What experience do lenders want to see?

7 Replies

Would owning a bunch of mobile homes in parks as rentals be valid, or would it not count because they would be considered personal property?

In the next year or two I'd like to get started and buy a 5 plex, and in the longer term warehouse space. Currently I'm trying to figure out the best ways to set myself up to hit those goals.

Hi Marcus,

Have you ever considered starting out with a 4-plex instead of a 5-plex? It's one unit off from your goal, yet obtaining a residential loan is much easier compared to a commercial loan. The 4-plex as you know would put you in the residential loan category, whereas a 5-plex would put you in the commercial loan category. Also, the background you are presenting sounds like it should not be an issue to obtain a residential loan.

I would suggest building that credit up, not opening up any other lines of credit and create a portfolio that you can show to the lender that describes all your sources of income. Also note, that lenders have some sort of say when it comes to approving a loan, so if you come in and show that you have your ducks in a row... you might have a better chance at obtaining a loan. Please note that I am not a lender and I am just talking based on experience. Best of luck and I would love to hear your thoughts.

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There are some commercial lenders whom would consider your ownership of mobile homes to count as real estate investment for the purpose of getting a commercial real estate mortgage (we would do so). 

However, there are other considerations. First, you were going to have to come up with at least 20 to 25% down payment for a commercial property. Second, you will likely not qualify with a long-term, low rate, lender. Instead you will likely need to go with a hard money lender to get started, and then refinance to a long-term low rate mortgage. 

I don't say these things to discourage you, only to give you a heads up that CRE is a different game with different rules. There is certainly lots of money to be made in this space, otherwise we wouldn't be in business ourselves.

Good luck to you whatever you decide to do.

For a purchase, we (and some other hard money lenders I've spoken with) would want to see at least two years of experience with 1-4 unit rentals, or at least fix-n-flips; or at least one year of commercial real estate investment ownership experience. Depending on the type of property, you will need 20-40% down payment, plus your closing costs and a few months of pre-paid interest (closing costs and pre-paid interest can be paid by the seller if you can negotiate that). In addition, you would need around 6 months reserves. If you are planning on renovations, of you will need to show money for that as well. While second liens / seller carry is not allowed, money from borrowing off another property is OK. 

Some of the decision around reserves and pre-paid interest are driven by the condition or vacancy of the property. Fully leased / good condition = less risk = less reserves / PPI (but usually less possible profit for you). Property issues + vacancies = more risk = more reserves (but much more potential profit for you as you renovate and lease it up).