Several "no"s...The "yes"s should be coming...right?

28 Replies

I've been trying to fund a small buy and hold project, with my newly formed LLC. I've had a ton of no's. Big banks won't touch it, small banks where I am won't fund a project out of state, the local banks in the investing area won't do it (I assume because I don't have the relationship with them, that I'm not able to do because I'm not in that area to meet them in person), seller isn't in a position to carry the note..

I know I'm not out of options and I haven't asked everyone and every place that I can, but I've asked a lot. In this business persistence pays off, so I'm hoping to share a success story with you soon.

@Jay Helms The banks that I've talked to are all looking at me as the guarantor, instead of looking at the profit of the property. And while I realize that in the end, I would have to ultimately be the guarantor for the property, I feel like they're missing out on the "asset" part of the puzzle.

Sounds frustrating but don't give up.  I'm considering turning my current home into a rental add well.  Please keep us posted on your progress. 

Thanks @Tiffany U. I will. That's what I did on my first property. It was my primary for about 5 years while I fixed it up (technically a BRRRR), then when I recently moved I just rented it out and it has been an awesome investment/rental property so far. Now I have the itch to get a second property (first real one) ..just having a little trouble getting it secured..

@Chris Mason correct. Yet for some reason, I can't get them to look at the asset. They won't look past the owner of the LLC. Which, again to a certain extent is understandable, but I have excellent credit, and a good deal. I feel like it should be more about the asset and how it's going to perform.

i think the only lenders that look at the asset are hard money lenders. commercial and residential  lenders all seem to want a good guarantor and a business entity that is showing income.

I did however walk into my bank the other day and got a stated income no doc 35k loan at 7% for my dba business account. the account is 1 year old and has been in good standing all that time. I was very surprised.

Rich Hupper, Real Estate Agent in MA (#9550548)
(978) 364-0240

@Rich Hupper wow, I have a DBA/sole prop that's been open for just over a year, always in good standing with my previous rental flowing through it (rental income, mortgage payment etc) - what type of bank was it? Larger or small community-type?

Tyson... you need to get a reality check.. no bank is going to do a loan without A PG.. unless its a multi million dollar loan to a very sophisticated investor.. all of us ( myself included) have to PG.. simple as that. if you don't qualify or are not willing then your wasting your time.. No one is going to do this.

Even HML require PG ,, I know when I had my HML shop I required it.. and when I have borrowed from other HML to soft money lenders I PG.. that's reality.

@Jay Hinrichs I've all but given up wasting time at banks at the moment. Until I can put together enough cash reserves for them to be satisfied (which I"m really not that far away from), I realize they aren't going to lend to me. I've started shifting my efforts towards building a relationship with a PML, or seeking a property that has a seller who's willing to carry the note. Even though I've never dealt with either of those options, I feel like I understand enough about them to make them work for everyone involved. 

@Tyson Hosey , I am not an expert, but are you trying to buy locally or somewhere else?  You might just need to buy the property in your own name to get the financing.  Until you have a proven track record getting a loan for your corporation will be hard.  Small local lenders will usually be the best for that.  I have over 30 units in my corporation and still have to personally guarantee each loan.  My tax returns help.  Make sure your debt to loan ratios are good, and get as many personal debts as possible paid off.  Many banks require 1 or 2 years of tax returns before they will count your rental income for purposes of giving you a loan.  You might also just go in and ask why you were turned down in a very friendly way and see if they have any advice to give you on the best way to get approved for the type of loan you are trying to do.  It can't hurt to ask.  Finally have the tried the place you have your current rental at?  Good luck.

getting a reality check is half the battle I see so many folks run around trying to pull things off that simply are not going to happen.

I have been a bank borrower for 25 years now and own stock in a small commercial bank.. so I have a better than average knowledge of how they operate.. and they simply are not going to take ANY risk. .you either have money and experience or you don't if you don't have both your 100% wasting your time.  they will be nice as they turn you down...

owner finance is probably your best bet.. Private money is hard as well. and too many scammers offer private money you could lose thousands sending in small up front money to scammers. .beware those

@Jerry W. I just recently moved from the area where I'm trying to invest. I know that market extremely well, so I'm trying to invest from where I am. The market where I am is just...horrible for investing. My primary is tied up with a mortgage and a HELOC, so there's not much room to play with, other than using what's available on my HELOC for a down payment.

Side note.. I work at a larger bank, so I was able to talk with them directly about what *their* reasoning was for declining the app. It was good information to get, and not much of a surprise, really.

@Jay Hinrichs I agree. Its sounding more and more like seller financing is my main option, other than a gift from a family member or something like that, or just getting an unsecured loan in my personal name and then just refinancing it after I secure it, into the business name.

I've been approached on BP (unfortunately) by a couple of "PML's" that seem to be very.... red-flaggy(? just made that word up) and luckily being in the banking industry, I've seen enough financial scams that I can do pretty well at smelling a scam from a mile away.

Tyson... any time you talk about needing money on BP or looking for money you will get PM's from all the scammers that troll BP.. you fraud detector is alive an well.. these guys are either straight up frauds who will steal your money. or they are raw rookies who know no better.

ABSOLUTLY do no business with anyone who hits you on BP and says they have private money at bank rates.. YOU KNOW BETTER  LOL..

@Jay Hinrichs I definitely do. I immediately tried to vet them, and when nothing came up... no dice. I would absolutely hate to hear the horror stories of people who got scammed by going into business with those folks. Just like I hate hearing it happen at the bank.

That aside, I'm getting the idea after hearing the turn-down reasons and reading/researching BP that a lot of banks/PML's have a problem with doing a smaller sized project. Maybe I'm way off, but I would think that even though the spread isn't all that high, the risk is pretty low. I feel like they would rather see me come at them with a good deal on a duplex. Rather than a lower priced SFR (motivated seller, not a dump of a house).

Definitely keep striving for that 'yes'! If you can't, don't worry man. More opportunities will come up. 

@Tyson Hosey - This is not meant to be a self advertisement in anyway; but I think I can help you with this deal. I've read a few of the posts and it sounds like we have a structuring issue. Once we fix that the deal should be doable. Since you are dealing with an LLC you are going to need a commercial lender, sounds like you know that already. As has been stated by @Jay Hinrichs you will have to PG anyway, even commercial lenders will need a PG unless you a they are giving you a non-recourse deal which is not typical in the "small buy and hold" space. For that reason you will need a 600+ FICO. Also you will have to at least hit the min-loan amount $25K and the min-purchase amount $50K and the max LTV 75%. This means that you MUST have at least 25% down and the purchase price has to be at least $50K. Now those are the smallest kinds of commercial deals that I have seen and those deals do not tend to get the interest rates you would expect from Fannie and Freddie so if you are looking for 3.5% forget it. Commercial loans are usually in the 5s to 9s with larger deals getting the lower rates. So that is the reality of the commercial space. I hope that helps, if you think you have something that fits free to reach out to me I'd be happy to help you.

Thanks @Nathan Click yeah it meets most of those requirements, and I don't mind putting down 25%, but the property already has a ton of equity. Its valued close to 60k, and I'm looking for about 60% of that. But again, it's tough getting lenders to look at the LTV, I'm always stuck on the PG part. And as far as I can tell, the only problem with being a PG on these deals is my cash reserves. I have some saved up, but all the lenders that I have talked to have said that it's just short.

@Tyson Hosey - I don't know why your cash reserves are an issue here.  If you can put the cash down and meet the mins on the loan requirements most everything else can be worked around.  Feel free to reach out me I'd be happy to talk you through what you have and help you out.  

This conversation is extremely interesting - I'm trying to do the same thing and I'm absolutely astonished in these replies.

To clarify, original poster (OP) is trying to get a bank loan to purchase an investment property, for which he does not reside in but will rent out to a strong (hopefully) tenant. He is OK with PG'ing the loan, but the trick here is something that many people clearly don't understand. PG'ing the loan does not equate to underwriting to a personal guarantor. A PG, in my experience (tier 1 investment banking, commercial banking, and now private equity investor) is simply tertiary collateral for the lender. The differentiation here is that OP wants the bank to underwrite to the creditworthiness of the property as opposed to his own personal financial situation. This makes the most sense for both parties and the replies here are surprising. Are you saying that no bank lenders out there will do this?

To expand, if a PG is tertiary, what are the primary and secondary collateral sources? Well first and foremost is cash flow - if you take a small commercial property (say a standalone urgent care property recently appraised for $2mm) with a historical track record of great tenants paying $15k/month. Urgent cares will continue to grow due to macro trends but will remove all of that from the equation here for simplicity despite the fact it enhances the story. So it's cash flowing after all expenses and let's say NOI is ~10% after debt service. The bank could then ring fence the free cash flow and hold it within the company (i.e., negative covenant on distributions). Which gets to secondary collateral, the actual property itself (which is insured) worth ~$2mm today + the cash on the balance sheet. Well OP put 20% down, and given the banks will underwrite on a discount to appraisal value, the value of the property would have to fall to ~$1.5mm for the bank to even start losing money. Then the tertiary sources of repayment from our OP's personal financial assets may cover some additional losses.

Now with a long track record of great tenants, insurance, excess free cash flow with tight covenants, and full collateral and personal guarantee, the bank's still wont underwrite to the merits of the property? 

To support why OP wants them to underwrite to the property makes complete sense on all fronts. By the bank underwriting to his own personal financial situation (my guess is last two years of income, current balance sheet, and credit rating), he can no longer take on a mortgage for a personal home, a new car, start a business, etc. AND he's already set up as a corporation willing and able to pay double taxation.

The only thing I can think of is regulation, lack of credit analysis skill, or both. If that's the case, then there is a bigger market opportunity on the lending side than the investment side.

Mind blown over here.

I will also add, since it enhances OP's question and is relevant:

This is partially a knowledge gap, but how then, is one able to accumulate many investment properties? I am in great financial standing (and so may OP) but I could not afford personally a $5mm mortgage. I COULD afford a down payment and a mortgage from a bank to purchase a $5mm high cash flowing, high credit property. It completely limits the ability for an individual to scale.

Originally posted by @Tyson Hosey :

@Chris Mason correct. Yet for some reason, I can't get them to look at the asset. They won't look past the owner of the LLC. Which, again to a certain extent is understandable, but I have excellent credit, and a good deal. I feel like it should be more about the asset and how it's going to perform.

 If you have been in business less than 2 years of course they are looking at your income and assets.  

Only after 2 full years in business and loans over a million do they really start dropping the personal guarantor thing.

I started working with a commercial lender 2.5 years ago and have 23 properties with them.  They still make me send in an updated PSF, tax returns, rent roll, ect every year

Brie Schmidt, Real Estate Agent in Illinois (#471.018287) and Wisconsin (#57846-90)
Originally posted by @Brie Schmidt :
Originally posted by @Tyson Hosey:

@Chris Mason correct. Yet for some reason, I can't get them to look at the asset. They won't look past the owner of the LLC. Which, again to a certain extent is understandable, but I have excellent credit, and a good deal. I feel like it should be more about the asset and how it's going to perform.

 If you have been in business less than 2 years of course they are looking at your income and assets.  

Only after 2 full years in business and loans over a million do they really start dropping the personal guarantor thing.

I started working with a commercial lender 2.5 years ago and have 23 properties with them.  They still make me send in an updated PSF, tax returns, rent roll, ect every year

Is the personal guarantee you're mentioning a PG or where the bank is underwriting your personal assets as opposed to the property itself?

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