Should I be pursuing a private lender for this property?

5 Replies

Hi, everybody!

I'm new enough to RE investing that I can't figure out how to solve this head-scratcher. I thought you guys might have some advice on how I can proceed.

Here's the shortest version of the story I can manage... :)

We had been interested in a particular property, a house on 16 acres with two vacation  cottages also on the property (to be used as STRs while we lived in the main house.) As we were preparing an offer, somebody beat us to the punch and the property went under contract, so we shrugged our shoulders and decided to just buy our first investment property instead. It's a two-family unit which we planned to house-hack in until another chunk of acreage came on the market that we liked. (We want to have a small hobby farm for our permanent home.)

Well, the prospective buyers on the 16-acre farm had to walk away, because they couldn't find a lender who would give them a residential mortgage on the place. Apparently the reasons ranged from it having too many kitchens (with the two vacation rental units) to the acreage being too large. So the farm is back on the market and we are determined to get it if there's any way to do it. And there must be some way!

I called a few lenders over the past week and discussed the property with them. The most flexible one I found (NFCU) couldn't guarantee they'd give me a loan on it, because properties over 10 acres had to be approved based on "average lot sizes in the area." How they're determining "average" and "area" was something they couldn't tell me. :(

So I'm wondering if a private lender would present less of a headache.

Info on the property and on us: the farm is listed at $799K currently, which is in line with comps for this area. The two STRs on the farm should give us cash flow of at least $24K annually; combined with our two-family unit, I'd expect our annual cash flow from REI to be over $40K if we held both properties. Virtually all of this county's economy runs off of tourists and STRs, so I feel very confident in my ability to accurately project cash flow from these properties and could present comps to back up my projections. We are self-employed, but have good income at $130K for 2016 with projected growth in 2017 of 33%, bare minimum (maybe a lot more; in 2016 we grew by 67% over 2015.) We have been in business going on four years now, so we have a trail of tax returns to support our business's strength. FICO is 760. So I don't even know if we're the type of clients private lenders would be interested in!

I have never looked into private lending before, and have no idea where to start. I have no idea if I should even give it a shot with this property, or if I'd just be wasting time by pursuing it.

Any other options you guys can think of for financing a property that corporate lenders keep disqualifying for too many kitchens and too many acres?


@Libbie Grant Good luck with this one. If you get a response from a private lender that would lend on this type of property, it would be interesting knowledge...

this is why god created Community banks.. won't be rates like a federally backed mortgage but will be far better than private or HML.

I spent most of my career in land and Timber ... and these types of rural acreages are really tough to finance.  the lender usually as you denoted just wants to appraise the property as 1 acre with the improvements then get a separate value on the remainder bare land..

this made buying 40 to 100 acre props with houses on them a challenge for most and especially if it had timber.. this is where we created a Niche ..

I would walk into your local community bank or credit union and lay out your plan.. those institutions are in business to support the local community of which you are.. this project could possibly have a land and SBA component as well..  I am not an expert by any means on this stuff.. but that's how I would approach. it.

PS.. Friday Harbor is my number one place to go for lunch on nice days.. we fly out of Portland its about 50 minutes and then we are there.. I like East sound as well cool airport there..

@Brandon Sturgill I know! It's a doozy of a situation, isn't it? I'll keep the forum posted if I manage to get any good news from anywhere!

@Jay Hinrichs - Alas, the people who already tried to buy it tried both of our local community banks and neither was willing to extend a mortgage due to the excess of kitchens.

But I do have one thing that the previous potential-buyers might have lacked. I have significant IP assets which I might be able to convince a community bank to accept as collateral. It might convince them to take the "risk" on me. (Ugh, this property seems so low-risk with its two STRs, in a community that lives and dies by the tourism's just silly to me that they're viewing it as too complicated to lend on!)

Anyway, I guess it's worth talking to the local banks and seeing if they can help me out. I don't know the situation with the previous attempted buyers; maybe their credit wasn't as good or something else was going on that made it all too risky for any lender to take on.

p.s. "My favorite place to have lunch" is how we ended up living here, too! My husband used to be in the Coast Guard and he would stop in at Friday Harbor as often as he could manage to get his crew lunch. He fell in love with it, and I'm pretty flexible so I agreed to it. But now I can't imagine living anywhere else! It's a great little town.


Thanks for the advice, everybody!

p.s. Why won't the forum let me tag people? This is not my day. Off to the office to get some work done...

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