yes you will always find exceptions to the rule. But exceptions are exaclty that-, EXCEPTIONS! and they are in no way a counter to the validity of a rule.
    Bill Briscoe
    Replied about 6 years ago
    I agree on the correlation. If you look for people who work for respectable employers who pay good wages, it is very likely those employers have already run extensive hiring background checks/annual drug test on their employees, which often weeds out the felons, drug addicts, and other deadbeats. If someone from my company or my bro-in-law’s company applied for a rental, I would already know a lot about them, just because of the quality of employees at both companies.
    Ben Leybovich
    Replied about 6 years ago
    Ha – I agree, sort of. I assume that everyone is an ass, and the exception is to find someone who is not. And income has nothing to do with it 🙂 Thanks so much Tosin
    Robert
    Replied about 6 years ago
    I want to hear the boring details of why you evicted a guy 3 days into his occupancy! 🙂
    Dawn Anastasi
    Replied about 6 years ago
    Me too!
    Ben Leybovich
    Replied about 6 years ago
    I decided not to evict at the moment. Though, I am not at all sure of the future of this relationship… Thanks guys 🙂
    Andrew
    Replied about 6 years ago
    I second (third) this!
    Geoff
    Replied about 6 years ago
    Diito
    Ben Leybovich
    Replied about 6 years ago
    Wow – you guys are really after the juicy stuff lol. Here’s the deal – the guy is still my tenant as I have not filed yet. He cleaned up his act; for the time being. You might hope that he messes up again and I kick him out so that I can tell you all the whole truth and nothing but the truth. For now, I don’t kiss and tell hahaha
    Ben Leybovich
    Replied about 6 years ago
    Not a chance 🙂
    Mike McKinzie
    Replied about 6 years ago
    This all points to my belief that good Property Managers are worth their fees. I have had section 8 renters since the 1970s, so I have a long history with them. My record is 24 years with the same Section 8 tenant. Sec 8 can be good and it can be bad. To make a blanket statement either way is being short sighted. All of my property managers have a set criteria for applicants and section 8 is NOT one of them. They do all the research and then send me a synopsis of the applicant and I make the decision, yay or nay. REI have the right to run their business any way they like as long as no laws are being violated, ie. race, gender, faith, and other protected class bias. As a side note, even though I am against most government subsidies, I see section 8 as a way to get some of my tax dollars back, and I would rather see my tax dollars used here instead of going to some African Warlord.
    Mike McKinzie
    Replied about 6 years ago
    This all points to my belief that good Property Managers are worth their fees. I have had section 8 renters since the 1970s, so I have a long history with them. My record is 24 years with the same Section 8 tenant. Sec 8 can be good and it can be bad. To make a blanket statement either way is being short sighted. All of my property managers have a set criteria for applicants and section 8 is NOT one of them. They do all the research and then send me a synopsis of the applicant and I make the decision, yay or nay. REI have the right to run their business any way they like as long as no laws are being violated, ie. race, gender, faith, and other protected class bias. As a side note, even though I am against most government subsidies, I see section 8 as a way to get some of my tax dollars back, and I would rather see my tax dollars used here instead of going to some African Warlord.
    Ben Leybovich
    Replied about 6 years ago
    EXACTLY on every point you made – thank you Mike!
    Karen
    Replied about 6 years ago
    Hey Ben, My reason for lack of interest in Section 8 rentals is because I would prefer not to rely on a government program; it has little to do with the clients, I agree that it is possible to find good tenants within Section 8. It’s the part about dealing with the administration that I find unappealing. Some landlords will do well with Section 8 and good for them, but it’s not the path for me right now. Hope that helps explain it. Best wishes in all your endeavors.
    Ben Leybovich
    Replied about 6 years ago
    I understand what you are saying Karen, but disagree with that view. The administration has nothing to do with this program… Thank you very much for reading and commenting!
    Al Williamson
    Replied about 6 years ago
    Ben and my BP Family, I’m enjoying the discussion. Thank you. My comments are: 1. Can you imagine for-profit solutions to housing low-income earners in a respectful manner. 2. Can you imagine a scalable, for-profit business that uses real estate investing as means to create personal wealth while serving the working poor? If not, you may wish to consider the self-imposed limits on your imagination and perspective. There is a world of possibilities out there waiting for entrepreneurs to find them. Just thought you’d like to know. :^)
    Terry Pratt
    Replied about 6 years ago
    As a lifetime low-income individual, I have found living with several roommates to be generally undesirable partly due to flaky roommates and the increased costs associated with them (e.g. when someone skips town etc the rest of us have to cover that person’s house expenses). While I rented a guest house (just like Kato Kaelin) for 15 years (until a health collapse and 18-month loss of income forced relocation to live with relatives), the rest of my adult life has been spent sharing housing with four or five or more roommates. I HATE IT! So I am obsessed with the idea of tiny (~400 or so sf) affordable one-person dwellings. I’d love to build some (absolutely no money to do so of course) on tiny (2500 sf) lots (of course zoning almost always requires much larger (and therefore unaffordable to the intended market) lot sizes, or see someone else build some. This could be achieved as a condo development, but that would defeat my purpose of making them affordable. (grumble grumble) If someone could pull off this sort of housing – especially with an affordable ownership option – I’d be very grateful.
    Ben Leybovich
    Replied about 6 years ago
    You are talking about efficiency units. I actually have one – it is very popular. $475/month base (more for pets) which includes all utilities. In certain demographics this type of unit works very well. Thanks Terry!
    Ben Leybovich
    Replied about 6 years ago
    Al, First of all, some of the folks reading this may not be aware of your stature in the game. Thanks for joining the blog as a weekly contributor – we will benefit from your perspective. Secondly, thanks for your comment. There is a lot of money to be made working with Section 8, presuming we can be pragmatic and leave certain ideology out of our decision-making process. It’s fine if people don’t want to play the game though – more for you and me 🙂 Thanks Al!
    Dawn Anastasi
    Replied about 6 years ago
    I have yet to have an experience renting to Section 8. On most of my properties, Section 8 will only pay X whereas market rent is X+Y, meaning that Section 8 only pays under market rent. So if you specifically want a Section 8 tenant, you have to either invest in the bad area of town, or you have to be willing to accept less than market rent and I’m not willing to do either. I have had Section 8 applicants apply, and even tried to rent to one once, but for a $1100 rental (without utilities), Section 8 said that they would pay $960 (if I paid utilities). On another one at $750 (without utilities), they would pay $725 (if I paid utilities). So in my case, what would you do? I would be literally LOSING MONEY to rent to a Section 8 tenant.
    Terry Pratt
    Replied about 6 years ago
    Section 8 subsidizes rent only up to the (median) FMR in your metro for the property size (1BR, 2BR etc). So if your metro median rent is $1000 and your unit rents for $1200, Section 8 would pay $700 (tenant pays 30% of subsidized rent) and the tenant would pay $500 (30% of the subsidized $1000 plus all of the unsubsidized $200).
    Dawn Anastasi
    Replied about 6 years ago
    I was told by the Section 8 office that the tenant could NOT pay more for the unit. Not sure if this was because $960 was what Section 8 was paying as they were paying 100% of the tenant’s rent.
    Sharon Tzib
    Replied about 6 years ago
    And I think this was what Karen was referring to above about not liking to work with the Section 8 administration – rules like this. I rented to a Section 8 tenant for almost two years – got paid like clockwork, loved that. But the tenant did have to make up the difference between what my rental rate was and what Section 8 said it was (luckily Indiana allows that to occur). The other very irritating thing Section 8 does is mandate what repairs you must make to your rental, first, before the tenant can move in, and subsequently, every year thereafter. I’m not talking about repairs that affect the quality of life or enjoyment of the home either. I’m talking about seriously annoying, nitpicky repairs, ostensibly to justify the inspector’s existence. In the end, yes, I would rent to a Section 8 tenant again under the correct circumstances, but with eyes wide open about the amount of control I am relinquishing by doing so. Bottom line, Section 8 is a business decision, and I wouldn’t turn someone away just because they are in the program.
    Ben Leybovich
    Replied about 6 years ago
    Thank you for clarification Terry.
    Ben Leybovich
    Replied about 6 years ago
    Nope – that’s not gonna work. If Section 8 does not [ay fair rent then screw ’em. No arguments here Dawn. Thanks a lot!
    Dan
    Replied about 6 years ago
    I currently have six single family homes with section 8 tenants. Probably rented to over 25 different section 8 tenants over the last 10 years. I agree with most of what you had to say, but……. Every section 8 tenant I have ever had has ended badly. Every one. Those that have not ended badly are still tenants. When it’s working, it works, but the moment something tips, it comes crashing down hard.
    Ben Leybovich
    Replied about 6 years ago
    Dan – I would venture to say that when it comes crashing down hard it’s not because you’ve got people on Section 8 but because you’ve got people who are holes… I’ve had 3 of those in 6 months and none were Section 8. Nature of the beast I guess. Thanks so much for commenting!
    Roy N.
    Replied about 6 years ago
    Ben: Sometimes that Murphy fellow pays a visit and … well … life happens and things come crashing down hard. The person may not be a hole, but just fell into one.
    Ben Leybovich
    Replied about 6 years ago
    True 🙁
    catrina brooks
    Replied about 6 years ago
    Good article Ben. Thanks for calling it the way you see it. Most of the negative comments have responded that Section 8 either does not support their business model. or that they are anti-government assistance. Both sentiments are within each camps rights. However, very few will admit their preconceived, stereotypical beliefs about lower income socioeconomic groups. Many investors are reluctant to evaluate candidates on an individual basis which could prove just as lucrative as middle class patrons for some investors.
    Ben Leybovich
    Replied about 6 years ago
    Thanks so much Catrina!
    Nichole
    Replied about 6 years ago
    That’s really good, Ben! Great, actually! Really makes one think! Thanks! n
    Ben Leybovich
    Replied about 6 years ago
    Thank you indeed Nichole!
    Kyle Hipp
    Replied about 6 years ago
    Ben, Another thought provoking article!! I don’t often have to fill vacancies and the few times I have had a section 8 tenant apply, I have had another more qualified applicant. I wouldn’t be opposed to a section 8 tenant that I had a good gut feeling about as you mentioned. The hesitation that I do have is the increased regulation which is managable because I keep my properties in good reair but most importantly is the question of the dependability of the program going forward. We have so many folks calling for government spending cuts because they think the government needs to run like a business. This is dangerous and I do not know how the process of making cuts to the programs. I guess I would look at it similiar to someone who is dependant on alimony or child support. There is nothing wrong with that in the least but if they don’t get their payment because the payee lost their job then we are both up for a tough conversation. I guess my question to you would be… If you had a choice between two equally qualified applicants with whatever adjustments you normally make for a section 8 voucher, you just feel they will be equal in terms of ability to pay and both pass your gut check. Who do you give preference to?
    Ben Leybovich
    Replied about 6 years ago
    Kyle – first come first serve. I don’t hold Section 8 against an applicant, but I won’t hold a unit for them either. Qualification with that program takes time. Meanwhile, if I get an applicant with credit report and pay stubs in hand – oh well. It’s a business 🙂
    Kyle Hipp
    Replied about 6 years ago
    Sounds like we are on the same page. Thanks again for the article!
    Ben Leybovich
    Replied about 6 years ago
    Thank you!
    Kyle Hipp
    Replied about 6 years ago
    Sounds like we are on the same page. Thanks again for the article!
    Kyle Hipp
    Replied about 6 years ago
    Sounds like we are on the same page. Thanks again for the article!
    Dennis
    Replied about 6 years ago
    Not sure if BP keeps tracts of posts, but Section 8 must burn the stats across the board. Really it is simple the program is a dual welfare system; the landlord gets a higher then normal rent with much less management (chasing tenants). I would garner most of the homes rented section 8 would not make economic sense to rent without the program. For the tenant another welfare program, only need to put oneself into some level of poverty and the taxpayer picks up the tab. Not heartless here, just single mothers for the most part are no longer widows. I have offered my end to two of the largest contributors of poverty that creates an artificial need for Section 8 and most welfare programs. The first is drugs, I could end all illegal drug use in a month, as well as all alcoholism among those currently receiving or seeking any form of welfare, or entitlement of any kind. Require all to pass a drug or alcohol screening, they fail, no check period. Just assuming the assistance money is not to be used for the above substances. The second is single motherhood, all needs of the mother and baby will first be born by the father, no i.d. on who the father is, no assistance. Next the parents of the mother would be required to pay for her upkeep. The same drug and alcohol test would need to be passed. And there you have it the end of illegal drugs and single mothers. I ran this idea by a few of my tenants all agreed this would solve the problem. However they all said they would still seek assistance as working a 9-5 job is not for them. Go figure, I will have to brainstorm how we might induce the poor to get a job other then voting Democratic.
    Bernard Hall
    Replied about 6 years ago
    Also, the property we have is in a small southern farming community. The majority of folks around here do not make the kind of money that allows them to walk around with disposable income. The Section 8 program gives these folks a chance to actually find affordable housing on the incomes that they make. I believe excluding someone simply because they are on Section 8 is taking a short-sighted approach to your business. Of course, people have the right to run their business however they see fit (within the boundaries of the law). However, if the program can be a financial benefit for the landlord and a security benefit for the tenant, then you should at least consider it as viable option for your business. I am in the process of making one of our SFRs available to Section 8 applicants right now. It will be our first one. And I am interested in finding out what the final outcome will be…
    Ben Leybovich
    Replied about 6 years ago
    This is my point. Thanks Bernard!
    Dawn Anastasi
    Replied about 6 years ago
    And what about single mothers whose husbands were in Iraq or Afganistan and who died for their country? Or died for any reason altogether? And what about single mothers who divorced from abusive husbands? I think it’s a slap in the face to single mothers everywhere to make them seem like less of people because of their circumstances. What punishment would you dole out to single fathers???
    Ben Leybovich
    Replied about 6 years ago
    Dawn – I agree with you, but a little bit of background: The way the federal law is written is that the single mothers are only eligible for assistance if the father is not in the picture. In other words, if the father stuck around the assistance would be gone. This, naturally creates moral hazard in several ways: 1. Some women perceive having babies as a business as they get more assistance for each child; 2. The family unit is compromised – it’s either having dad around or having money. We know the choice many make. The feds are at fault here. Unlike most people who say get rid of the subsidy all together, I say give the subsidy but do not penalize a woman for having a father figure in the baby’s life. I think that if we keep the family unit together, we’ll fix a lot of the problems in our society. That’s my thoughts anyway… The tenant I placed is a single mother who is doing the best she can for her daughter and herself. If it doesn’t deduct from my bottom line, why would I not help her…
    Aaron
    Replied about 6 years ago
    If a spouse dies while on active duty, SGLI (servicemens group life insurance) pays out a substantial amount. Enough so to easily buy a house in almost any market in the country.
    Ben Leybovich
    Replied about 6 years ago
    Aaron – I didn’t know this and happy to hear it. The only reason we are able to do what we so is because a few among us choose to stand on that wall… BTW – excellent podcast 🙂
    Ben Leybovich
    Replied about 6 years ago
    Haha – I know. It seems that since I wrote that first one about a month ago, everyone has jumped onto the Section 8 bandwagon… Let me try to poke a whole in your argument. What if the person actually works full time plus over time and still only manages $1,500/month of income and therefore utilizes the program? This obviously is not a leach… Thanks so much Dennis!
    Sharon Tzib
    Replied about 6 years ago
    Dennis, this statement is area dependent: “Really it is simple the program is a dual welfare system; the landlord gets a higher then normal rent with much less management (chasing tenants).” In California, when I first started my rei career in 2000, that statement was true. When I later branched out to investing in Indiana in the late 2000’s, the Section 8 there set the rental rate and then paid a % of that rate. Well, their rate was less than what mine was (kind of convenient), so the tenant, whom I did end up renting to, had to make up the difference (which they allowed, another area dependent regulation). In any case, I think the most significant incentive for landlords renting to Section 8 folks (higher rent) is slowly being reduced in certain states. Counter-intuitive, but it is a government program, after all.
    Ben Leybovich
    Replied about 6 years ago
    Thanks Sharon!
    Ben Leybovich
    Replied about 6 years ago
    Thanks Sharon!
    Rob Fegan
    Replied about 6 years ago
    I’m of the opinion that Section 8 tenants need access to safe, clean living accommodations. I have chosen a strategy centered around building a cash flow positive portfolio of buy and hold MF-properties that include renting to lower income and section 8 tenants. My property manager (like Ben I believe) has a number of indicators that determine if a tenant will become the successful applicant for one of our units and not solely (or heavily) weighted just on income, albeit income is one of the factors we look at. One of the benefits I have found with investing in neighborhoods that are considered lower income (or for that matter entire towns that are low income) is that the competition for properties is lower than I would have expected. My experience is that any problems we have with tenants is no more weighted to Section 8 tenants as other non-goverment assisted tenants. Cheers, Rob
    Ben Leybovich
    Replied about 6 years ago
    Exactly Rob!
    Derek Caffe
    Replied about 6 years ago
    Great article. Many times those who have issue with Section 8 tenants or the poor in general are those who have wholeheartedly bought into the “American Dream” theory. We do not live in an independent society, we are VERY interdependent. That being said, no one does anything without the help of others, no one. So, sorry, no self made men or women in the world. Put short, the more adversity you face the more empathetic you typically become with the plight of your fellow man.
    Ben Leybovich
    Replied about 6 years ago
    Yours is an interesting perspective. I did not feel the way I do now when I was younger. But, I am developing humility toward the circumstance people who can not do what I do find themselves in. I have my brain, many are not as lucky. That doesn’t mean that they can’t sweep the sidewalk, which is not glamorous but needs done. And should they choose to get off their ass and go do that unglamorous job, they should be able to earn a wage that gets then an apartment someplace other than the war zone. And now days, I don’t hold it against them if they use Section 8, but as I’ve said before, I would rather that our economy could accommodate minimum wage that enabled the basics which it currently does not… Thanks Derek
    Bill Briscoe
    Replied about 6 years ago
    Ben, Sure anyone can quit paying and have to be evicted. Its how much I recover after the eviction that matters to me. I prefer to rent to higher income people because at least they have wages over the state minimum that I can garnish after I get a judgement in small claims.
    Ben Leybovich
    Replied about 6 years ago
    That’s a valid point Bill. I prefer the same thing you prefer, but this is not a legal qualification requirement for tenancy. Ability to put down a security deposit and to pay rent every month, having a clean record – those are legally defensible requirements. Thus, I don’t flat out turn people away for having low income and utilizing Section 8. I know what you are saying though!
    Bill Briscoe
    Replied about 6 years ago
    “I prefer the same thing you prefer, but this is not a legal qualification requirement for tenancy” It is legal because I have an income requirement of #x times rent. My rent is high enough that low income people aren’t going to be earning 3x or 4x that rent level.
    Ben Leybovich
    Replied about 6 years ago
    Sure Bill – if you want to weed out people on Section 8 this is a way to do it. I don’t do slum, and just like you I don’t do top of the market. In my neck of the woods rents go from $400 to $1,200. I live in the $600-$800. I know exactly what you are saying. But, I will consider section 8 at the bottom of that range
    Aaron
    Replied about 6 years ago
    For every bad high income earner story, there are 10 worse ones out there about section 8 renters. Ever have a high income earner decide that it is better to set the old couch on fire in the back yard because paying to have it hauled off is too expensive? (Even though the refuse company would have hauled it away for free!) Ever have a high income earner on oxygen think it would be a good idea to smoke cigarettes and consequently burn your house down? How about think it is OK to reheat pizza IN THE BOX and set the kitchen on fire then try to blame you because the stove “just turned itself on” and they just so happen to always store their leftover pizza in there? Or the multitude of section 8 tenants who live like such pigs that they think living with cockroaches is just ‘par for the course’? Just to preempt a knee jerk response, no, there were no cockroaches before they moved in. They brought their ‘pets’ with them. You can defend them all you want, but it is called suction 8 for a reason. Yes, there are a few honest, needy people who benefit from the assistance, but the majority of them are lazy, stupid, addicted to something, government handout dependent (in the abusive kind of way), or a combination of any of those 4. Thats why we like to joke that after they get their voucher, they need to head to the next window to pick out their free flat screen TV and dont forget the free iphone cuz you gotta have both of those when you’re on government assistance! As a person who grew up poor, and I mean eating-Bisquick-for-dinner-cuz-theres-no-other-food poor, in a single parent household, in a trailer park, next to the city dump, with a mother who never took a handout but instead worked her ass off to be able to buy us a house, I have absolutely no problem stating so on this or any other public forum – Section 8 is full of entitlement losers. And if you had to file eviction on a tenant after 3 days for not being current, then you made the mistake of letting someone move in before paying the first month’s rent in full because we both know you can’t evict for failure to pay a security deposit. I’d also like to know how or why you had to clean cocaine out of a sewer? That just sounds like knee deep rubber boot BS. Exactly how much cocaine does it take to block up a sewer? I’ve taken some pretty big dumps that went down alright so are we talking a kilo? More? If the house was under surveillance as you claim, I guess it kind of makes you an accomplice for disposing of the evidence. You might consider editing your post or just not embellishing so much next time. After thought; I’ve never had a high income earner ask me to “work with them on the security deposit” but I’ve my fair share of low life’s ask and my absolute favorite response is “that sounds like a job that doesn’t pay very well!”
    Ben Leybovich
    Replied about 6 years ago
    Hahaha – Aaron, you certainly answered the question as to why you don’t like poor people! I can hardly comment on your remarks. Your perspective seems to be coming from someplace deep. There seems to be a lot of emotion behind your point of view. Our experiences shape us… I will say this – I’ve had unscrupulous people with lots, and I mean lots, of money do things to me that are considerably more hurtful than anything you mentioned. My perspective is therefore a bit different from yours my friend – money spoils people and can cause people to abuse each other in much more substantive ways than lack of money… Thanks Aaron!
    Bill Briscoe
    Replied about 6 years ago
    By your money spoils people comment, you seem to be drawing a rich strawman to compare to the section 8 steriotype. In my rentals, I’d just as soon avoid both -and focus on the broad market of people who make decent wages. I’ve never looked at a carpenter married to a teacher or a web designer married to a customer service coordinator making $75K combined and thought “money spoils them”. Nor are they anywhere near requiring section 8.
    Dawn Anastasi
    Replied about 6 years ago
    After all this complaining about ending government subsidies and assistance, or reducing it, I have yet to hear of anyone with a comprehensive plan for “dealing” with the issue. Here are just some of the problems I see: – If Section 8 and any other government assistance were eliminated completely, you’d have a ton of people who would be homeless wandering the streets. Some people advocate private programs supporting them. Who is paying for the private programs? – Is drug testing welfare recipients a good use of taxpayer dollars when there are not 100% of people on welfare actually using drugs? – So if someone is using drugs, what do you do with them? Leave all the druggies homeless and wandering the streets? Lock them up? Kill them? What is the solution? I am completely an advocate of giving people a hand-up in life as with Aaron, I’ve had a rough time growing up (although I would bet money my childhood was worse than his). And yes, I’ve seen people abuse the system all my life. No matter what, things are NOT going to change overnight. I do believe that education is the key. Changing policies for the better is the key. But who is going to provide the education? Who is going to make the policies? Everyone things “someone” should do that. Reply Report comment
    Dawn Anastasi
    Replied about 6 years ago
    After all this complaining about ending government subsidies and assistance, or reducing it, I have yet to hear of anyone with a comprehensive plan for “dealing” with the issue. Here are just some of the problems I see: – If Section 8 and any other government assistance were eliminated completely, you’d have a ton of people who would be homeless wandering the streets. Some people advocate private programs supporting them. Who is paying for the private programs? – Is drug testing welfare recipients a good use of taxpayer dollars when there are not 100% of people on welfare actually using drugs? – So if someone is using drugs, what do you do with them? Leave all the druggies homeless and wandering the streets? Lock them up? Kill them? What is the solution? I am completely an advocate of giving people a hand-up in life as with Aaron, I’ve had a rough time growing up (although I would bet money my childhood was worse than his). And yes, I’ve seen people abuse the system all my life. No matter what, things are NOT going to change overnight. I do believe that education is the key. Changing policies for the better is the key. But who is going to provide the education? Who is going to make the policies? Everyone things “someone” should do that.
    Ben Leybovich
    Replied about 6 years ago
    This is what we do on BiggerPockets Dawn – education! Thank you!
    Valerie Pastore
    Replied about 6 years ago
    Congratulations for seeing what most people do not want to address. Too many people equate financial advantages with good character. Being poor does not automatically make you a bad person, lazy and incompetent. Not everyone was born on the same footing or had the same advantages. God made all kinds and if we were all alike what a boring world this would be
    Valerie Pastore
    Replied about 6 years ago
    Congratulations for seeing what most people do not want to address. Too many people equate financial advantages with good character. Being poor does not automatically make you a bad person, lazy and incompetent. Not everyone was born on the same footing or had the same advantages. God made all kinds and if we were all alike what a boring world this would be
    Ben Leybovich
    Replied about 6 years ago
    Thanks Valerie 🙂
    Bill Briscoe
    Replied about 6 years ago
    Valerie, you seem to make incorrect assumptions about how people draw conclusions and associations. its not that money/wealth or even income causes good character. Nobody I know of assumes that. Conversely, good/stable/verifiable earned income (and remember income and wealth are two entirely different measures) usually, though not always, requires some level of good character to achieve. So if i start with people with good/stable/verifiable earned income, I believe I will find people with acceptable character more often than not. Yes, I’m sure I will leave out plenty of other people who have acceptable character as well, but that is not really my concern right now. My concern is about protecting my business and my property – and I have enough safe applicants already that I don’t need to expand my criteria to get tenants. I’m not saying Ben shouldn’t do that – someone has to. Its just not for me – its more trouble than I want at this point.
    Ben Leybovich
    Replied about 6 years ago
    Bill – your assumption that stable income is indicative of “some level of good character” simply has not been born out by reality of what I see. There are plenty of holes out there who make good money. If you haven’t experienced it yet – good for you my friend 🙂
    Bill Briscoe
    Replied about 6 years ago
    Yes, they may be a holes, but they are usually functioning a holes. If someone has stable income (say they have worked the same job for 8 years), then they clearly aren’t a total deadbeat alcoholic or junkie who can’t hold a job for more than 6 months. And yes they could still have dependency issues, but at least they are at a functioning and earning level.
    steve
    Replied about 6 years ago
    In Oregon section 8 recipients are a protected class you cant refuse to rent to them just because they are section 8. That said i have both section 8 and non section 8 tenants there is allot more management with section 8 tenants as a whole, even if they pay on time it is a constant battle to get them to take care of anything.I have no plans to stop renting to section 8, but you have to have the right personality for it.
    Ben Leybovich
    Replied about 6 years ago
    Wow – I didn’t realize that Section 8 is a protected class in some states. Honestly, don’t know how I feel about that. I am not big on fiat mandates all together – there are other, better ways to get things done in my opinion. Thanks so much Steve!
    JimTx
    Replied about 6 years ago
    Thanks for the article and interesting debate. I know there are a lot of elderly people on Sec. 8 because they are on fixed income that makes it hard to afford decent housing. I’ve been thinking elderly Sec. 8 renters could make good tenants because once they get situated, they are likely to stay put (assuming they still have a few years of lifspan in them) and probably won’t be having big alcohol and drug parties. On to a practical question: how difficult did you find the process to get your property qualified and inspected for Sec. 8 eligibility?
    Ben Leybovich
    Replied about 6 years ago
    Hey Jim, If your place is something that you would live in, then you won’t have any trouble – you know what I mean?
    Bill Briscoe
    Replied about 6 years ago
    Not a bad strategy Jim, though elderly might require more help with maintenance, etc. Part of my strategy is to include a deductable on maintenance issues to discourage the running toilet/leaky sink calls. I’m not running a hotel, I’m not going to change your lightbulbs or plunge your toilet for you. I expect my tenants to try to figure out how to repair minor stuff under $50 or $100 – sort of like a hybrid triple net lease. I also try to push lease/purchase as part of my strategy. Again, section 8 isn’t likely to jump on a LP, are they?
    Bill Wallace
    Replied about 6 years ago
    I’ve only been a real estate investor for 3 years but I don’t do Section 8 at my 10 townhouse units for a few reasons – – I’ve had great luck with the current strategy of requiring 3x rent and doing a thorough background check. In fact I’ve only ever had 1 late payment which was 2 days late and he contacted early and he paid the late fee. Why change when it’s going good? – I’m also a Realtor and I offer my tenants an option of cancelling their lease at any time if they use me to buy a home. So far I’ve had 3 people do that and each time it’s usually an extra $3-5k in income. This wouldn’t be an option with Section 8 tenants. – The times I have had unit turnover I’ve very rarely had to even do any cleaning – they’ve returned it in great shape. Not sure that would be the case with Section 8 but maybe that’s a bias showing through. Good topic though.
    Ben Leybovich
    Replied about 6 years ago
    Don’t fix it if it ain’t broke – so to speak 🙂 Thanks Bill!
    Ben Nelson
    Replied about 6 years ago
    Wow I have very mixed emotions about this. Although I am just starting my REI journey, I do work for my families oil company and we deal with something extremely similar HEAP (heating assistance program). I love helping the little old ladies that NEED help, I HATE the bottom feeders that know nothing other than free hand outs and working the system. As a business venture we saw that there is still an opportunity to make money, so we followed. But! Our involvement only goes so far as, they get approved, we deliver the oil, end of story (until the scumbags call and try to work you for more >.<). Section 8 is so controversial for me, because I would love to help the people that do need help, and yes there are those people. Over the recession I didn't take a paycheck for 6 months straight just so I didn't have to lay off any more employees and just make things survive the best I could, and I chose to live frugally because I am not naive enough to not believe these times are never going to come. If things had gotten to the point, and I am thankful it didn't, that I needed help for housing, I would have liked it to be there. How do you fix these problems by changing the program? You have to eliminate everyone! Including those who need the help! Now im going to sterotype and generalize so forgive me but these sterotypes do come from somewhere. With section 8 yes you have guaranteed income (or at least until, the govt F&*(s up again 😉 ), but unlike HEAP you are stuck with these people… well I don't have to go into section 8 horror stories, you all know them, and yes there are horror stories with every kind of renter. NOW yes I agree that like with any tenant proper screening can find you great tenants and yes youll find some that are section 8. Ill suffice to say that the headaches that come with HEAP are nothing compared to section 8. But that's your own personal preference…. What really gets me is where these problems come from! Work ethic! Heres a start for progress, drop unemployment benefits back to 26 weeks or earlier! I wonder how many people would find jobs …. I know that if I wasn't hard working, ambitious, or anything else that doesn't relate to scum and I had 99 weeks to live off the system, I wouldn't start looking for a job for a longgggggggg time.
    Ben Leybovich
    Replied about 6 years ago
    Thanks for a thoughtful post Ben! The program is broken in a lot of way. There are a lot of people who need help, but not all of them deserve this help. This is the part of the program that needs addressed big time in my opinion and then guys like you and I will be happy. Thanks so much Ben!
    Bilgefisher
    Replied about 6 years ago
    I have had good and bad tenants in Sec8 and through traditional rentals. My poor experience has actually been through the program itself. Slow inspections on lease up, difficulty raising rent, below market rent (I just went from $1150/mo Sec8 max rent on one property to $1425/mo traditional rent in a 3 out of 10 neighborhood), and very costly repairs on inspections from overzealous inspectors justifying their jobs. The sec8 office workers are about as friendly and useful as the DMV workers. I also firmly believe If you rely on Sec8 as your business model, you will be in a world of hurt in a few years. Jason Reply Report comment
    Bilgefisher
    Replied about 6 years ago
    I have had good and bad tenants in Sec8 and through traditional rentals. My poor experience has actually been through the program itself. Slow inspections on lease up, difficulty raising rent, below market rent (I just went from $1150/mo Sec8 max rent on one property to $1425/mo traditional rent in a 3 out of 10 neighborhood), and very costly repairs on inspections from overzealous inspectors justifying their jobs. The sec8 office workers are about as friendly and useful as the DMV workers. I also firmly believe If you rely on Sec8 as your business model, you will be in a world of hurt in a few years. Jason Reply Report comment
    Ben Leybovich
    Replied about 6 years ago
    Agreed Jason!
    Bilgefisher
    Replied about 6 years ago
    I have had good and bad tenants in Sec8 and through traditional rentals. My poor experience has actually been through the program itself. Slow inspections on lease up, difficulty raising rent, below market rent (I just went from $1150/mo Sec8 max rent on one property to $1425/mo traditional rent in a 3 out of 10 neighborhood), and very costly repairs on inspections from overzealous inspectors justifying their jobs. The sec8 office workers are about as friendly and useful as the DMV workers. I also firmly believe If you rely on Sec8 as your business model, you will be in a world of hurt in a few years. Jason
    Daren H.
    Replied about 6 years ago
    Some of the comments to this article are tripping me out. People do associate income with character when they are two different things. Take it a step further, people associate race with character. People with good income do F’d up stuff just like poor people. White people do F’d up stuff just like Black, Hispanic, etc. Stop treating people as groups and screen them as individuals against your criteria! Either they fit or they don’t. To think being poor automatically makes you a bad tenant or a lazy leach is silly to me. Also, a lot of the same people who rant and rave about Section 8 and Government interference are the same people who advocate for certain other Government interference that they benefit from. I am less concerned about the Government subsidizing rental income or healthcare for poor people. I am more concerned about the Government sacrificing its young people in meaningless wars. I am more concerned about the Government subsidizing foreign countries that stand by and watch our young men and women get killed.
    Ben Leybovich
    Replied about 6 years ago
    I love your first sentence Daren…I concur with you sentiment. I’ve met so many ass…..es with money that I find it impossible to draw the association linking character to financial success / failure, which is my premise in this article. Thanks so much for sticking your neck out!
    Patrick D.
    Replied about 6 years ago
    I like your style Ben. Just like you I have the philosophy that there are good and bad people of every color and income levels. Fact is everyone has a story and different circumstances. It’s very hard to argue with hardcore ideological zealots who relish the good old days when churches ran hospitals, there was no social security etc.
    Patrick D.
    Replied about 6 years ago
    I like your style Ben. Just like you I have the philosophy that there are good and bad people of every color and income levels. Fact is everyone has a story and different circumstances. It’s very hard to argue with hardcore ideological zealots who relish the good old days when churches ran hospitals, there was no social security etc.
    Ben Leybovich
    Replied about 6 years ago
    Thanks Patrick!
    Frank O
    Replied about 6 years ago
    Good article. I definitely took heed to the moral in your stories. Kudos Ben
    Ben Leybovich
    Replied about 6 years ago
    Thanks so much Frank – glad you enjoyed!
    Brooks Rembert Rental Property Investor from Woodbridge, VA
    Replied almost 5 years ago
    Brandon Great article as always. One thing I’m unclear on though is the whole idea of getting credit for your rental income. I’m sure every lender is a little different, but is it as simple as calling them up and asking how much credit they give for rental income? Our current lender appears to only be giving us 70%, even though the place has been a rental, with W2 verification, for four years. Thanks again for your insight.
    DP Patel Real Estate Investor from Coppell, Texas
    Replied almost 5 years ago
    My lender has asked directly to their underwriter about the % and I was told that they can go upto 75% for 1st year for specific property, until I file my tax return. Of course, all my investments are not older than a year.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks for the comment Brooks! As for your question – yeah, you should be able to just call and ask. Most bankers will know and, if not, they can ask the underwriter. I think 70% is pretty normal, but I’ve found once you get to the commercial side of lending – this definitely doesn’t matter as much! Thanks again!
    Carlton B. Rental Property Investor from Milwaukee, WI
    Replied almost 5 years ago
    This should be required reading for anyone buying a house investor or otherwise. I have learned a lot of the things in this article but I learned by making a lot of mistakes. The two points that have found to be most important is finding the creative lender (they are easy to spot) and making the lenders job easy. I put a packet together with all the 8 things you recommended along with an explanation of my goals and shopped around and found my creative lender.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Those are definitely the 2 key points from this article! Thanks for reading, Carlton!
    Sean T. Rental Property Investor from MA
    Replied almost 5 years ago
    I worked in debt sales years ago now but can concur, lenders BEGGED us to find them new customers and wined and dined as needed. The key is to know if underwriting is a person or machine and how that affects the next step or actions you can take. Thanks for the article.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Hey Sean, that’s a great point about knowing if the underwriter is a person or machine. I’ve seen it both ways! Thanks!
    Michael Buffington Rental Property Investor from Lewistown, PA
    Replied almost 5 years ago
    Great article. It always amazes me when others get upset with a banker for requesting information when a loan is being reviewed by an underwriter. I always go to my commercial lender with as much information as possible and organize it in a binder for them. If they ask any questions or request more information I respond promptly and honestly. Sell the lender on you and your property. If you have a deal that works it really is not difficult to get a loan from the right lender.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    I know! It sure can be frustrating but if you get them everything up front, you won’t have to worry about it as much. My banker was just telling me the other day that 90% of the delay in doing loans is because people are slow at supplying paperwork.
    J. Martin Rental Property Investor from Oakland, CA
    Replied almost 5 years ago
    Great recommendation on making it as easy as possible by providing through information and documentation. I work in bank regulation and review real estate loan documentation and credit memos all the time, and it’s not just about how good the deal is. It really is about the presentation too and presenting the pertinent information in a manner that can be understood. Great blog post Brandon!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Awesome J, thanks for sharing that! It’s nice to hear that from the Regulator’s standpoint also! Because you are the one the Underwriters have to answer to 😉
    Robert Szalay Real Estate Investor from Colorado Springs, Colorado
    Replied almost 5 years ago
    Thanks for the article @brandon this is some great information. I will definitely use this when I am ready to go for loan #2. Now how do I favorite this…..
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Robert! And favoriting posts… I love that idea. Maybe we can somehow make a button for that so it will save to a spot on your BP Dashboard! I’ll bring it up to the higher up guys! 🙂
    james syed
    Replied almost 5 years ago
    Great article Brandon! It makes loan approval process look so easy. I especially enjoyed the step by step in plain English instead of some real deep real estate industry jargons that some writers use.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks James! I appreciate you reading!
    Curtis Bidwell Rental Property Investor from Olympia, WA
    Replied almost 5 years ago
    Brandon, Had you written this 2 years ago I would have saved a lot of frustration and anxiety! After working with a broker and going through over a dozen potential lenders (some more than once) spinning my wheels for 18 months, I finally did just what you suggested. I put together a company history, property profile, financials, tax returns, etc. printed out a nice color cover sheet and took it to Office Depot and had it nicely bound. The first bank I took it to did the deal! Great advise!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Curtis – had I written this earlier I would have saved MYSELF a lot of frustration and anxiety! It’s one of the main reasons I write- to clarify things in my own head! And awesome to hear about your story with the lenders. I just did the exact same thing!
    Frankie Woods Investor from Albuquerque, NM
    Replied almost 5 years ago
    Great article Brandon!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Frankie!
    Carl
    Replied almost 5 years ago
    Great article and wish I had read this before doing my first deal, as the lending was by far the hardest part of the whole process. I found that it was much more difficult the go through the process as an investor compared to a primary residence since there are more incentives to qualify homeowners for their primary residence, especially in a “distressed” area. Another experience that I am not sure is common or not was that I sensed lenders assumed that you knew what you were doing if you were going for a loan on an investment property. Turned out to be a bad assumption since I had to learn it all on the fly! That is too bad about needing 2 years of rental income to count for your DTI. I take this as another reason to keep a solid paying job and transition slowly and carefully before “taking the leap”. Reply Report comment
    Carl
    Replied almost 5 years ago
    Great article and wish I had read this before doing my first deal, as the lending was by far the hardest part of the whole process. I found that it was much more difficult the go through the process as an investor compared to a primary residence since there are more incentives to qualify homeowners for their primary residence, especially in a “distressed” area. Another experience that I am not sure is common or not was that I sensed lenders assumed that you knew what you were doing if you were going for a loan on an investment property. Turned out to be a bad assumption since I had to learn it all on the fly! That is too bad about needing 2 years of rental income to count for your DTI. I take this as another reason to keep a solid paying job and transition slowly and carefully before “taking the leap”. Reply Report comment
    Carl
    Replied almost 5 years ago
    Great article and wish I had read this before doing my first deal, as the lending was by far the hardest part of the whole process. I found that it was much more difficult the go through the process as an investor compared to a primary residence since there are more incentives to qualify homeowners for their primary residence, especially in a “distressed” area. Another experience that I am not sure is common or not was that I sensed lenders assumed that you knew what you were doing if you were going for a loan on an investment property. Turned out to be a bad assumption since I had to learn it all on the fly! That is too bad about needing 2 years of rental income to count for your DTI. I take this as another reason to keep a solid paying job and transition slowly and carefully before “taking the leap”.
    Carl
    Replied almost 5 years ago
    Great article and wish I had read this before doing my first deal, as the lending was by far the hardest part of the whole process. I found that it was much more difficult the go through the process as an investor compared to a primary residence since there are more incentives to qualify homeowners for their primary residence, especially in a “distressed” area. Another experience that I am not sure is common or not was that I sensed lenders assumed that you knew what you were doing if you were going for a loan on an investment property. Turned out to be a bad assumption since I had to learn it all on the fly! That is too bad about needing 2 years of rental income to count for your DTI. I take this as another reason to keep a solid paying job and transition slowly and carefully before “taking the leap”.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Definitely a good reason to keep the W2 till later! Getting loans for me now, with a w2 through BP, is so much easier than before!
    Carl
    Replied almost 5 years ago
    Great article and wish I had read this before doing my first deal, as the lending was by far the hardest part of the whole process. I found that it was much more difficult the go through the process as an investor compared to a primary residence since there are more incentives to qualify homeowners for their primary residence, especially in a “distressed” area. Another experience that I am not sure is common or not was that I sensed lenders assumed that you knew what you were doing if you were going for a loan on an investment property. Turned out to be a bad assumption since I had to learn it all on the fly! That is too bad about needing 2 years of rental income to count for your DTI. I take this as another reason to keep a solid paying job and transition slowly and carefully before “taking the leap”. Reply Report comment
    Richard Corns Residential Real Estate Agent from Monroe, Michigan
    Replied almost 5 years ago
    Thank you for sharing the importance of preparing a presentation for your loan officer and in particular the underwriter. Tell the story about the project your trying to fund. BiggerPocket colleagues should take this to heart and not do another thing until they put together their own presentation. Keep the financials current and just add to it as needed. I’m a private money broker and can almost guarantee that once you learn to structure your deals according to the lenders guidelines you’ll have a constant flow of funds. Sources other than Banks don’t give a hoot about your credit or how many properties are in your portfolio. In fact, Reputational Capital has more influence on their decisions than credit or bank account.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Love that Richard! Thanks so much for sharing!
    Patrick D.
    Replied almost 5 years ago
    Great article. The only thing I’d like to correct is this: “Repayment Source – Lenders want to ensure that your ability to repay the loan will stay consistent. To do this, they will dig in on your repayment source for the loan. For most borrowers, this means they will look into your job. They will want to know how long you have worked there for and how much you have historically made. If you just started a new job, it can be more difficult to get approved than if you have had the same job for years.” This probably varies a lot based on location but all some of them care about is that you have a job or 2-3 years worth of tax returns if self-employed. Those are the biggest deal breakers especially for us self employed folks. According to our mortgage broker, I can’t get a loan now because I don’t have 2 years worth of tax returns however if I went and got a job at McDonalds, they’d give me a loan after 2 pay stubs. I had asked another banker friend of mine in theory if I put down 80%, if they’d lend me the rest 20%. That’s 20% LTV and he said they wouldn’t. It’s pretty ridiculous but since most lenders simply sell the loans to Fannie, they follow the strictest guidelines even when it makes zero sense.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Great addition Patrick! All great points!
    Ramone Reese from Southfield, Michigan
    Replied almost 5 years ago
    Well this ought to be fun. Thanks for the info. Just bought several rentals and I am looking into how to get some of the money out as I buy and hold the majority of them.
    Mary B. Real Estate Investor from Lansdowne, Pennsylvania
    Replied almost 5 years ago
    Good blog, Brandon. It’s a very imformative read. The only thing I see that may need some elaborating on is #2 Property Location. This may be the case with private lenders & HML but with commercial banking its known as ‘redlining’ and is illegal. Kudos, Mary
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Hey Mary, I agree, I probably should clarify. My point was more about “we don’t work in that part of the state/country.” Within a community, however, they definitely shouldn’t redline! THanks for the comment!
    Jaime Penix Investor from Tampa, Florida
    Replied almost 5 years ago
    I am interested in knowing if the Debt to Income ratio calculated off our gross Income or the portion of Income that is taxed? You know the Adjusted Gross Income (AGI)?
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Hey Jaime, I’ve always heard it’s AGI, but I suppose different banks could have different rules. Thanks for the comment!
    Charmaine M. from Queens NY, New York
    Replied almost 5 years ago
    Brandon awesome article!!! True story- I just got approved for a loan yesterday and the loan officer was amazed of how well prepared I was, all because of BP. I got more money than I needed!!!!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Charmaine, that’s incredible! Congrats!
    Rah-sheen
    Replied almost 5 years ago
    Great post, thanks for the knowledge. One thing I just found out that I never hear about when applying for a loan is a public record search. The loan processor did this and found items as far back as 10 and more years ago and wanted a letter of explanation. I guess different states look for different items, but I have never heard of this being an item when going for a loan. Until recently.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Fascinating, i’d never had that happen but it’s good to know! Thanks for sharing!
    Ed France Interior Decorator from Sardinia, New York
    Replied almost 5 years ago
    Hi Brandon.Great article. Some things refreshed I had forgotten about. I had used a mortgage broker for my deals as it may have cost me a few dollarsnit left my hands free to concentrate on other things. I found them to be very useful. Thanks for the article. Ed
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Ed! Great point – a good mortgage broker’s job is to make all this nice and clean for you! Thanks for sharing!
    ilhan
    Replied almost 5 years ago
    WOW! Another great and educational article. Thanks Brandon, insightful information. As Always I enjoy reading your articles. thank you, Ilhan
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks so much Ilhan! I appreciate you reading it!
    Bryce Cutler
    Replied almost 5 years ago
    Brandon, As a banker for the last 20 years I would love to take this post and share it with my customers BEFORE they come to me to apply for a loan. The two things that I picked out from your post are to first make sure you are prepared with everything that your banker asks for. Don’t make them come back to you for more because it only slows down the purchaser and keeps buyers from getting into their home whether it’s for personal occupancy or an investment. Great point to help purchasers. The second piece that I would like to comment on is a relationship with your banker or bankers. As much as I would like to think all of my customers bank with just me I know they don’t. Many customers will have relationships with multiple bankers because each bank has different guidelines and although bank A may do the first loan for you they may not do loan B because for one reason or another the property for loan B doesn’t fit all of the requirements of the bank. Don’t bank with a bank, bank with YOUR banker. Quality relationships with your banker will go a long way. Bryce
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    I love that Bryce! “Don’t bank with a bank, bank with YOUR banker. ” – Perfect! Thanks so much for the comment! It’s great to hear it from a Pro!
    Rolanda Eldridge Investor/Realtor from Hoover, Alabama
    Replied almost 5 years ago
    Great info!! Taking Unlimited Property to the next level in 2015!!! I’m focusing on Commercial funding and unlimited sources!!!
    Mohamed nur
    Replied almost 5 years ago
    Hi,my name is Mohamed Nur,been a realtor over a decade in Minnesota and I belief the idea of establishing a great relationship with one or two bankers whom you trust and know that they fight for you.Of course in a legal way and I thank you for your advice.and also I know that underwriters paid on pay check and not commission so either way they get paid if the loan goes throug or get declined.thanks
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Mohamed! Agreed- relationships are key!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Rock on Rolanda!
    Roy N. Rental Property Investor from Fredericton, New Brunswick
    Replied almost 5 years ago
    Brandon: Good article. We maintain a thumb drive which contains our corporate information (annual reports, tax returns, budgets, etc) and the necessary personal information for all shareholders/partners. It also contains a status report on each of our existing properties (i.e. how each is performing, recent CAPEx, recent appraisal and remaining balance of current mortgages). We even through in the most recent CMHC Rental Market Reports along with our analysis of the property we are seeking to finance. Though DTI is handled a little differently up here – many lenders look at total household debt to income in addition to the DTI of the applicant – the basic process is the same. It never hurts to make your bankers life easy … it makes them look forward to your next property.
    Roy N. Rental Property Investor from Fredericton, New Brunswick
    Replied almost 5 years ago
    Oops … “We even through in the most recent CMHC Rental Market Reports along with our analysis of the property we are seeking to finance.” should read “We even throw in the most recent CMHC Rental Market Reports along with our analysis of the property we are seeking to finance.”
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Roy for the comment! That’s smart about the thumbdrive! See – there are a lot of great thigns we’ll be able to talk about on a future podcast with you 😉
    Justin Densmore Electrician from Harvey york co, New Brunswick
    Replied about 4 years ago
    As a new investor from New Brunswick I very much look forward to hearing this podcast.
    Justin Densmore Electrician from Harvey york co, New Brunswick
    Replied about 4 years ago
    As a new investor from New Brunswick I very much look forward to hearing this podcast.
    Eric
    Replied almost 5 years ago
    Thank you for the article. The follow up question I have is specific to myself hopefully you can at least give me a recommendation of where to research if I can get a loan. I would like to purchase a multifamily property 12 or units or bigger 800k-1.2 after an exchange + savings and will be able to put down 25% or 30%. Here is the deal I don’t make that much about (3k per month 1k goes to mortgage on my house) the rental income I have made in the past has been written off (depr etc.). Is their a formula that I can use to give me a ballpark on what I can expect to receive on a loan. I know I don’t currently make enough to cover a large property investment from my work income. Another problem I maybe that I was a passive partner in the property I will be selling and now want to go solo. Thank you so much for any feed back,
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Hey Eric, I don’t think there is any good ballpark on that info, but a commercial lender won’t care as much about your lower income level- as long as the property cash flows well! I would strike up that conversation with a few banks right now.
    Kevin Perk Rental Property Investor from Memphis, TN
    Replied almost 5 years ago
    You newbies out there should read this article closely. There is a ton of good advice in there! Great post Brandon! Kevin
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thank you Kevin! I really appreciate that!
    Blake C. Investor from Amarillo, Texas
    Replied almost 5 years ago
    Does anyone have an example of a file they have used as their portfolio to present to lenders? Clearly I don’t want to see your personal info, but would love to get the feel of what it could/should look like without reinventing the wheel.
    DP Patel Real Estate Investor from Coppell, Texas
    Replied almost 5 years ago
    I would second Blake C for some example. I have started working on this but it would be nice to see a layout with more examples within that.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Hey fellas, I simply took the list from my banker and made it look good! It was like a personal financial document, application, tax returns, etc. Really, every bank is going to be different so find out what they want and deliver it to them exact!
    Jennifer T. Investor from New Orleans, Louisiana
    Replied almost 5 years ago
    On my first home purchase (duplex), I was fortunate to have a somewhat creative banker who really held my hand through the process. My credit was okay (mid 600s), but not great, so that was a challenge. Here are two things I found surprising: 1) Although the house I wanted to purchase was half of what I qualified for (not including rental income), because it was a multi-family, I was required to put 20% down instead of the more typical 5%. For example, if it had been the exact same house but a single family home, I could have just put 5% down. It seemed so crazy to me that a home I was well qualified for required a larger downpayment, because I would have the ability to actually EARN money with it. But the reasoning I was given is that multi-family properties have a higher rate of foreclosure, so the standards are more stringent. 2) My banker had some kind of program where he was able to tell me exactly how much I should pay down on each of my credit cards to maximize my credit score. The surprising part? It wasn’t paying off each balance in full. Most of the cards showed my max. credit score would result from leaving a small balance on each card (under $20/each).
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Interesting, Jennifer! Thanks for sharing that.
    Karen Schimpf from Nat'l Commercial Mtg Lender - Round Rock, Texas
    Replied almost 5 years ago
    Interesting comment, “Lenders need you more than you need them.” I would have agreed with that statement prior to 2008, you could have been dead and you could have gotten a deal closed. After 2008, loan officers had to be creative to get deals closed. Obviously in the last couple of years more lenders are coming back into the market. But that being said, the borrower still needs to demonstrate their strengths of why a lender should lend to them. What I like about your article Brandon is that it helps the borrower understand they need to have their ducks in a row so they can show the lender that they are viable borrowers. I’ve read some of the comments above and it is sad the their loan officer didn’t bother to guide the borrower through the application process so they could get their loan approved.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Hey Karen, agreed – bankers really should do a better job of helping folks. I have worked with some great bankers and some terrible ones – and it really makes such a difference!
    DP Patel Real Estate Investor from Coppell, Texas
    Replied almost 5 years ago
    Great article, Brandon. Good to know the inside of the loan process. Specially, I liked the “Power in Presentation” part, which I have started working on that but never thought that it can be used for Lender. I will have to work on that wrt to Lender and make it very clear presentation for each proprty. Thanks again for a great info.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks DP! Yes, there is power in the presentation! 🙂
    lissa hall
    Replied almost 5 years ago
    Great article Brandon. Thanks for sharing.
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Lissa!
    Jesse Caver Investor from Solon, Ohio
    Replied almost 5 years ago
    This was really a good read a lot of information to make sure I’m on the right track to purchase thanks. I just joined and this by far is a great site Jesse Caver
    Zac C.
    Replied almost 5 years ago
    Great article Brandon, thank you for the insight – hoping you guys can shed some light on our current situation and let me know what options, if any we have available at this time. The long and short of it is that we went through a short sale on our primary residence in February 2012 and have been working diligently since that time to save $ and restore our credit. We purchased our first investment property in May 2013 with cash that we now own free and clear. I am looking to refinance the property using a HELOC to pull some cash out to reinvest but have had no luck finding a lender willing to work with us due to the lingering short sale on our record. We have been told that based on the current laws regarding short sales/ foreclosures we now have to wait a minimum of 4 years from the short sale closing date to be eligible for any kind of new loan even though it would appear we are a solid candidate for a loan based on strong credit scores, W2’s, tax returns, D/I ratio etc. Thank you for any advice or insight you may have on this subject and Happy Holidays to you ALL! Reply Report comment
    Zac C.
    Replied almost 5 years ago
    Great article Brandon, thank you for the insight – hoping you guys can shed some light on our current situation and let me know what options, if any we have available at this time. The long and short of it is that we went through a short sale on our primary residence in February 2012 and have been working diligently since that time to save $ and restore our credit. We purchased our first investment property in May 2013 with cash that we now own free and clear. I am looking to refinance the property using a HELOC to pull some cash out to reinvest but have had no luck finding a lender willing to work with us due to the lingering short sale on our record. We have been told that based on the current laws regarding short sales/ foreclosures we now have to wait a minimum of 4 years from the short sale closing date to be eligible for any kind of new loan even though it would appear we are a solid candidate for a loan based on strong credit scores, W2’s, tax returns, D/I ratio etc. Thank you for any advice or insight you may have on this subject and Happy Holidays to you ALL!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Hey Zac, I would look for local small Portfolio lenders, the ones who don’t need to abide by those rules from Freddie Mac and Fannie Mae. They might be tough to find, but look for small communtity banks with less than 20 branches and ask if they do any Portfolio lending! That’s probably your best bet.
    Zac C. Investor from Clearwater, Florida
    Replied almost 5 years ago
    Thanks Brandon will do, much appreciated!
    Michael Germinario Real Estate Investor from Point Pleasant Beach, New Jersey
    Replied almost 5 years ago
    Hi Brandon, this blog post is terrific. You consistently put out great information that is incredibly helpful. Thanks for sharing this, I will definitely take your advice to unlock the code on my next deal!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Michael!
    Kevin Kimble from Jacksonville, Florida
    Replied almost 5 years ago
    Hey Brandon, This is beyond excellent!! Along with the many comments from the community. As a 1st time homebuyer looking to take the plunge on a (hopefully) 4 unit property, the information provided here will bless me for the rest of my life. You don’t get information like that everyday! As a 1st time homebuyer looking to start of immediately as a landlord, I’M GOING TO NEED A LOT OF ASSISTANCE! lol!!! That is what I know I have here. Thank you so very much Brandon on behalf of all us “newbies”!!!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Kevin! Jump in – BiggerPockets is full of this kind of content!
    Julia Rowling Real Estate Investor from Greenville, SC
    Replied almost 5 years ago
    Thanks, Brandon! As usual, a super relevant post. So much valuable information and insight! Thanks for taking the time to provide us with such great content!!!
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Thanks Julia! I appreciate you reading it 🙂
    David Hicks
    Replied almost 5 years ago
    Best article on how to get your real estate loan I have ever read. Yes, I stuck with you through the whole “pot.” > “Thanks for sticking with me through this pot!”
    Brandon Turner Investor from Maui, HI
    Replied almost 5 years ago
    Haha oops! Thanks for reading! The POT is fixed 😉
    Jimmy Moncrief from Chattanooga, TN
    Replied almost 5 years ago
    Excellent Post…as always Brandon. Thanks for mentioning the podcast! Let’s do it again!
    Kathleen Wilcox Real Estate Agent from Federal Way, Washington
    Replied almost 5 years ago
    Terrific article!
    Andre Jefferson from Philadelphia, Pennsylvania
    Replied almost 5 years ago
    Nice article. Would you use this same format for private investors and hard money lenders as well? Thanks.
    Chris Caparro Condo Investor from Los Angeles, California
    Replied almost 5 years ago
    Great article Brandon. I actually just downloaded your book which I plan to read over the break. And congrats on the site. You guys are doing some great work.
    Daniel Loy Real Estate Investor from Englishtown, New Jersey
    Replied almost 5 years ago
    Brandon, very well written and very entertaining. Thanks.
    Dwight Sands Investor from Orlando, Florida
    Replied almost 5 years ago
    This is a great article. On the commercial loans there is a mention of 50% LTV maximum for some banks. Does everyone find this to be the average? That would make for a heavy down payment or a undervalued property or both.
    Aaron T. Developer from Tampa, FL
    Replied almost 5 years ago
    This post came just in time for me. I am looking at getting financing on a 2-unit property with 15% down. Most places I have talked to wont do it, but I did find one lender that said they will. With this information I can ask the right questions before I submit all my information to make sure the front end guy is not just saying “yes we can”, when in reality underwriting may not do it. I am now prepared to ask what percentage of multi family loans have they done and how many were approved at 15% down. Additionally, all the other 11 above mentioned questions. This will help vet this is the right lender for my need and save us time and extra work if they are not.
    Veronica Perez from Trenton, New Jersey
    Replied over 4 years ago
    Thanks so much for all this information is really helpful We have an appointment with the bank this week and I was thinking what should we bring? what should we say ? …. Now I know we have to prepare very well hopefully the appointment goes well!! Thanks again !!!
    Gary O
    Replied over 4 years ago
    I was just going to read a quick post. You guys aren’t playing fair, This deserved its very own post. To be honest I don’t remember what the article I was reading was about because this related article took center stage. I love the way this was presented, I kept thinking about my poor bankers who have helped me more navigating through my never normal needs and me knowing that they can’t do most of the things I want them to do. They have been really good at trying to get me to understand everything that you just wrote, You did a great work here, I may have to apologize to some bankers for trying to bend the only rules that I can understand now are pretty much in concrete.
    Patrick Sullivan from Leominster, Massachusetts
    Replied over 4 years ago
    Hey Brandon! Great article as ALWAYS! The only questions of mine were “What if I need to use a partner to fund the money down (because, much like you starting out, I am currently ‘working broke’?” AND “Particularly in the case of wholesaling, how would I go about doing the leg work for my cash partner as well as providing the bank/lender a clear, concise and doable business plan/strategy of the deal(s) me and/or my partner do?”
    Ezechaelle Norris Lender from Euclid, OH
    Replied over 4 years ago
    this is great advice for a new REI like me…learnng so much before taing my first property
    Nicole B. from San Jose, California
    Replied over 4 years ago
    Thank you for the article. I will be sure to reference this once I get to that stage. That’s a great idea to get organized, instead of sending everything piecemeal.
    Andrew Nissen Investor from Charlotte, North Carolina
    Replied about 4 years ago
    1. Awesome post again Brandon! 2. Since I depreciate and expense everything I don’t show much positive income from my 12 rentals. Does an underwriter usually understand this? 3. Any suggestions for help with improving financial organization? This is not my strong suit. Bookkeeper? Virtual assistant? Other? 4. Goal is to expand/scale up (10X +) in next few years. Thank you, Andy
    Zhenya Miteva from W Hartford, Connecticut
    Replied about 4 years ago
    Great article Brandon! I think I’m going to use each of your points as pre-qualifying questions to ask before committing to a specific bank.
    Daniela Adams
    Replied about 4 years ago
    This article is amazingly helpful, thanks for sharing your personal insight! My husband and I are planning to get a loan for the first time in our lives. I\’m glad you mentioned two things that are needed to be accomplished. I will keep that information in my mind for sure. I am going to share this with my husband too, so he knows what we need to do to get a loan!
    Ted Fossett General Contractor from Parker, Colorado
    Replied about 4 years ago
    I really like the “loan presentation” advice. I was going to call a mortgage broker tomorrow to get these kind of “what will I need?” questions answered, but now I’ll get my presentation folder together first. Thanks for that great tip and for the general parameters that the underwriter will use. I bought 5 houses in the 90’s by plunking down $1,500 on 3bdrm/2bath homes and assuming the non-qualifying assumable loans, but as a general contractor I’m not starting from scratch again (thanks to the 2007-2012 recession), and that sweet trick from 1991 wont fly anymore. Hopefully, through this website I can find a low-down-payment-buy-and-hold strategy pretty quickly and get going in this exciting realm again!
    Kevin Izquierdo from Hillside, New Jersey
    Replied almost 4 years ago
    Wow this article was extremely helpful! This is like the 5 C’s but a more in depth look at it all. Thanks for posting 🙂
    James Gorman IV Investor from Gig Harbor, Washington
    Replied almost 4 years ago
    Superior Blog Post & Presentation Have you every wondered why underwriter appear to be incapable if rational thought ? I’ve spent hundreds of hours answering immaterial questions, waiting for the check service to confirm the IRS tax data I provided is actual, even thought it’s a crime to falsify reports presented in federal guaranteed loan application, had a major TO BIG TO FAIL bailed out bank say they would not credit more than 25% of long term rental income toward gross income, etc., etc. The banking industry sure seems to working of a federally imposed checklist.
    Joel S. Specialist from San Antonio, TX
    Replied almost 4 years ago
    You said provide your W2s. What if you don’t have a regular job? Some investors are not working a normal job.
    Wendy Gomez Investor from Richmond Hill, New York
    Replied almost 4 years ago
    SO FAR ONE OF THE MOST AMAZING POSTS IVE READ ON THIS SITE, VERY INFORMATIVE VERY WELL EXPLAINED. I FALL IN LOVE WITH THIS SITE ON A DAILY BASIS I LOVE HOW WILLING EVERYONE IS TO SHARE SO MUCH INFORMATION. THANK YOU
    Stephen Zipp from Clifton Park, New York
    Replied over 3 years ago
    THIS is the article I am looking for! Just about to dissolve my LLC with my partner and step out on my own and have been wondering about better ways to finance a deal then throw all of my money in and hope for a “yes”. I assure that I took notes while reading this. Thanks for the great info!
    Bill Healy
    Replied over 1 year ago
    Excellent article Brandon, it rejuvenated my quest for rental properties!
    Trevor Nadar
    Replied 2 months ago
    Very Informative and data-driven article! Please keep sharing we would love to read more. We have a related Blog post article, we hope that it will be helpful for your users as well. https://www.compareclosing.com/blog/compare-mortgage-lenders-loan-estimate/