So I think I've landed my first zero down situation, or pretty closely at least. The individual I purchased my first property from is selling another just down the road, the pro forma provided is as follows:
Income & Expenses
I have confirmed all the expenses as far as taxes, insurance, and water go, and minus 10% management, 10% CAPEX, and increase the R&M to 10% its actual NOI should be around $16,000 before mortgage payment, estimated @ $500 a month leaving $10,000 a year in positive cash flow.
It was appraised less than three months ago for $117,000. I asked and he agreed to provide a second note, with no lien on the property, for the down payment if I agreed to pay the full appraisal amount. He agreed to let me pay "whatever works" for me, I suggested around $200 a month and he agreed, leaving almost $7600 a year in cash flow.
So I have a practically zero down situation, that will put money in my pocket every month but I am stuck because the bank want lend to me. My DTI is 41%, my monthly W2 income is over $5000, my credit score is over 750 and I have $30,000 in cash and liquid funds, but still nothing. The bank wants 25% down, 6 months of reserves for all my properties (3), as well as $6000 for closing costs. They want to see nearly $60,000 in cash and liquid funds before they will give me a loan which seems a bit crazy to me.
I have heard that HML can provide proof of funds letters, should I reach out to them and see if they can provide one for me?
This is a 4-plex. Wouldn't it be just a conventional SFR loan? Why all the requirements for cash reserves, etc?
They said because they have to run it as a commercial loan because I already own 11 units. But I only have a mortgage on one building, this will be my second mortgage I have. Doesn't seem quite right does it?
@Greg M. Seems like a good deal. Have you done the due diligence on needed Capex improvements? Roofs, HVAC, Sewer, Electrical, Plumbing, Driveways, big dead trees, Exterior paint/siding, interior unit condition?
If some of those things are in need of repair I'd want to see you have $60k liquid as well. Also, in some areas it's not worth dumping a ton of money into a property like that because you'd never recoup it in a sale or refi. The fact that it's less than $30k/unit makes me wonder if that's the case.
That said, if the due diligence checks out you should have no problem getting a commercial lender to finance it. You just haven't found the right one yet. Also if you have 11 units and only one mortgage currently why can't you tap your equity in your current properties to build some cash reserves?