Investor · Massapequa, NY · Member since 2017 · 55 posts · 9 votes
I have a general question about purchasing a multi-family with 5 or more units. I've heard from a few sources that banks will not question your income when looking for a loan on this many units. For example, if I were to find a building with 10 units, and have the capital for 20% down, but cannot show an income, (good credit score and little debt) will I have a problem finding a bank to loan?
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
9y
@Michael Farrugia your important numbers are the DCR which is "NET income/debt service" @Jason Monroe It sure would be nice if they would take the gross income. Everyone could get loans. Well maybe that isn't a good ideal after all.
The other important numbers are your networth(could be a combination of your team members) equal to or greater than the loan amount, and liquidity equal to 6 to 12 months of debt service or 10% of the loan amount. This varies with the lender.
The nice thing is, you can bring in other signers if you don't qualify on your own.
Rental Property Investor · Miami, FL · Member since 2017 · 2k+ posts · 911 votes
9y
In general, banks will want to see that you are financially stable and that you have some reserves so they will want to see that. But you're right, they are going to mostly focus on the property and what its worth and the DCR of the property. I think that as long as you've got a good cash flowing property with a good DCR and have enough cash to put down then you should be in the clear. You just have to find the right bank.
If this ratio is 1.2X or higher then what you said above about the property being more about the income for the building is more often than not correct. If it's not 1.2X or higher than the buyer profile CAN be just as important than the financials for the building
Investor · Keller, TX · Member since 2015 · 5 posts · 4 votes
9y
I think Jason meant NOI / Debt service for the ratio, because 1.2 would be too low if gross income is considered. In the DFW area, the banks I've dealt with are looking for a DCR >1.25
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
9y
@Michael Farrugia your important numbers are the DCR which is "NET income/debt service" @Jason Monroe It sure would be nice if they would take the gross income. Everyone could get loans. Well maybe that isn't a good ideal after all.
The other important numbers are your networth(could be a combination of your team members) equal to or greater than the loan amount, and liquidity equal to 6 to 12 months of debt service or 10% of the loan amount. This varies with the lender.
The nice thing is, you can bring in other signers if you don't qualify on your own.
Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
9y
That could be an issue. Talk with your lenders to find out what they are wanting from you. You may need to get a sponsor for the loan. Also on commercial loans they usually want to see a down payment of 20-30%, money to cover closing costs and money for reserves (8-12months of debt service)
Investor · Massapequa, NY · Member since 2017 · 55 posts · 9 votes
9y
@jeff Greenberg I have no income to show for the last two years due to medical issues. However I have a mortgage on my home and a great amount of equity. Example, if I were to invest in a apartment complex that's $500,000, was able to put down 20% ($100k) and still have bank statements to show I could cover the loan for a year. Would I have a shot at qualifying for a bank loan?
Real Estate Consultant · Camarillo, CA · Member since 2010 · 2k+ posts · 1k+ votes
9y
As @Todd Dexheimer stated, you will need more than just the 20% and that could go to 30%. I would get into a conversation with a small local bank near the property. If your have not identified a property you want, go talk to some local banks or credit unions and get their opinion and requirements. They need you as much as you need them. Most smaller banks will be happy to talk to you.
When I was shopping for my deal that I did in Oakland I ultimately found a bridge loan worked the best as my buyer profile didn't meet the target and the DCR wasn't 1.2 or higher. The banks in the Bay Area wanted a 1:1 - 1:1.5 ratio in loan amount to network worth across the team.
Such that the team needed to have 1 million to 1.5 million in assets to qualify so the bank wouldn't need to keep it as a portfolio loan. As I was seeking a 1 million dollar loan.
In my travels I learned that some banks REALLY don't like buildings with overhang parking for example. Most of the multi family people on the podcast on bigger pockets describe having the seller carry 10-15% of the loan for the first term perhaps a partial carry is in your cards as to get you north of 30% down. Some of the loan brokers also had requirements such that the loan amount needed to be 500k or more else you would get hit with a portfolio loan penalty rate.
Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
9y
@Michael Farrugia I think you are looking for an answer focusing less on the technicalities of the deals (debt ratios) and more in response to your personal financial situation right?
I think many/most banks would look at your personal financial schedule and income as they want to know that you, who are signing the loan is a financially sound. However, if you really have a good real estate deal tied up, I'm sure you can find someone to loan you the money - afterall, there are bridge lenders out there who won't even run a credit check as long as they are the first and only lien holder to the property. You will just need to talk to several banks and/or loan brokers....it can certainly be done.
Do you have anyone that can partner or co-sign the loan with you?
Investor · Massapequa, NY · Member since 2017 · 55 posts · 9 votes
9y
Correct, my personal financial situation basically is that I have the capital but no way of showing income. I am sure I could find someone to partner/co-sign with. @Jason Mak