Ive been reading some information that says banks want you to have Property mgmt. experience before they will give you a loan for your first investment home.
is this true? If so, that would be a big deterrent.
Does 2 years as a below average Licensed RE salesperson in NYC count? (btw, no longer licensed)
Maxwell, your experience would give you some advantage over a novice. One thing I have learned dealing with banks is. "The worst thing they can say is NO!!" If they do There is another one around the next corner. Have your paperwork in order when you arrive, Your rehab analysis, Your suspected rental income figures. Show them where this can make money. Be Confident and present your deal! The first one for me was the hardest.
I believe what they told us was they would not count any rental income unless we had 2 years' experience; otherwise, the whole mortgage would count against our debt-to-income ratio, and no rent would count towards it as income. You could still qualify for the loan, just not by using rental income. After 2 years, when you add another property, they'll take like 75% of the new property's rent even without 2 years' Schedule E's on the new one as long as you have a signed lease of one year or more and can show that rent is being received. That is our understanding. Things change frequently, and some banks have more strict standards layered on top of conventional guidelines.
@Lynn M. nailed it.
Some banks differ with the 2 year rule. Some want to see 2 years tax return history in EACH property to count the 75% towards your DTI. Some only want 2 years experience in general and will count it like Lynn said above (proof of signed lease and income being generated) If you plan on staying with one bank for a while you will want to ask this question before obtaining your first loan with them.
Great!!! So, no need to worry for now with this first deal, just do a conventional loan is the jist i guess. Thank you so much @Lynn M.
Thanks @Rod Fisher , you gave me the answer to a question I should be asking, "What paperwork should I have in hand when I go to a bank for my first investment. You stated rehab analysis and suspected rental income.....anything else I would need to make my loan application stronger?
First time I had to have the two years tax returns, show that I could make the payments should I have to make the payments. . I still take a copy of my finished tax return to the banks as soon as I get it finished. Before they ask. Transparency. I also have a job that pays my house bills, I show them that I don't need to take the money out.
I reinvest, reinvest.
Once you have a couple of years rental experience. things ease up a little. Deals are easier to do.
Today most everything is in one of the LLC company's This moved it off of my personal debt to income ratio. I still have to sign personal guarantees.
Paperwork, A current appraisal , or if you use a community bank, they may do a drive by appraisal. we use zillows numbers alot when I present the deal. Rehab list, Taxes are already in there office, we use mostly in house loans, 20 year amortizations, (3 to 5 year renewal). This can happen quicker. and we have a Back up plan . currently working with 4 different banks. I was limited when it came to the number of personal loans I could take.
The LLC's own homes. Numbers look good when we close and rehab we have about
30% to %50 equity. We do what we say. We reinvest toward the retirement goals.
I didn't have any, had no clue what I was doing and had no problem borrowing $170k by putting $42k down (20%). Banks love the 2 year rule when you try to scale, so it's key to get your first property as soon as possible just to get the clock ticking on your 2 years.
Are you investing in NYC or out of state?
I have had this issue out of state with smaller local banks, commercial lenders or portfolio lenders. Most banks that sell to Fannie or Freddie will first try and qualify you based on your income just like a homeowner loan (at a slightly higher rate). Least that is my expereince.
@Charles I will get my first property I'm a college town 2hrs from the city. I figured I would get my toes wet that way.
I have found that they want you to have 2 years for them to count rental income. That being said we found that depending on the bank it was all a little different. One organization wanted it to count at all, another would only use the data on the tax returns if you didn't have it, other would lose a lease. I just recommend whatever you do just shop around!
You definitely have a great jump start.
Is it smart to find a bank that does portfolio lending as well but first exhaust the conventional methods, build a reputation then work my way up to the lending manager
Find any bank that will finance my first deal, try and repeat the process a few times and when I need a portfolio lender just start searching when I cross that bridge.
To a point! I like conventional financing, so try to find people that will let help you! It has taken a wile but we have put together a great team! Good luck! It has its moments, and the start is rocky but it does get better.
thanks, I expect pain with pleasure
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