Is this why the economy is the way it is?

21 Replies

Today I had a meeting with the Branch Manager of a commercial bank. I took my 2 binders detailing out my 5 C's all suited up and ready to get that Business line of credit or approval to get a commercial rap loan for my current properties

well, the branch manager was this beautiful 24 year old. I was really nice looking at her but It tuned out to be a wast of time since as soon as I finished she told me that it will not work because my business did not have 2 year history... Not to discriminate, but I am sure that if I had spoke with someone more seasoned, that knew about investing and entrepreneurship I would have had a better chance.

Here's what one of my mentors did to get a $2.5M line of credit.

Step 1: He finds a local bank or credit union and he opens a small account with them - $50,000.

Step 2: after several months, he approaches the bank manager and just mentions in passing the possibility of him getting a line of credit from the bank

Step 3: after several more months, he then presents a detailed proposal showing the income he is getting from his current assets and why, if he borrows $2.5M...the income from his current assets can actually support the $2.5M line of credit (this line of credit is actually SECURED line of credit)

The bank's manager feels comfortable with him...and impressed by his financial statements (Income Statement and Balance Sheet). Because it's a small local bank or credit union, there's not much bureaucracy or too many people that need to be convinced. And because he is already a depositor with the bank (with almost a year of banking with them), the bank is more inclined to give him a secured line of credit.

Now...he has repeatedly done this several times so much so he has over $10M line of credit from several local banks. It takes time - not just a 1-time meeting to make it work though.

Account Closed: that is really impressive, I hope to get to that momentum, since I just started my real estate professional company this year, it has been hard getting anything that it is not backed by my own credit. All that I did get. $15k unsecured business line of credit and several business credit cards ( with a personal guarantee).

Unlike your goal my goal currently is to buy 4 houses a year (currently going on number 2) but I don't find a way to transfer this properties out of my name (since I am currently doing Homepath 10% down to buy and hold) I will be hindered when I have to put 25 to 30% down instead of the 10% that I can currently manage.

Thanks for your response and I wish you success on your 4 per month goal.

That's a bummer. Do you a relationship with any local credit unions or smaller banks?

@Jordan Thibodeau : It this time I am taking a real systematic approach of going to the FDIC website getting the info of all the local banks and setting a goal of scheduling a meeting of one bank per week to present them with my 5 C's binder and ask for the line of credit or for the rap loan under my business name for my current properties. So far, on one bank it took like two months of paperwork but they did give me a $15k unsecured line of credit on this one they just straight up said NO... hope fully I will have success on the next one.

Originally posted by @Luis Montanez :
Account Closed: that is really impressive, I hope to get to that momentum, since I just started my real estate professional company this year, it has been hard getting anything that it is not backed by my own credit. All that I did get. $15k unsecured business line of credit and several business credit cards ( with a personal guarantee).

Unlike your goal my goal currently is to buy 4 houses a year (currently going on number 2) but I don't find a way to transfer this properties out of my name (since I am currently doing Homepath 10% down to buy and hold) I will be hindered when I have to put 25 to 30% down instead of the 10% that I can currently manage.

Thanks for your response and I wish you success on your 4 per month goal.

This is from the Fannie Mae Homepath site:

Investor Financing

Expanded financing opportunities are available for investors who may have existing financed properties to allow mortgages up to a total of 20 financed properties (Fannie Mae–owned properties only; consult your lender for details). The investor may be an LLC or an individual. HomePath Mortgage (HPM) is available on eligible properties noted with a HomePath Mortgage logo on the Property Details page of this site. Currently, a limited number of lenders offer this expanded financing.

I went ahead and got preapproved through the Homepath Lender that accepts LLCs and will allow you to finance up to 20 properties. I knew it would come in handy once I really started moving.

I wonder if it might be faster and more effective to call all of them in one day and ask to talk to a commercial banker and simply ask them what kind of loans their looking to make. Just listen and make notes - don't ask them for anything up front. Then start with the ones that you think will be the best fit and see if you can find another investor that works with them already to give you an introduction. Also, if you find a good real estate agent in your area who works with investors they might help expedite. As an agent who works with investors, I've found it very easy to form relationships with multiple lenders who do portfolio lending as a tool for my belt to offer my clients. And I provide the lenders with enough leads that they are eager to follow up with my clients so that I keep sending them more leads.

One other thing I've found useful is looking for open houses at commercial properties. Savvy agents will host an open house and partner on the open house with a local commercial lender. These lenders are often hungry for business. My best lender relationship came from a commercial open house.

I had to google "5 C's binder", but I understand what you mean. Your package of information to support getting a loan.

I think you're getting the cart before the horse. The two year history, I think you mean, refers to two years of experience as a landlord before they will consider your rental income in qualifying for a loan. I believe that's a Freddie Mac requirement, though they may have dropped that recently. Even if they drop it, banks can impose whatever "overlays" they want. You need to be sure you understand an individual bank's requirements. If they impose this two year requirement having a discussion with the branch manager is hopeless. Have a conversation over the phone first and find this sort of thing out. There may be any number of requirements the bank will impose to even get to the point of talking about your qualifications. You're going to burn a lot of time if you try to have that conversation with several dozen banks only to get shot down because of some specific item. Find out those items first, and if you can get by them, then have the sit-down with the manager.

Its great to have a goal to buy four houses a year. But that really does require cash. And your own cash, not borrowed cash. This can be like a snowball. But, like a snowball, you have to start slowly and work your way up. If may be discouraging at first, but if you keep saving money and if your rentals do spin off cash then it will speed up. Trying to borrow and get yourself highly leveraged can be a recipe for disaster.

By "rap loan" do you mean a blanket mortgage where several properties are security for a single mortgage? In the context of mortgages a "wrap" mortgage means one mortgage that wraps an underlying mortgage. For example, when someone sells a mortgaged property and gives the buyer a new mortgage that wraps the existing mortgage. That's certainly not a conversation you want to have with a bank. Blanket mortgages seem to be pretty rare these days, but getting a loan to a business for buying a property is possible. It won't be 30 year fixed, but its possible.

@Anthony Gayden : Did you get pre-approved through the Homepath Lender that accepts LLCs that will allow you to finance up to 20 properties?.

I must then talk to a different lender, I did inquire about that pull financing you talked about and this is the response that I got from Fannie Mae; (in summary! currently I don't have the "proven track record in acquiring and managing bulk real estate or the $250,000")

Thank you for your interest in Fannie Mae’s Pool Sales program. This program is designed for investors who are interested in purchasing multiple Fannie Mae properties in one transaction. Pools are offered on a monthly basis and are national in scope. Current Homepath properties are not available for pool. The inventory comes from properties that did not sell on Homepath and have been removed from the site. We do not pay commissions.

·Pool Location/Size – Pool properties are identified by Fannie Mae and are grouped into sub-pools based upon their location. Sub-pools will usually include properties in multiple states and on average contain a minimum of 25 properties. We cannot help you with pools that are city, county or zip code specific. Most properties are in non metro areas. Investors must purchase all properties in a sub-pool. Custom pools and buyer select pools are not available.

·Property Condition – Properties are sold in "As Is, Where Is" condition without guaranty that insurable title will be conveyed, and no proration of real estate taxes or fees. Properties are in the bottom 15% value band for the state in which they are located. For most of the country that means that they are below $50,000. in BPO value. Average property value is around $25,000. Many properties are in poor or distressed condition. All have been on the Homepath site and the MLS for over 90 days without sale.

·Resale Restrictions – properties purchased in a pool may only be re-sold to owner occupants or rented during the first 90 days of ownership. No sales to investors are allowed during this period. After 90 days, only 20% of properties may be sold to other investors. After 1 year all restrictions fall away.

Investors who want to participate in a Fannie Mae Pool Sales must be approved by Fannie Mae before participating. Eligible buyers must have a proven track record in acquiring and managing bulk real estate transactions and have a minimum of $250,000. in available funds. All pool sales are for cash.

If you are not interested in this program, please respond back to us. We would like to know why it won’t work for you.If you are interested in discussing this program further, please provide the following information:

  • Name of Organization
  • Proof of Available Funds (Bank Statements or verifiable letter from Bank or other financial institution)
  • History and Experience in purchasing and managing bulk transactions.
    • Target Geography
@Scott McMahan : I will look for those"open houses at commercial properties". Thanks for this idea

@Luis Montanez that isn't the same kind of investor information I was talking about. I was referring to just buying properties one at a time.

The loan officer who pre-approved me told me that they will allow LLCs, and you can get up to 20 total mortgages, though the down payment increases after a certain number.

Originally posted by @Jon Holdman :
thanks for the advice, I will call and ask the right questions before moving forward, I am just an "in person" type of guy. Currently my plan was to buy this Fannie Mae Homepath 10% down houses under my own name and then find a way to transfer the title of two to four of this houses to an LLC and put all this mortgages under one commercial loan so that are off my credit and I could repeat the process. This is similar of what B to R financing is doing (Blackstone) but they require to have 4 to 5 houses with a current market value of $500,000.

This is a 20 year buy and hold plan but the faster I get there the better ;-)

@Anthony Gayden : The title of the house may be or can be transferred to the LLCs, but will the mortgage show on your credit report? If so, your personal assets are at risk in case you default on the payment.

If they are telling you that the down payment will increases after 4 (max num for the 10% down) then they are under your personal credit. Other wise, the work around will be to have one LLC for every 4 properties.

First, when you're replying I think you're using the quote button. Your replies are coming up as quotes. To use the @ mention function, just type @ followed by a question mark and a list of choices will pop up at the bottom of the text window.

You're really, really limiting your choices if you choose only Homepath houses that are eligible for renovation loans. I know the 10% down sounds attractive, but it comes at a price. I don't think you should auger in on that one aspect. Rentals are really a cash on cash return game. Getting 10% is good, 15% is great. If you could reach your income goal with 10 house that would be, IMHO, much better than having more leverage with less cash flow per house and having to own 25 houses.

Also, don't get too hung up on what's on your credit report and what's not. Lenders will ask about mortgaged properties. Doesn't matter if its on your credit report or not, it will still count. Denying that you have a mortgaged property when you know you do is fraud. You don't want to go there.

If your goal is to build a large portfolio you either need to resign yourself to commercial type loans with shorter loan terms, ARMs, or both. Or you need to get very creative, such as owner financing.

Personal assets are always going to be at risk if you default. You're not going to get loans in an LLC without a personal guarantee unless you have a very low LTV. Even then its going to be difficult. I have an investment in a mini-storage that has a loan of about $1.3 million. Guess what? The two principals in the deal have given personal guarantees for that loan.

@Wendell De Guzman

@Jon Holdman

I looking to make the jump to commercial properties 4+ from SFH (traditional mortgage financing) and doing the same thing of walking into banks. What are typical lending amounts and rate (20% down, 2MM max, 7% best rate???).

If one of these terms is to much I might as well stick to typical 30 year 5% loans.

@Lane Kawaoka , it depends on the type of commercial property (apartments, self storage, retail, office) and the size of the loan. Here's the paradoxical thing that I experienced: the bigger the loan is, the easier it is for one to get a NON RECOURSE loan - meaning you don't personally guarantee it. I was able to qualify for a $5M loan - NON RECOURSE.

@Wendell De Guzman

What interest rate and payment do you pay for that 5M loan. I am a novice and I just want to evaluate those 2 factors.

So I have always done conventional NOO financing with 25% down and conforming - recently I had 2 scenarios where I needed funding outside of the norm. I networked here on BP and through some of the contacts I met at a local meetup and got funding for both. I posted on some LinkedIn groups locally and RE related. I googled "commercial portfolio loan" and got email addresses for about 20 companies and emailed them my summary. I even had a wonderful stranger on here agree to give me 100k for a property I wasn't going to see till closing. Sell yourself, sell your passion, and sell your numbers.

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