Lender · Los Angeles, CA · Member since 2017 · 916 posts · 647 votes
Hello BP community,
I have observed a lot of confusion on the forums about financing options and the availability of programs for RE investors. As I have gained a ton of knowledge from the forums in my own journey, I would love to give back and answer any questions you have about the financing world. If I don't know the answer, I'm sure the community can step up and help as I am by no means the end all, be all of info.
I’m very new to all this and am in the “educate thyself” phase. I currently own two properties.
I appreciate your offer of information!
What I *think* I understand:
- there are MANY ways to finance deals.
- small banks/etc can be more flexible in terms
- there is a limit (10?) to the number of bank mortgages a person can have.
What I’m confused about:
So much of what I read/listen to is experienced investors (with way more than 10 properties) talking about buying properties with a variety of creative financing strategies) and then “Refinancing” the property into a “traditional” mortgage later on.
So- what kinds of refi’s are these? Don’t they count against the 10(?) loans you can have?
What am I missing? This is never explained in the podcasts or books...
Hi, I am a buy and hold investor in Florida . Do banks take in consideration debt to income ratio when buying an investment property that its going to pay by itself . So far I ve been using cash and asset based loans , but I would like to start buying using my own credit
DSCR based programs require you to own your primary and have some RE experience. This is a tough time for newer investors to get a foothold in this market but keep at it. Sounds like you are focused and have the right mindset which are crucial.
I have a quadruplex in my name. No mortgage with the bank. Financed through private lending. There is a lien on the building.
I want to purchase my second property, but my income is too low to qualify for a loan to purchase another multi family. How can I use my current -plex to make this happen?
DSCR based programs require you to own your primary and have some RE experience. This is a tough time for newer investors to get a foothold in this market but keep at it. Sounds like you are focused and have the right mindset which are crucial.
1. What is the lien on the property for? Mechanics lien, tax lien?
2. Do you report the income on your tax returns from This property on your schedule E? If you do and the numbers are positive, you can use a portion of the Income from this property as long as the current numbers support this. Or proof of rents received, leases in place that support the deposits.
3. Is your FICO at or above 680?
I would need more info to determine whether you can or not but the above answers would help narrow down what is possible.
Please specify what you mean by banks. Seems like a dumb request but lending institutions come in many forms and if you go to JP Morgan Chase bank for an investment property loan, chances are they will include your DTI along with tax returns and employment verification. But if you go to a non qm lending institution with bank statement, DSCR-based loans, no document loans, etc then DTI isn't considered. DM me for specifics as there is a whole market of lending institutions in the non Qm space designed specifically for professional RE investors.
1. What is the lien on the property for? Mechanics lien, tax lien?
2. Do you report the income on your tax returns from This property on your schedule E? If you do and the numbers are positive, you can use a portion of the Income from this property as long as the current numbers support this. Or proof of rents received, leases in place that support the deposits.
3. Is your FICO at or above 680?
I would need more info to determine whether you can or not but the above answers would help narrow down what is possible.
I have an offer on a house for 79900, and have the 20-25% down, but am having trouble with financing. I have great credit, but the banks i have spoken to say the amount is too low. Have any recommendations?
@Craig Anderson 100% financing isn't a realistic expectation in SoCal. The HMLs I work with expect the borrower to bring cash to the table to reduce the risk. What do you mean 'Is there a cap for this type of loan?' Did you mean is there a limit to how much you can borrower based on your W-2 income? If so, you are limited by your Debt-to-Income ratio outlined in the conventional guidelines which is 43%. But to be direct, expecting 100% financing on your first property for an under market SFR in SoCal is next to impossible in this market. As far as who is better, local banks or big corps, again, it depends on what your are trying to accomplish. I have taken my clients to local banks when the numbers work and larger lending institutions when it is more beneficial for them. Hope that helps.
Thank you! I appreciate your clarification on this topic. Yes, I was referring to how much I could borrow for "cap" question. I'll be reaching out to lenders over the next 2 weeks to see where I'm at and what I can expect in a loan.
First of all thank you for creating this thread and it's very helpful . I have my primary residence and 2 rental properties. Self employed for 15 years cashflowing 250k a year. Goal is to acquire multiple rental income that will provide our family atleast 20k/month passive income.
Few questions for you :
1. LLC question. I had been running my business for the last 15 years and I always hesitant to change our rental entities into LLC because I heard about difficulties in refinancing. My reasoning to do LLC is for asset protectio.
What are my options in refi for LLC properties ?
2. I just changed my business entity into S-Corp this year for tax purposes and this year we will get W2. My concern is that will I have a hard time qualifying a loan next year? Even though I'm in the same business fir 15 years. Do I need to be atleast 2 years to qualify for a loan?
3. What are your thoughts about Home Path Renovation Mortgae with Fannie Mae?
I have the opportunity to purchase a property as a second/vacation home that needs rehab. IN ESCROW. An REO purchase price is 450k, rehab amount 75k. Current assessment value 700k, ARV 850k
3.5% 30 year loan.
-Should I put down 20% down or put minimum down payment and refi later(BRRRR) so I have more liquidity for next project or put 20%.
Can you give a general answer as to why it is MORE difficult to obtain financing the more properties you get? I have 4 single family homes that all cash flow over $1,000. When i ask banks to get additional financing the lenders count the mortgages of my assets against me. This obviously hurts my DTI.
To make a simple example, lets say i make $4,000/month after taxes and I own 1 rental property that has a mortgage of $1,000 that pulls in $2,000 in rent. My assumption would be that my rental is an asset and the added rental income would add to my income without the mortgage.
So $4000 + ($2,000 rent -$1,000 mortgage) = $5,000 in purchasing power.
DTI = 0%
However, banks are calculating it the following way:
We currently have a couple of residential RE investments including a multifamily, in which we occupy and as single family home that we rent. We are considering another single family home as a "2nd home" but we plan to spend time at primarily for vacation in but also rent our on a weekly basis during tourist season to help pay expenses. What type of down payment and rate would lenders be looking for on the 2nd home/vacation rental property?
Thank you for your advice regarding financing... Its very generous!
@Jonathan Taylor Hello Jonathan! I plan on buying my first property and using the house hacking strategy on it by May 2021.
However, I ran into a bit of an obstacle when looking into financing. I just graduated college and got a job that pays well, but I a am technically a 1099 independent contractor. With my wife being a W-2 employee, what would we need to qualify for a loan? I read about the 2 years of tax returns, but I simply do not want to wait that long to buy when I have the down payment and credit history that would other wise qualify me.
Thank you!! That explanation was extremely helpful. I think I had been assuming “traditional” and “conventional” meant the same thing. This make much more sense.
@Jonathan Taylor good evening! Can you explain what Owner Financing is? I am aware a simple Google search would suffice, but I'd rather hear it from someone with a heartbeat lol. Thanks in advance!
I have substantial equity in my 4plex here in Phoenix. If I do a HELOC against the plex so I can use the proceeds to update the property and maybe use the remaining to buy another small Multifamily am I going to be hit with taxes on the heloc?
Me and my friends here in New York suburb, just came across a 6 unit property.
Since this is going to be our first partnership, we planning to equally divide The ownership, and we are going to do equal split for down payment.
we started having so many questions as we are proceeding with this deal. I'm not sure whether we have done anything similar and what are the precautions you have done so that in case partnership has to dissolve or one of the partner has to exit what is a fair exit strategy in terms of how to value the property at the time of exit after 2 years or 5 years or 10 years.
And those of you who had done similar arrangement how do you keep a maintenance escrow.? How much is considered a fair escrow amount? I'm sure more unforeseen expenses can come then since it's an equal partnership everyone has to put in an equal share.
what are the possible problems that we could come across because of this partnership. We are going to hold some meeting on a regular basis maybe a monthly or every other month basis initially at least. What else could be a good strategies to have this partnership going smoothly?
@Jonathan Taylor thank you! it will be the first of many, in both cases we are good friends with them and one has lent us private money in the past. We have just given investors what we have to raise we are hoping that the guarantor and investor will be the same person as it is just under $500k we need to raise (309 down, 188 interest reserve).
Did I mention this will be a recourse loan, do you still feel 2-5% is adequate for this?
My goal is to BRRRR multi families out of state. I want to be able to grow my portfolio and I am curious on some general financing for this process.
To purchase the property and rehab it I was thinking I could use a HELOC from my primary - if I go this route, after refi would the best plan be to pay the HELOC back and then just take it out again?
What about hard money - it seems like a potentially expensive way to go, what if I only used it for the rehab part?
I know most banks will only allow 10 conventional loans, what would I look for when I refi past 10?
I could probably go on lol, I am very interested in understanding the financial options. Currently half way through The Book on Investing in Real Estate with No or Low Money Down
@Jonathan Castro most lenders I work with have a minimum loan amount of 75k so the answers you’re getting are in line with what I have seen. Try local banks or credit unions as they have a better idea of the local market may have different limits in comparison to larger lenders