Rental Property Investor · Bridgman, MI · Member since 2018 · 44 posts · 18 votes
My real estate portfolio is growing and as it does I'm having trouble continuing the BRRRR strategy. I have a 9-5 job, no debt, other than the properties I've BRRRR'd and refinanced, thus picking up a loan in the end. I'm figuring banks will soon restrict my ability to refinance since the gap between my debt/income ratio is growing. Any suggestions/thoughts on tweaks I can make to avoid slowing down my progress? Thanks for your time...
Try finding a smaller local bank or credit union that does portfolio loans. There is a chance that they will underwrite you based moreso on the properties than your DTI.
Second solution is to package all of your current loans into a commercial loan with an LLC so it no longer reports on your credit and you can basically start from scratch on your DTI in your personal name. Might be more difficult than option #1, but it is an option nonetheless.
Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
8y
Most banks, especially if you've built a relationship with them, will take the rental income into account too. Although I should note that local banks are usually your best option here.
Lender · Hackensack, NJ · Member since 2016 · 1k+ posts · 372 votes
8y
I agree portfolio loans would be the way to go. There are some stated income options as well as portfolio lenders that do not look at DTI
Also as mentioned previously, investors tend to love reporting a loss on their taxes which is fine, but if you are not showing that rental income and that your business is profitable you are going get crushed when it comes time to refi with a conventional bank. The lenders that don't look at DTI tend to come back a bit higher on the interest side
You are in a very common position that most investors will eventually find themselves in. I have to agree with the comments that @Bob Okenwa and @Andrew Syrios stated. Your decision on which lender to go to should vary based on rental portfolio value, number of units and vesting type (LLC or personal name).
Often time specialized lenders have minimum requirements such as 5 doors and min loan amount of $500k, these are to support the borrower since anything below that threshold will still cost the same to close driving up your cost to capital. These lenders can be a huge help because they can be more creative than local banks/FCUs since they are not under the same restrictions and usually can offer some non-recourse options to investors.
When reviewing local banks, you should consider their terms. They may be willing to lend against a smaller portfolio and accept lower valued assets; however, it would be a full recourse loan and have a shorter amortization period (15-20 years vs 30 from special lenders). Lastly, you should consider their DSCR requirements since they tend to be higher than the lenders who only focuses in this space.
Hopefully this helps you with making you decision and feel free to reach out to me offline with any other questions you might have.
Rental Property Investor · Bridgman, MI · Member since 2018 · 44 posts · 18 votes
8y
Brian Garrett thanks for the recommendation. Is commercial financing easier? The bank I'm currently using told me they don't count rent income in the D to I ratio otherwise i would be fine to refinance.
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
8y
@Caleb Dryden I'd suggest that you talk to more local small banks and credit unions first if you want to try and stay the conventional route. You shouldn't have a problem finding one that will account for your rental income. Otherwise yes commercial/portfolio loans are easier in the sense that they focus primarily on the property/asset itself and less on your personal finances but they have higher interest rates and less favorable terms than Fannie/Freddie conventional loans.
Rental Property Investor · Bridgman, MI · Member since 2018 · 44 posts · 18 votes
8y
@Bob Okenwa and @Tarik Turner thanks for the suggestion on portfolio loans. I'll look into that through our local credit union. I didn't realize they had different capabilities compared to national banks. @Daniel Molina (thanks for the open door) and @Andrew Syrios looks like I'll have another conversation with my bank. I have a pretty good relationship with them and they still didn't count the rent on my DTI. I appreciate both of your responses.
Rental Property Investor · Bridgman, MI · Member since 2018 · 44 posts · 18 votes
8y
@Brian Garrett that makes sense, I'll knock on a few more doors. Just to clarify, the strategies I'm currently using are BRRRR (using private investors) and a HELOC I've secured. Not sure if that changes the equation but I'm thinking I'll have to pursue the portfolio loan when I attempt to refinance the BRRRR property so I can pull the investor's money out of the deal.
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
8y
@Caleb Dryden Correct a commercial/portfolio refinance is the same process just different rate/term/amortization but again you shouldn't have a problem finding a conventional lender to count 75% of your rental income towards your DTI.