Philly investor, 200,000+ in liquid assets, can't get a mortgage

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Philly investor, 200,000+ in liquid assets, can't get a mortgage

Mike Girard
Investor · Philadelphia, PA · Member since 2015 · 81 posts · 7 votes

This has doubtlessly been covered all over the place, but most of the posts I've read on alternative financing apply to different situations than mine. 

Though my credit rating is good, I don't meet the income requirements for getting a mortgage.  I retired when I lost my job a couple years ago (I'm 56 in a field where age is real barrier) and have not generated much in income from investments. 

I would like to invest in Philadelphia -- I live in NYC right now -- and I am inclined toward getting a multi-family property in which I would live and which would produce income with one or two other units. 

I am not looking to get rich, but I would like to be generating around 50,000 or more in annual income in a few years. Ideally, after two years of producing rental income I will be able to finance other properties by traditional means. 

Here are my questions: 

1. First of all, am I correct in assuming that I won't be able to get a mortgage even if I find a property that is almost certain to generate enough income to cover it?

2. I would like to be able to qualify for a mortgage on other properties after a couple years of real-estate produced income. How much income will I need to produce and is this even feasible?

3. How limiting is seller-financing on choice of property and location? Is seller-financing readily available with multi-family units?

4. What is the best kind of alternative loan? Borrowing from friends and family is not an option.

5. Is paying cash ever a good idea? I am thinking perhaps if I buy a fixer-upper I can retain a little more leverage for other investments. I would have to pay someone to do the renovations.

6. I am quite happy to partner with someone who can get a mortgage, but I don't know the first thing about finding a partner I can trust and work with nor how long it takes. This option seems to have a lot of risk.

Sincere apologies if all of this has been covered again and again.  Perhaps having all these questions answered comprehensively will be useful to other forum users. 

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Ethan Giller
Rental Property Investor · Philadelphia, PA · Member since 2013 · 139 posts · 232 votes
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If you are buying an investment property, the usual thought is you should buy in an LLC. Unfortunately, this means that you generally can't qualify for residential mortgages (i.e., fixed rates for 30 years). Fortunately, it means that you can qualify for small business loans secured by real estate (i.e., a commercial mortgage). To be fair you can get a commercial mortgage even if it's not in an LLC, but it's a bit easier in my experience if you have a business structure setup.

Best strategy: buy for cash, renovate for cash, get it rented, and then refinance and pull all or most of your cash back out.  Since you are applying for a commercial mortgage, it's usually not a problem to have the rental income included as income.

With $200K you can definitely get a multi-family in Philadelphia.

If you have any specific questions about Philly investing, feel free to send me a message or email.

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  • Ethan Giller
    Rental Property Investor · Philadelphia, PA · Member since 2013 · 139 posts · 232 votes
    11y

    If you are buying an investment property, the usual thought is you should buy in an LLC. Unfortunately, this means that you generally can't qualify for residential mortgages (i.e., fixed rates for 30 years). Fortunately, it means that you can qualify for small business loans secured by real estate (i.e., a commercial mortgage). To be fair you can get a commercial mortgage even if it's not in an LLC, but it's a bit easier in my experience if you have a business structure setup.

    Best strategy: buy for cash, renovate for cash, get it rented, and then refinance and pull all or most of your cash back out.  Since you are applying for a commercial mortgage, it's usually not a problem to have the rental income included as income.

    With $200K you can definitely get a multi-family in Philadelphia.

    If you have any specific questions about Philly investing, feel free to send me a message or email.

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  • Warren Ginn
    Specialist · Raleigh, NC · Member since 2015 · 19 posts · 3 votes
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    @Ethan Giller Good stuff. This might very well be my approach (buying within my LLC using a small business loan). Thanks.

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  • Troy Sheets
    Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes
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    Originally posted by @Ethan Giller:

    If you are buying an investment property, the usual thought is you should buy in an LLC. Unfortunately, this means that you generally can't qualify for residential mortgages (i.e., fixed rates for 30 years). Fortunately, it means that you can qualify for small business loans secured by real estate (i.e., a commercial mortgage). To be fair you can get a commercial mortgage even if it's not in an LLC, but it's a bit easier in my experience if you have a business structure setup.

    Best strategy: buy for cash, renovate for cash, get it rented, and then refinance and pull all or most of your cash back out.  Since you are applying for a commercial mortgage, it's usually not a problem to have the rental income included as income.

    With $200K you can definitely get a multi-family in Philadelphia.

    If you have any specific questions about Philly investing, feel free to send me a message or email.

    Great info Ethan! The only caveat I would add/ask is, where in Philadelphia is he looking to move to? Some areas, $200k gets you several MFH's, other areas, $200k wouldn't cover a 20% down payment. 

    Another thought is, even though it's much harder to find, you should really try and find owner financing. If you have decent credit and a good down payment, I'm sure there are owners that would love to find someone like you to sell to. Try and preserve as much of your cash as you can though when it comes to making a down payment. Also, you may be better off going after a mixed-use building or a 5+ unit building. Those aren't in demand by most homeowners (can't finance conventionally for the most part) so there'll be less competition and possibly more interest in financing by the owner.

    Good luck and let us know how it goes! 

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  • Mike Girard
    OP
    Investor · Philadelphia, PA · Member since 2015 · 81 posts · 7 votes
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    Originally posted by @Troy Sheets:

    Great info Ethan! The only caveat I would add/ask is, where in Philadelphia is he looking to move to? Some areas, $200k gets you several MFH's, other areas, $200k wouldn't cover a 20% down payment. 

    That's a really good question, since I will likely be living in one unit in my first property. I doubt that I would want to live in an area where I could buy multiple properties for 200k, but don't need to live somewhere where that's the down payment. I prefer relatively safe, urban neighborhoods with a high walkability quotient afforded by a commercial avenue or two and access to public transport. 

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  • Troy Sheets
    Developer · Philadelphia, PA · Member since 2013 · 1k+ posts · 902 votes
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    Originally posted by @Mike Girard:
    Originally posted by @Troy Sheets:

    Great info Ethan! The only caveat I would add/ask is, where in Philadelphia is he looking to move to? Some areas, $200k gets you several MFH's, other areas, $200k wouldn't cover a 20% down payment. 

    That's a really good question, since I will likely be living in one unit in my first property. I doubt that I would want to live in an area where I could buy multiple properties for 200k, but don't need to live somewhere where that's the down payment. I prefer relatively safe, urban neighborhoods with a high walkability quotient afforded by a commercial avenue or two and access to public transport. 

    I suspected you'd be in the middle of that range. I'd say you need to spend some time looking around and seeing what's comfortable. I live in the Brewerytown section of Philadelphia and really like it. The commercial corridor is growing quickly, good public transit and you're at the foot of Fairmount Park, Kelly Drive/Boathouse Row and the Art Museum. 

    There are also areas like University City, Fishtown and several in South Philly that would fit the bill nicely for you, just to name a few. Come visit, drive the areas to see what's go/no go for you then hop out of the car and start walking them. I'd narrow your search to 3 or so neighborhoods then start really pounding the pavement looking for your new home. You'll probably have to do some direct mail/marketing to find a deal with owner financing or you can make offers on MLS listed properties with the owner financing right in the offer.

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  • Mike Girard
    OP
    Investor · Philadelphia, PA · Member since 2015 · 81 posts · 7 votes
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    Wow, just want to publicly thank @Ethan Giller and @Troy S. for the great information. 

    Keep it coming, colleagues!

    @Troy S., those are all the areas I'm most interested in. Nice to have confirmation from a native that I'm looking in the right places. 

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  • James Brand
    Investor · Philadelphia, PA · Member since 2014 · 205 posts · 52 votes
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    I live in South Philly where the norm seems to be 3 bed 1-1.5 bath SFH.

    I am wondering what the best way to seek out MFHs is in Philly, or to @Troy S.'s point "you may be better off going after a mixed-use building or a 5+ unit building" how to best locate these properties...

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