Rental Property Investor · Pittsburgh, PA · Member since 2019 · 9 posts · 8 votes
Hi,
I am fairly new to real estate investing, and very interested in growing my real estate portfolio. I purchased my first duplex in 2016 with an FHA loan and have lived there since. I am now under contract for my second duplex with my sights already set on my next investment. I am using a HELOC on my first duplex to help supplement me on the second property. All of this debt added on top of my student loan debt makes me curious as to how my credit score may react, and how difficult it may be to swing my next deal. I have never missed a payment and my credit score is generally in the high 700s, but I was wondering if anyone had any advice or insight.
Investor · Member since 2017 · 83 posts · 46 votes
7y
@Matt Wanner This depends a lot on the banks. Some only allow 4 mortgages on anything 4 units or less, some allow up to 10. Most banks take 75% of rent as income and your debt to income ratio can be 40% for most investment properties with most banks. I would certainly not take the "who cares" approach, but to each their own, I guess. If you want to make it far in real estate you should care about every single number that will affect your next deal. If you don't understand the game you can't be very good at it!
All that being said, every bank differs. I am a seasoned investor with 19 rentals and a laundromat and I put my last deal on credit cards, which temporarily dropped my score 100 points. Because I understand the game I knew I would be able to refi and pull equity out, which I just did a few weeks ago. Relationship banking is my best friend and I understand everything the bank looks at and needs so that I can keep my numbers where they need to be to get my next property.
Louisville, KY · Member since 2016 · 3 posts · 0 votes
7y
I don't think your credit score will be hurt to much, it will affect your debt to income % which is another part of what banks look at when giving personal loans like you are looking for.
Investor · Member since 2017 · 83 posts · 46 votes
7y
@Matt Wanner This depends a lot on the banks. Some only allow 4 mortgages on anything 4 units or less, some allow up to 10. Most banks take 75% of rent as income and your debt to income ratio can be 40% for most investment properties with most banks. I would certainly not take the "who cares" approach, but to each their own, I guess. If you want to make it far in real estate you should care about every single number that will affect your next deal. If you don't understand the game you can't be very good at it!
All that being said, every bank differs. I am a seasoned investor with 19 rentals and a laundromat and I put my last deal on credit cards, which temporarily dropped my score 100 points. Because I understand the game I knew I would be able to refi and pull equity out, which I just did a few weeks ago. Relationship banking is my best friend and I understand everything the bank looks at and needs so that I can keep my numbers where they need to be to get my next property.
Lewisville, TX · Member since 2015 · 343 posts · 264 votes
7y
Try syndication investing & look for minimums around your down payments or $25-$50k. If you have the cash and are at least sophisticated their are deals out there for you. No bank ever checks my credit for syndication. The cash & writing large checks speak for themselves. My credit score could be 400 or non existent like Dave Ramsey & as he recommends & the deal will close.
Rental Property Investor · Pittsburgh, PA · Member since 2019 · 9 posts · 8 votes
7y
@Christina Linn
Thank you! This was very helpful and more along the lines of the response that I was looking for. I knew there was a number of mortgages that banks didn’t like to exceed but I wasn’t exactly sure how that work.
@Matt Wanner This depends a lot on the banks. Some only allow 4 mortgages on anything 4 units or less, some allow up to 10. Most banks take 75% of rent as income and your debt to income ratio can be 40% for most investment properties with most banks. I would certainly not take the "who cares" approach, but to each their own, I guess. If you want to make it far in real estate you should care about every single number that will affect your next deal. If you don't understand the game you can't be very good at it!
All that being said, every bank differs. I am a seasoned investor with 19 rentals and a laundromat and I put my last deal on credit cards, which temporarily dropped my score 100 points. Because I understand the game I knew I would be able to refi and pull equity out, which I just did a few weeks ago. Relationship banking is my best friend and I understand everything the bank looks at and needs so that I can keep my numbers where they need to be to get my next property.
It is important to note that the 10 note limit is generally mentioned due to Fannie/Freddie backed loans limitations. There are privately backed loans out there that will go beyond 10. Caeli Ridge of Ridge Lending discussed this on today's (2/25/19's) episode of Get Rich Education podcast. She also mentioned that the best mortgage rates are accessible to anyone over a 740 FICO score. Once that 740 threshold is reached, it doesn't matter if you're 741 or 821.
Investor · Member since 2017 · 83 posts · 46 votes
7y
@Peter Baudendistel I thought I said that. Yes, private loans don’t always have those limitations. My bank does not have those limitations, actually. Thanks for the clarification.
Investor · Member since 2017 · 83 posts · 46 votes
7y
Also, privately backed loans don’t always limit what they’ll count for income. Some will count 100% of rents as income, minus necessary repairs (or sometimes not). That’s why I like relationship banking. I know what my banker wants and how he figures his numbers. The downfall is that private backed loans from banks are typically location specific - at least in my experience. For example, my bank won’t lend me money on anything outside the county.
Lender · TX · Member since 2018 · 936 posts · 713 votes
7y
@Matt Wanner One thing to always have ready when you are buying a property is to have your DSCR (debt service coverage ratio) already calculated on your current properties and what it will look like after your next property. To find out more on DSCR I suggest following the link to investopedia and reading up on it. It gives some general terms but if you have a coverage ratio or 1.3+ you are golden. If you are ever under 1.0 or really even under 1.1 on your DSCR then you will be deemed unstable by many institutional lenders. It is all about cashflow and being able to cover your debt. Your DTI will still come into to play but once you are looking at commercial notes and packaging multiple properties together they will stop looking at DTI and mainly focus on DSCR.
Try syndication investing & look for minimums around your down payments or $25-$50k. If you have the cash and are at least sophisticated their are deals out there for you. No bank ever checks my credit for syndication. The cash & writing large checks speak for themselves. My credit score could be 400 or non existent like Dave Ramsey & as he recommends & the deal will close.
Cash talks!
This is very true. If you are worried about qualifying, going with an Equity Fund/Syndication would not require a lender. You could invest $25-$100k into a project with cash and gain from there.
Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
7y
@Matt Wanner
Having 800 credit and always being cautious, I used to worry about the effect RE would have on it too. After 7 refi's this past year and another recent hard credit pull this month, I'm still around 775-785 (per Credit Karma)
Note, not all my refis had a credit pull. Once you have a relationship with a lendor they usually don't have to pull credit every time if it's within a certain period...at least this what my experience has been.