Send me your financing questions
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.
So, what do you have questions about?
@Jonathan Taylor
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...
@Efren Ro This is a tough one but you dont have enough capital to purchase central coast in CA. Your closing costs along will be more than 4k. In this market, employment is important and since you are starting new jobs you need to have two years documented income via tax returns to use that income. From what you said in this comment, you need more time to season your income and save more as CA central coast is expensive.
@Christopher Gosch SBA loans basically demand of you first born naming rights and several limbs. Its a gut job in terms of analysis and paperwork but the rates are close to impossible to beat. Im currently refi-ing a car repair garage in the low 3s but the process is so cumbersome and frustrating. The next option is commercial financing with an institutional lender but the rates wont be as good as with an SBA.
Thoughts on financing a container house? Are banks or lenders weary of them as it's a relatively new product? What about insurance?
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Hi Jonathan,
Here is my situation. i got lay off a few weeks ago, this means i cannot but investment properties with conventional loan anymore. if i buy rental properties cash, how can i refi them if i do not have a steady income from a job?
thanks
Benoit
@Aaron Trudgett financing under company names are not difficult you just need a warm bodies guarantor who guarantees the loan. These are offered by many lenders but if you are forming an investment company for RE I suggest studying up on financing options as that seems like a crucial point to your company's success.
@April Causapin 203k are conventional and the issue is they are very nick picky with approving a loan. Its a catch 22 in a sense because 203k loans are ideal for properties that need work but in high cost areas, the ones that need work have larger issues, ie unpermitted construction, foundation issues, liens, easement issues, etc and 203k loans do not work well with these types of issues. For owner occ that needs work, try NACA.com. They are more willing to lend to heavy rehab properties with issues but the process is not fast so you cant close quickly.
As for other options, its tough for newbies as the fix and flip programs have min experience requirement. 5 % down on a fixer and finance the rehab yourself may be another alternative if its feasible but its tough right now.
I have 2.875% VA 30yr. The 210 day seasoning period ends 11/28. A lender I called will lock me in at 2.25 rate with a closing day of 11/28. Should I do this? I'm hesitant because it's a long lock period and also over an election. Additionally the timing of when my property taxes comes out of my current escrow account falls somewhere right in all this closing process.
Is it worth it or should I wait till after the election and seasoning period?
I currently have a 285k mortgage
@Eric Prutzman if you are buying your first property an LLC is overkill as you wont have a lot of equity to protect. The best programs are conventional/FHA with low down payment owner occupied properties. Given your lack of experience this is a good first property financing
@Cam Galasso I am not familiar with the local Texas FHA guidelines but in CA, you can use an FHA/conventional loan for a second rental property purchase as long as it is a 1-4.
@Nathan S. Send em over!
@Corey Julian For Multi family (5+ units) you are going to hit some major road blocks when starting out. MF lenders require MF experience, along with a min net worth, liquidity and reserve requirement. Also down payments for these properties are min of 25% but closer to 30% (250-400k for your scenario) so these are tough to over come. The easy answer but very tough solution is partnering with an experienced investor who can lend their experience and guarantee the loan. My personal opinion (unless there is more to this post) is you are biting off a lot. Its up to you to gauge what you are capable of but this you would be working in commercial financing which is more complicated than residential.
@Jasmine Coley major banks usually dont lend balances that low collateralized by real estate. The lenders I work with have a min loan balance of 75k. Try local area banks who know the immediate market better. They can usually guide you in the right direction.
@Mateusz Sokol Doesnt make sense right? Why are you being punished for having no rent payment? But here is the side to see, the lender wants to know you have included your housing costs when running your numbers, but since you dont have any housing costs documented they assume you cannot afford a house payment... *blank stare* Its frustrating, I know but that is how lenders see this scenario.
Good news is ask for a transmittal summery (important to know that term) for how they calculated your DTI. Update me when you do and we can see what numbers they are using to argue your case. Most lenders have people behind the decisions and if you have a leg to stand on to argue, sometimes you can get it cleared.
@Susie Evans
Thank you for this insight
@Dean Klein You know what you are doing and when you apply for a 5th or 6th Owner occupied property the lender may catch on and be like 'hold up, why does this guy have 5 owner occ loans....?' Short answer, its a risk but if you can do it, maybe you should. Its risky as you moved out of the properties you had owner occ loans on and lender COULD proceed with repercussions but its a gray area. You know your market and your area so if you think this is achievable then proceed with caution.
@Chad Pore keep us updated on what happens with seller financing!
@Daniel DeGallery keep asking questions, learn as much as you can and push yourself. So far you're on the right track. You can buy sooner when you know more. Knowledge is more helpful in this landscape
@Faruk Al-Hassan You cannot refi with less than 20% equity under a conventional loan unfortunately, you'd need at least 25% to do a rate and term in this market. All conventional loan products have income requirements and the limits depend on your DTI for the subject property. You can buy with less than 20% down but again, you need to verify with income. If you compile the deal to get 75% from a lender and a certain percentage of owner financing, then go for it but its deal dependent. The reason lenders dont go for it is you are over leveraged and that means more risk to them but this isnt an absolute, it could happen.
@Michael Bramante Im not familiar with condoizing a property. Neat idea and strategy but unfortunately I am not the expert on that one. Does anyone know?
@Marcos Murillo DM me for details as I can help you.
@Yaron Avidan I am familiar with FN financing and what you are experiencing is what is on the market. The issue is lenders don't have the usual avenues for Foreign Nationals for ability to repay the loan. 6.5 for 30 year, probably capped at 60-65% LTV is average in this market. If you form an LLC with an American partner and quit claim deed it into the entity, wait 6 months (need a ownership seasoning) then you would be able to access more favorable loan terms as long as your American partner can be the guarantor. But do you have a K-1,J-1, I-551 or H1B? I have lenders who make exceptions for FNs who have a history in the US by work visas, student visas, etc.
@Naresh Maragh there are bridge loan rehab programs available to help you rehab then you can refi out into a 30 yr product after 6 months seasoning. This is a proven strategy and loan products to support it. What specific questions do you have about these products?
@Denise Murray the issues you are running into are not deal related they are location related as the population density of Montana is below the limits lenders are comfortable with for risk mitigation. I can take a look and see but Montana is a tough state to lend in for the above reason. DM me for details and I can take a look.
@Bobby Burlas when you refi into a 30 yr rental loan your income is not considered, the numbers of the property are. You need to cash flow your new debts by a certain DSC ratio, 1.25 and above so the refi isnt the issue here. My guess is you are going to a local bank who may not specialize in investment property loans. There are many products out there to help you refi, the hardest part are the acquisition and renovations.
@Natalia Filipof Please be more specific by private placement syndication. What requirements does this company have for investors to be part of their deals.
@Anthony Hawkins Don't confuse private money with Hard money. They are similar but different in structure. Private money is a fellow you know willing to lend you money unsecured, Hard money are companies whose business plan is based on short term bridge loans at higher rates and usually (not always) secured by real property. So your question is what are the returns, depends. Private money MAY be in the 5s for 20 years or in the 15s and 12 months... depends on the fella you know. Hard money rates are 10-15% for 12-36 month terms but depends on the hard money company.
@Jay Yoo you're going to need to expand your question. LOC means line of credit but you dont need to register to buy out of state. There isnt a registry or anything. If you mean get a pre qual or letter of intent (LOI) from a lender to buy out of state it helps your offer but isnt required. You just need to know the area you want to buy in and make sure your numbers are strong.
@Brian Valdivia I have seen the HELOC strategy done in real life. Its a good one if you numbers are solid. You are just pulling money out at a certain rate from you house and repaying it so you can use it again. Crucial are to make sure you dont over leverage and are stuck in a tough spot with a property that doesnt cash flow and a HELOC with a balance.
@Shalom Benton do you have a partial lien release clause in the development/construction contract? But the real question is how can you use rental income on a property being developed because sounds like the property isnt producing income. If you have accurate rental comps you MAY be able to go that route but without rental deposits, its a hard sell.
@Charles Alexander all are viable options but the question is, what is your goal? You can get a DSCR based loan that does not look at your DTI but you have to come up with 25% down payment. You can look at conventional second home loans for 5% down but limited to one unit. FHA at 5% down for a four unit investment property but only in WA. you have options just need to focus down what the important selling points are for what you want to do.
@Allison Christine it would be ideal to have financing lined up before the offer so you know what to expect. The tough part about off market is if the property has functional issues (unpermited work, easements, liens, etc) Conventional financing will cause delays and headaches is such issues are there. HM wont but itll cost you in points and fees. I do think a realtor would be a good options as you may not know the timelines/responsibilities that required for a closing, what paperwork to submit, how to submit and counter and offer, etc. In CA the realtor fees come from the seller so no cost to the buyer, not sure if it is the same in WA.
@Steve Black DM me, Im working on a very similar deal right now and I have a strategy for you if it works in your case. Short answer, there are work arounds for you.
@Arturo Fuentes do you mean a house made of containers? You guessed it right, Banks are nervous and if something is new they take awhile to change. This would be considered special purpose due to its lack of availability/conformity. Im not an insurance expert so best to call a local insurer and ask. If you design it to the modern building codes that may help but I do not have any expereince with container houses.
@Benoit Cadot there are business purpose/DSCR based loans that do not incorporate your income. If the property cash flows at 1.25 or greater and have above 700 FICO with a renter in place, you have loan options.
@Eric W. 2.25 is a great rate and the question is how much are you paying for the lock? Standard lock periods are 30 days and you pay for a longer lock period. So dig into the numbers and make sure the refi is worth it on a cost benefit analysis. The property taxes will be solved at closing but address the costs and length.
@Rachel Black anytime
@Jonathan Taylor
Wow thanks for responding! I have rental income from 2 properties...The lien is on a property that doesn’t have income.... but the lien extends to all of my properties if I want to sell them. My question is if the lien would also stop me from purchasing something else? Hope that makes sense.
@Naresh Maragh there are bridge loan rehab programs available to help you rehab then you can refi out into a 30 yr product after 6 months seasoning. This is a proven strategy and loan products to support it. What specific questions do you have about these products?
@Denise Murray the issues you are running into are not deal related they are location related as the population density of Montana is below the limits lenders are comfortable with for risk mitigation. I can take a look and see but Montana is a tough state to lend in for the above reason. DM me for details and I can take a look.
@Bobby Burlas when you refi into a 30 yr rental loan your income is not considered, the numbers of the property are. You need to cash flow your new debts by a certain DSC ratio, 1.25 and above so the refi isnt the issue here. My guess is you are going to a local bank who may not specialize in investment property loans. There are many products out there to help you refi, the hardest part are the acquisition and renovations.
@Natalia Filipof Please be more specific by private placement syndication. What requirements does this company have for investors to be part of their deals.
@Anthony Hawkins Don't confuse private money with Hard money. They are similar but different in structure. Private money is a fellow you know willing to lend you money unsecured, Hard money are companies whose business plan is based on short term bridge loans at higher rates and usually (not always) secured by real property. So your question is what are the returns, depends. Private money MAY be in the 5s for 20 years or in the 15s and 12 months... depends on the fella you know. Hard money rates are 10-15% for 12-36 month terms but depends on the hard money company.
@Jay Yoo you're going to need to expand your question. LOC means line of credit but you dont need to register to buy out of state. There isnt a registry or anything. If you mean get a pre qual or letter of intent (LOI) from a lender to buy out of state it helps your offer but isnt required. You just need to know the area you want to buy in and make sure your numbers are strong.
@Brian Valdivia I have seen the HELOC strategy done in real life. Its a good one if you numbers are solid. You are just pulling money out at a certain rate from you house and repaying it so you can use it again. Crucial are to make sure you dont over leverage and are stuck in a tough spot with a property that doesnt cash flow and a HELOC with a balance.
@Shalom Benton do you have a partial lien release clause in the development/construction contract? But the real question is how can you use rental income on a property being developed because sounds like the property isnt producing income. If you have accurate rental comps you MAY be able to go that route but without rental deposits, its a hard sell.
@Charles Alexander all are viable options but the question is, what is your goal? You can get a DSCR based loan that does not look at your DTI but you have to come up with 25% down payment. You can look at conventional second home loans for 5% down but limited to one unit. FHA at 5% down for a four unit investment property but only in WA. you have options just need to focus down what the important selling points are for what you want to do.
@Allison Christine it would be ideal to have financing lined up before the offer so you know what to expect. The tough part about off market is if the property has functional issues (unpermited work, easements, liens, etc) Conventional financing will cause delays and headaches is such issues are there. HM wont but itll cost you in points and fees. I do think a realtor would be a good options as you may not know the timelines/responsibilities that required for a closing, what paperwork to submit, how to submit and counter and offer, etc. In CA the realtor fees come from the seller so no cost to the buyer, not sure if it is the same in WA.
@Steve Black DM me, Im working on a very similar deal right now and I have a strategy for you if it works in your case. Short answer, there are work arounds for you.
@Arturo Fuentes do you mean a house made of containers? You guessed it right, Banks are nervous and if something is new they take awhile to change. This would be considered special purpose due to its lack of availability/conformity. Im not an insurance expert so best to call a local insurer and ask. If you design it to the modern building codes that may help but I do not have any expereince with container houses.
@Benoit Cadot there are business purpose/DSCR based loans that do not incorporate your income. If the property cash flows at 1.25 or greater and have above 700 FICO with a renter in place, you have loan options.
@Eric W. 2.25 is a great rate and the question is how much are you paying for the lock? Standard lock periods are 30 days and you pay for a longer lock period. So dig into the numbers and make sure the refi is worth it on a cost benefit analysis. The property taxes will be solved at closing but address the costs and length.
@Rachel Black anytime
Hello Jonathan! . This is my first post. I am a hairdresser who makes 21k a year and i have 26k in debt . I have above 740 credit and 20k for a down payment. I saw a multifamily i want to purchase. Every book i read recommends to refinance after i use a hard money lender to buy the property. I know that is not an option because my debt to income ratio will be greater and i wont be able to refi to pay that lender. What options do i have? Do i ask for a commercial loan on a rental property is that do-able? 🙃
@Jonathan Taylor
You’re the best, thank you. I just sent you a DM.
Everyone, there are way more replies than upvotes. It’s people like Jonathan that make BP so valuable, please show support and upvote.
@Giselle Delgado Hard money lenders are not the only option for purchas. What you need to consider here is not what your total amount you owe but how much do you have to pay monthly to your debts (student loan, credit card, car lease, housing costs, etc) compared to how much you make. So you owe 26k but if your monthly payments are low enough you may still qualify for a first time buyer program. Without a full picture of your finances (and Im not asking you to post anything sensitive) its hard for me to guide you further. Hard Money is only a last ditch effort as it is expensive to obtain and can put you in a tough spot if the numbers dont pan out.
Why, in this day and age, with almost zero vacancy across the board, will an underwriter only use 75% or rental income to qualify? What about like 90%? Is that just so crazy?
@Account Closed Depends on the loan product. If you have a Fannie/Freddie product, they will only use 75% of rents collected as per their guidelines, for non-QM loans, I have programs that use 90-100% of rents collected supported by rental deposits and lease agreements. It's not too crazy to expect that just depends on who is underwriting the file.
@Account Closed Depends on the loan product. If you have a Fannie/Freddie product, they will only use 75% of rents collected as per their guidelines, for non-QM loans, I have programs that use 90-100% of rents collected supported by rental deposits and lease agreements. It's not too crazy to expect that just depends on who is underwriting the file.
I would love to be put in touch with anyone you know who can underwrite a loan based off of 100% of rental income. That would dramatically expand my options. I have been in business with Sched C and D incomes since 2016, and have been expanding, non-stop since that time. Before that I have a clear track record of 100% occupancy for going on 20 years now.
Another caveat, is that I do STR's and just ran into a situation, where I had an appraiser ask me for lease agreements for one my multi-family STR's. Obviously I did not have those, and it was a totally foreign concept for them. This is a commercial investment loan refi, so I had to pay $1200 for it, as opposed to the normal $500-$800 SFH refi appraisal. I was disappointed when he told me he would need to use market rents in my area (which are still very high though), on a fully furnished property that makes 2.5x market rents, with almost a total of 1000 reviews. Long story short, it took 6 MONTHS to refi this loan (which I think is a go). It got passed around to 3 different underwriters, as my taxes and rental situation was just not cookie cutter. Again, this was a commercial loan, with perfect credit, and low LTV ratio.
So any contacts you may have, that I could put in my back pocket for the next round would be great. I got locked into a 3.375% rate this time, which I thought was high, but it is indeed pretty low for a commercial rate in my area. I expect this loan to be sold immediately on the secondary market, so I'm a bit nervous about it.
I feel like it is time for the loan market to evolve around STR investors. We are not all straight commercial, which I would agree is riskier and could necessitate a higher rate. But we are a hybrid of the two, utilizing, in many cases residential property to generate a commercial gain. I need those underwriters whoever they may be.
@Jonathan Taylor I'm new to investing and I really appreciate you offering your insights here on BP. I am currently looking to purchasing a couple of notes on distressed mortgages at a discount. What is the best way to attain lending for purchasing the note which would last as long as the foreclosure process until it goes to auction, or either to acquire the property after foreclosure. If seems like in both cases I need cash funding. My goal is acquire these properties as BRRRR strategy so I would like to use the equity to leverage on the properties to purchase other investments. What are my lending options?
@Account Closed a 3.375% is a great rate on a STR non O/O. I have a deal thats a vacation hotel in Delaware that is cash flowing nicely and doing very well but lenders are hesitant to lend on seasonal rentals when the tourism industry has taken a huge hit. So its not an insult to your or your business operations, I just find it very hard to find a lender with a common sense underwriting angle.
@Steve Velez if you are purchasing at auction, cash is the fastest and easiest way to get the property. HML would be your next choice, I have not been privy to nor seen anyone finance these deals outside of the above mentioned methods. Anyone else have any insights on this?
@Jonathan Taylor Thank you for your thoughts. Makes sense. What do you think is the best way to get the Equity out of the property once I start to rent it out after foreclosure and rehab? I'm hoping to take the apprecaition and/or dicsount from the foreclosure to invest elsewhere. Without any mortgage (since it was purchased in cash I'm looking for the best option for leverage. Can I CO refinance even though I don't have a mortgage? HELOC? Thanks again Jonathan and BP community.
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.
So, what do you have questions about?
I bought my first 3 family with a co borrower with an FHA loan that we recently refinanced to a conventionalWe split the rental income on our taxes and the appraised value is at 80% LTV. I want to buy another 3 family with an FHA that I would occupy but need a co-borrower which is the co-borrower on the other property. However, it looks like for 2-4 units, all borrowers need to occupy and I need to qualify carry both properties. What is the best course of action here? Thank you!
I'm hoping you mean you purchased the property from a foreclosure sale not that you are in foreclosure. But best way is to do a cash out refi into a 30 year rental product to tap into the equity. DM me for specifics but that is the third R on the BRRRR method, Refinance. Cash out refi does not mean you have to have a mortgage. One of my clients is doing a cash out on a free and clear property at 75%. He is walking with the cash after costs and buying another property. Very simple and doable strategy if the numbers work. Does that answer your questions?
@Natalia Soares This is tough as you need to occupy the property to use the FHA owner occ program and if you need the coborrower to qualify you will need both to occupy. Others in BP has suggested to NOT occupy but you are technically violating the terms of the loan and if caught could put you in a really tough spot. If you can't qualify on your own, try these two strategies:
1. This only works if you are in a time crunch to close and to qualify for owner occupied FHA financing within 6 months of closing. Delayed financing is a term that says you buy the property all cash, then refi with a FHA lender within 6 months. You get good rates and can live in the property.
2.Close under a DSCR based loan. The rates wont be as good (5-7%) but income is not considered. Caveats are, 25% down payment, min FICO 680, Does not use your DTI to qualify you, and can close in a LLC.
I understand Im not providing you with exact scenario questions but in your case, its tough as you will either need more money or more time which the above scenarios address.
Hope that helps.