Tired of hearing "NO"

51 Replies

I have been on this forum for a while now. I realize one of the biggest problems in real estate is finding capitol to invest with. At the risk of sounding just like one of the many other people complaining about the difficulty finding capitol here goes my story....

I am currently developing a property, or trying to at least, and I cant find enough cash to continue building. Without wasting too much of your time about the property, business or location, I can assure you its a slam dunk. From day one I have been netting thousands of dollars a month with minimal investment. I have shelled out tens of thousands of dollars on an amazing set of construction plans, site plans, permits etc yet the loan I was planning on being there, fell through. I have gone to 4+ banks over the course of 2 years and I keep falling flat. I have put together an amazing business proposal for the banks but I keep getting denied.

I'm at my whits end! This project is literally a home run yet I cant find a penny to throw at it. After receiving the first couple "no's" I decided to build the first duplex on my own. I used cash, low interest credit cards, and I did much of the work myself in order to save money and get it done. It was completed last June, rented months in advance, and the tenants are still there, happy as can be. But most importantly, the house was profitable from day one.

Cut to today, I have been looking for a large loan to continue construction of 3 more duplexes and I have come up flat. I am so sick of applying for loans and hearing banks tell me "No".  There is zero reason to deny me the funds. All of my investments are making money hand over fist. I am in a great area and the housing I am building is in HUGE demand. I want to blame it on the fact that traditional banks are unreasonable but instead of pointing a finger I am hoping to find another way. I dont know any private lenders and I really prefer not to give equity in my business away but I dont see any other way to continue on with my progress.

Any advice?

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What is the reason the banks are denying you?

Have you tried smaller banks or portfolio lending banks?

Have you looked into private investing? Do you have an agent, they can point you in the direction of private lenders in your area.

There must be something you're not telling us or something blatant you are missing. It's not the easiest thing in the world, but banks are in the business of making money. If your portfolio shows you make money "hand over fist" that should be a huge green light for these lenders.

The fact of the matter is, there's more money out there waiting to be lent out than there probably is in circulation. The money is out there and it's ready to be sold a good deal.

I would ask the lender for specifics on their reasons for saying 'No' and then working on a strategy to get them to say 'Yes'. Are they just not sold on the project in general?Do you lack a certain percentage of your own capital to partner with them? Are you carrying too much debt?

Good luck & keep us updated!

Originally posted by @Matthew Porcaro :

There must be something you're not telling us or something blatant you are missing. It's not the easiest thing in the world, but banks are in the business of making money. If your portfolio shows you make money "hand over fist" that should be a huge green light for these lenders.

The fact of the matter is, there's more money out there waiting to be lent out than there probably is in circulation. The money is out there and it's ready to be sold a good deal.

Gotta agree with this. There is no shortage of funds to lend, and definitely no shortage of will.

Would OP be willing to post the #'s of the deal? there are lenders on BP who are ready to fund a profitable deal asap.

First, Mike, Ill have to briefly tell you about the property. When I bought it there was a single duplex on 10 acres. I am building 4 additional duplexes that are all passive solar. My area is very "green" and the apartments are in high demand. 

The first time I was denied was in 2013. I was denied because I already had a mortgage through a local bank on the entire property. Traditional banks didn't want to give me a construction loan and be in second position on a mortgage. I never subdivided because I never plan on selling and I didn't want to waste the money surveying etc. In hindsight I think subdividing would've helped. It was just a cash intensive process and I was short on cash.

I also did not have quite enough equity yet to clear enough money to complete an additional house. So, immediately after being denied for the first loan, I applied for a commercial loan to have one large loan on the property and it would've given me enough to build the first of the new duplexes. I was denied because my after tax income was too low for their standards. As any real estate investor knows, one of the many benefits of investing in real estate is the tax deductions. Because I am good at using them, my after tax income was too low. I showed them spreadsheets and pointed out that my income was going to be increasing in 2015 (which it did) but they couldn't approve me because they were constrained by their rules. I tried the same thing with 2 other traditional banks and received the same responses.

So I built the first of the 4 new duplexes myself with the help of a builder. I did about 30% of the work myself to save money. In order to finance it I sat down one night and applied for 10 low interest rate credit cards. I know its risky but they have long introductory offers and/or low apr's. I maxed all of them and also used the little cash that I had on hand. Everything is going great! The house was done in June of 2016. It was rented 4 months in advance. I received 6 applications for the apartment in under a week. (I charge for people to apply for my apartments so that says a lot). The rent covers all of the credit card payments and utility bills. Its going very well. 

Unfortunately use of the credit cards has tanked my credit score. I went from 800 to about 610. Now I am getting denied because my credit score is too low and because my DTI is too high, both are solely due to the credit cards. I show the bank all of my figures (I have a very nice proposal that I give banks which I have perfected over the years of hearing "no") and I show them that once I pay them off with the funds they give me, my credit score will go back up and my DTI will go back down.

I know the right thing to do is to wait a year, pay off the credit cards, and look for funds again. But back in 2013 when I had high credit I still couldnt get a loan. I was just getting denied based on other reasons. Its so frustrating. I am making great money, the outlook in my area is outstanding, and my rentals are in huge demand.

I have reached out to everyone I know and I cant find any investors. I need to find a private lender who is willing to loan me the capitol I need. 

Based on what you've posted I am going to hazard that the reason you are being denied is because you really don't have any "skin in the game". Everything was financed, meaning you really don't have any of your own money in the project; if you were to walk away, so to speak, right now, the only one who would lose any initial hard cash is the credit card companies that loaned you funds to finance this project. 

My experience is that lenders are reluctant to loan out 90%+ of funding on speculative ventures. If you had 50% of the cash, you'd have no problem. You are probably going to have to wait it out until your current "hand over fist" project pays for itself - at that point, you will have a hard asset you can mortgage to move forward with another project. 

@James Klafehn it appears you got overzealous and did something bad when you took out all those credit cards. Beyond tanking your credit score, it could appear irresponsible to conventional lenders. You could look for a hard-money lender that is willing to finance you. I would offer them a plan where they pay off all your debt on both properties, then they hold first position on both properties and the land. Then you sub-divide the property and refinance them individually. Worst case you sell the original duplex to get capital return. Once you have the sub-divided land and some capital, it will be easier to get financing. The other option is to do just what you stated and pay off the credit cards. Any way you look at it, sub-dividing the property is really important. If for no other reason, to give you an exit strategy. It will be easier to sell the properties on their own lots, then as part of a 10 acre complex. 

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I definitely have "skin in the game". I purchased the property for a great price with 20% down, that's my skin in the game. The mortgage on the property has a balance of $160k and the property is valued at $450k. I was never denied based on my lack of skin. But thank you for the input. I do appreciate it.

Yes the credit cards look bad. But the banks seem to understand that my scores will immediately improve once I receive their loan and pay them off. I can do it on my own with my profits but I want to grow faster. I don't want to wait a year. The market is there and these apartments are needed NOW. I don't want to wait when someone could copy my business plan in the meantime.

Yes, I am looking for a hard money lender. I know its risky but I have the income to pay it off. I did offer that plan Joe, it didn't take. Id really prefer not to waste the time and money subdividing and I definitely am never going to sell any of the duplexes. My exit strategy is death. I still own the first house I ever purchased. haha Its been printing money for me for 15 years now. When I am making $1400 per apartment there is no reason to sell. Ithaca is a hot rental market and selling has never been a part of my game plan.

So if anyone knows of a private lender or a hard money lender please let me know. I know there is money to be made because I am doing it already. I just want to do it faster.

You have a situation that is hampered by your unwillingness to properly position this "project" for the lending you are seeking. You have a residential use development parceled as a commercial project. 4 assets on one parcel is not going to be looked at seriously by any conventional lender/commercial lender. You need to subdivided it most likely. Your next issue is that you are not into the project with any of your own money (debt service is not investment capital...it's debt), and your "equity position" is based on an incomplete project profile. Lastly, you're looking for the money in an arena that is not likely to provide fruitful (as you have discovered) and rather than waste more time doing it wrong, I would start by repositioning the project so it can be attractive for a Private Investor, Crowd Funding Campaign or JV with someone that has the cash to complete the project.

Good luck.

I have looked for just $210k to complete one more duplex all the way up to $960k to complete 3 more. 

As for collateral, they would be investing in a property that only has a $160k loan on it and is currently appraised at $450k, as it sits right now, before the 3 new duplexes are done. Once the property is completed this will be a $2 million dollar property. I also have 2 other houses and each of those have equity in them but I shouldnt have to tap those.

I already have, I can partition it off into 5 lots, it would just take time, money and a survey.

So your suggesting that is the best way? I dont see how that would make too much of a difference. I think a single, large commercial loan on the entire property is the best way to go. Which is also what I have been told by other people. 

Subdividing seems like a waste of time and resources when the property isnt being developed to sell off lots.

Warning.  Rant ahead, but in a lighthearted manner. :)

You're tired of hearing "no"?  Do you have any IDEA how many times people have been told "no"?  You've talked to 4 banks in 2 years?!?!  I was told no by 8 banks within 3 months!  Each time, I asked "Why"?  You should ask the same thing.  "Why was I denied?"  They will tell you.  Correct that, and you're in.

I've had crappy property managers, friends telling me I didn't know what I was doing, 8+ banks telling me "no", existing bank that told me "yes" get bought out after I had just 2 properties with them to turn around and tell me "no more properties", 2 break ins, $5,000 worth of unexpected insurance deductibles, city inspection reports that I have to pay for, late tenants, screw up with my CPA that almost derailed a deal, unexpected "repairs" that were clearly not needed that my property manager not only approved without telling me, but was WAY overpriced.  (Ever hear of a $150 mailbox??).

That's just in the last year and a half.  On top of ALL that, my wife is on my case because I won't shut up about how much fun real estate investing is.  She hates it.  It's boring to her.

Now, that being said, just push forward.  Find the reason why they deny you and correct it.  You will prosper, I promise.  You're going to feel discouraged, I know I was for a LONG time, but if you adapt and overcome, you'll get there soon enough. :)

Ok, rant over.  Good luck though!  Keep us posted on your progress!  You can do it! :)

Thank you for the post. Yes being a landlord is hard. And yes, I know how difficult Cities can be to work with. I also pay for mandatory inspections and reinspections. I had to pay for a $500 key box so the fire department can get into each apartment if there is ever a fire. It was a new rule the city officials decided to enact this year. That was in addition do the mandatory electrical inspections, heating inspections, fire safety inspections and code inspections that are required every 4 years. Ithaca is a hard place to do business but it can be rewarding.

I have been doing this for a while now. I have definitely had more than my fair share of problems but I overcame them all one by one. I pride myself on being good at that. But this issue, with the banks, is especially crappy. I have done my homework, I have adapted, they tell me no for X reason, I solve that, then there happens to be a Y reason, solve that, then there is a Z reason. It so frustrating. Meanwhile I see other large developers come into my area putting up these huge apartment buildings that don't conform to current zoning restrictions. They get approved anyway and then they get huge tax abatements.

@James Klafehn  You really must bite the bullet and subdivide the property.  My partner and I are sitting on an acre containing 8 duplexes and that parcel was not properly subdivided at inception and it is now a nightmare.  You are sitting on a $2.0MM investment, why be so cheap to not spend the little bit of time and money on the front end? Bankers will not care if you say "I'll never sell..." or "death is my exit strategy...".  They have to plan for worst case scenarios and putting those individual duplexes on one large lot is outside their normal business and comfort zone.   In hindsight, you probably would've been better served using your credit card cash advances for the survey and expenses needed to subdivide properly.  You'll likely never qualify for a bank loan until you take that step.   Good luck to you.