I’m stuck trying to buy my second triplex‼️

25 Replies

Thanks in advance for any forthcoming help. So I bought my first home(triplex) last year. I used a conventional loan with 25% down. I live in one unit and rent out the other two. My mortgage is $1008 and I profit $352 each month not counting maintenance or management. Things have been going great and I’ve been trying to replicate my success with another triplex. I’ve been calling around to different banks looking for financing for my 2nd triplex and I’ve hit a hurdle. When I did my taxes for 2018 I wrote off my property updates which almost equaled my rental income. That made it look like I’m not making money on my property. I didn’t realize the future consequences of my tax actions when I initially did my taxes. Does anyone know of a way I can find financing without my property upgrades working against me when applying for the financing??

@Stephon Mosby Williams The interest rates will be higher, but have you considered looking into financing through one of the national asset based lender like Lima One or Visio as opposed to a traditional bank? They typically have less hoops to jump through and less strict guidelines, with the caveat that your rates, points, will be higher. 

@Michael Noto thanks and no I haven’t heard of those lenders before. I’m just getting started and I’m still trying to figure things out. I really want to keep making moves while I have the momentum. I’ve been reaching out to mostly local banks (Fulton, prudential, BOA etc.) and still haven’t found someone who’ll look past my deduction issue. I’m starting to think I’ll have to wait until 2019 tax time to not deduct anything so it’ll look like my current property makes money. I’ll reach out to the above mentioned lenders tuesday. Hopefully Veterans Day doesn’t slow things up much.

@Dennis M. I would say it’s mostly out of convenience. I used a bank(Huntingdon valley bank) the first go round and since my credit is 760s and my finances are ok I just thought that it might be easiest to go through a bank again. I’m still trying to find different types of mortgage loan lenders that will lend on a 2nd triplex outside of banks but I haven’t been successful yet. If you know of any lenders who might work for my situation than I’d greatly appreciate the suggestions.

@Stephon Mosby Williams call a few lenders. Ask how they calculate for the unit you will vacate. You were 2/3 occupied with $0 profit, that means when you move out unit #3 is all profit and should make you look like a rock star. Most will calculate 75% of the lease, but since you don't have one they may do 75% of "market rate". If your other 2 are like the third, you can argue market rate pretty easily.

Similar tact for the new property. How do they calculate the rent income? It should also make you look good. There shouldn't be any hangups. FWIW, you have an FHA hanging out in the wings, which is pretty good for landlords and calculation of income, though you have to refinance out of the mortgage insurance if you didn't do 20% down at the start.

I honestly wouldn't mess around yet with all the "go get a commercial loan" type advice. Locking in an amazing, non-adjustable rate for 30 years right now is a no-brainer unless you have compelling reasons not to.

@Stephon Mosby Williams Have you considered going private money? Not all private money is hard money. 
There are "soft money" asset-based alternatives that will lend you up to 75% LTV going just off property value and your FiCo.
These programs are easier to qualify for than traditional banks, and will close a lot quicker. If you are an experienced investor and have proper rents to support your investment, going this route could allow you to expand your portfolio faster than traditional banks. 

Did you add value to the triplex you bought?  Would consider doing a 1031 to get into a larger commercial property?  If the goal is to have more units that may be an option. I.E. sell your triplex 1031 into a 6 unit. This assumes you have forced equity in the first property similar to a Brrr strategy. 

@Justin Elliott thanks for the advice and I have a few years of building maintenance experience so I’ve been doing small renovations since I’ve bought the house. I’m sure my property has some forced appreciation by now. I’m just not ready as of yet to get rid of the property and I’m not all too comfortable yet with tapping into the equity I have in it(I know it goes against investor wisdom but I want to save this equity as an almost emergency fund). My focus now is to buy and hold more multi-family and to get some flips done in between. I do want to transition into commercial but not by unloading my first house. This was my first house and I’ve put a lot of sweat equity into it and most importantly it cash flows nice so my plan is to keep this one. But every house from here on will be bought with the goal of exiting somehow in the near future.

@Jordan Reynolds thanks and I live in Philadelphia, PA so that’s where I’m looking to keep buying at least for now anyways. I bought my first triplex last year with a conventional 25% down loan. That isn’t the most ideal or cheapest way to do it but with it being my first purchase and dealing with a motivated seller I had to move fast with what I had. I also didn’t meet the “2 year work history” requirement so the lender I was using said I didn’t qualify for smaller down payment products. I luckily found my property through my agent surprisingly. My agent worked for a real estate brokerage that also did property management. One of their property owners who’s properties they managed wanted to unload two of his properties and one fell right in my lap like that. My agent didn’t even mention that the seller was selling another property until months later. I could have possibly got both but I’m happy I at least got one.

Stephon,

Yes, traditionally depending on the lender you will need to show 2 years rental income if you go conventional typically,  Tax return plus W2 income as other have mentioned.

As real estate investor in Atlanta Ga* YOU DONT NEED IT ANYMORE :) .. There is an Investor Mortgage available currently to any investor in most states. Only eligible for investment properties only* 2-4 units based on rental income* DOES NOT include personal income (W2, tax returns etc.).. Only requires the property to cash flow 1.1 DSCR ( debt Service Coverage)

Overview of program now available, hope it helps you and others : )

Min Loan Amount $75,000

Max Loan Amount $2 Million

AVAILABLE PRODUCTS:

30 Year Fixed Rate, 3/1, 5/1, AND 7/1 ARM available.

Purchase – 65% Up to 80% LTV - Min 620 – 740 FICO Score

Refi/Rate-Term - 65% Up to 75% LTV - Min 620 – 700 FICO Score

Refi/Cash Out - 60% Up to 70% LTV - Min 620 – 640 FICO Score

Eligibility under this product is solely based on the subject property rental income (Lower of the market rent for purchase) or current rent for Rate/Term Refi.

Minimum DSCR of 1.1 required

There are two options, Debt Service Coverage Ratio (DSCR) or No Ratio.

DSCR

Calculated by taking the lower of the subject property's market rent disclosed on the appraisal or the lease rental agreement divided by the monthly PITIA housing payment (ARM P&I based on Start Rate) · PITIA - principal, interest, taxes, insurance, and homeowners association dues. Minimum DSCR of 1.1 required

No Ratio

Does not calculate any ratios for eligibility (Ex: DSC). Not available for first time investors (For landlord history to qualify for the No Ratio program, there is no specific ownership time frame required the borrower just must have previously owned an investment property either the subject primary residence or an additional non-owner occupied property).

Eligible Borrowers

· Limited partnerships, general partnerships, corporations

o Personal Guarantor required

· U.S. Citizens, Permanent/Non-Permanent Resident Aliens and Foreign Nationals

· First Time Investor

· Inter-Vivos Revocable Trust

· Ownership must be fee simple for all borrowers

• Borrower is financing the property solely for commercial purposes and is required to sign a Certification of Business Purpose/Non-Owner Occupancy. Prepayment penalty applies depending on state. Rental Loss Insurance ( 6 months of rent).

RESERVES

· 6 months PITIA reserves for the subject property net of down payment and closing costs are required

· 2 months reserves (based on subject PITI) for each additional financed property, not to exceed 12 months

· Cash out proceeds are permitted for reserves

Maximum of 20 properties per borrower allowed.


Regards,

Tony Valdes

@Stephon Mosby Williams no that is definitely great that you purchased a property, even at 25% down. A good deal is better than no deal at all. It sounds like you were in the right place at the right time and now you're onto growing your portfolio. How is the market in PA? What does a triplex sell for out there if you don't mind me asking?

@Stephon Mosby Williams

An investor friendly lender will be able to finance your new property acquisition. They will look at the asset not your financials.

As for your taxes this lenders know investors write off everything so you don’t pay taxes so their UW know how to extract the actual income from your property as long as you are a good standing borrower. (Some Loans don’t require taxes)

You can search for this lenders and submit your loan request individually to each one (Visio, Lima One ...etc) good lender’s I’ve broker for both, it can be time consuming and you won’t compre costs as easily. That’s if you get timely answer.

There are always for the most part lender points that if you as a borrower don’t know what to ask or what to look for they can pile up.

Easier is to go through a commercial broker in my opinion, they will shop for you bring you more options available than what 2 lenders could offer and you can choose what’s best for you.

Just-a thought 💭

@Jordan Reynolds well Philadelphia is pretty good. There’s a lot more competition here now than there ever was. You have to work hard toward looking for a property if you want even an ok property but opportunities are around. Triplex prices vary depending on the location of course and Philadelphia is one of those block by block cities. I would say triplexes range from 100k to over a million and 300k would typically be the sweet spot where you would get a pretty decent triplex that you May even feel comfortable living in while renting the other units. Anything over that would be high b-class or a-class triplexes in great neighborhoods or college areas.

@Guifre Mora I greatly appreciate the help. My question is do any of those lenders offer loans with a 15% down payment or lower? I’m willing to buy owner occupied as well if it’ll help get me a smaller down payment. I’m honestly seeking the smallest down payment so I can keep as much of my hard cash as possible. One thing I try to do is to pay the least amount possible upfront and to let my tenants pay the balance. I don’t want to buy equity, my goal is to force equity if that makes sense.

Using the smallest down payment only means you pay more interest - and that is more that is coming out of your pocket. Not your tenants. Also you are not “buying equity” equity is the portion of your asset that is above and beyond the loan amount. 

I would call a couple loan brokers and see what they say. 

Hi Stephon. I'm nearly in the same boat as you. I own a duplex here in Philly that I live in and rent. I'm looking to purchase a 4unit early ‘20 then scale into commercial soon after. My Realtor mentioned 3-5% down options are available but I believe the property must be owner occupied as well. Maybe you can speak with your realtor about all your options and or try the local Credit Unions. I used FHA last year when I purchased the duplex 3.5% down owner occupied for 1 year.

Originally posted by @Stephon Mosby Williams :

@Guifre Mora I greatly appreciate the help. My question is do any of those lenders offer loans with a 15% down payment or lower? I’m willing to buy owner occupied as well if it’ll help get me a smaller down payment. I’m honestly seeking the smallest down payment so I can keep as much of my hard cash as possible. One thing I try to do is to pay the least amount possible upfront and to let my tenants pay the balance. I don’t want to buy equity, my goal is to force equity if that makes sense.

20% is the max on purchase that I’ve seen. 

@Mary Mitchell when I say buying equity I mean the bigger the down payment is the more equity you will have in an investment. That’s paying for equity. And I wouldn’t finance a property under terms that my rents won’t cover. So if my tenants aren’t at least fully paying whatever monthly obligation I have to whatever lender I use it ain’t worth it to me. My strategy is to pay the down payment and only maintenance afterwards out of pocket. Everything else is on the tenant. Excluding vacancies of course. Nd I mostly pursue turnkey so there’s most likely tenants in place already.

@Margaret Refile I’m in the process now of working with a lender. I used a conventional loan for my first triplex and I want to use fha this time around to utilize the smaller down payment. I think I may even hold it for two years Nd flip to avoid taxes. I’m not sure yet of my exit strategy. I want to let the potential property guide my decision.

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