Are we Bankable or not?

11 Replies

My wife and I are starting a small real estate investment company as our “side hustle”. We are wanting to know if we would qualify for a portfolio bank line of credit with reasonable interest rates, to “Brrr” and or flip a couple of properties in 2019. Credentials listed below: Credit Score - Excellent Net Worth - $300K Income to debt ratio- 35% W2 Income - $150K combined 1 rental property $385K w/ 35% equity $50K Cash savings Located In San Antonio TX Any feed back would be greatly appreciated.

Take out a HELOC on your primary. Use that for the down payment & closing costs on hard money or portfolio loans for the houses you buy. Flip the properties or if keeping, refinance the properties to get your cash back out. Pay down or off, the balance on the HELOC, rinse and repeat. Credit scores generally need to be 680 or better. Done and Done!!!

Hey @Jack Moreno

You're bankable, but... 

...here's where you're vulnerable; debt ratio. At a 35% debt ratio, you don't have much room to add another property, particularly if you take cash out on a HELOC. There are lots of no income verification programs out there that don't have heinous rates. Explore those until you get your debt ratio down to squeeze in another property.

Your next question is "Are you using any of the rent to cover the new mortgage?" The answer is yes, of course, but you can only use 75% of the rent to offset some of the new mortgage; remember, you're adding debt by fully leveraging the HELOC.

Best of luck

Stephanie

Heloc interest is approx. 4.7% and one can take a higher interest HELOC (say 2.5K) to stretch one's credit. Go to your bank talk to a banker. Chase and Citi have best rates.


@Jack Moreno The HELOCS that I work with have a 38/45% max. debt ratio, so if your at 35%, you may need to pay off some of the debt with the HELOC or on your own prior to the HELOC would be even better? Also, keep in mind the debt ratio will be calculated based on the fully amortized payment as if you have used the full balance on the line. So be prepared for whatever that number is?

As @Stephanie P. mentioned, if you are gong to keep the property as a rental, the way that its calculated is Gross Rents X .75% Minus PITI. If its a negative number, it gets added to your liabilities, if its a positive number, it gets added to your income. Most rentals will add little to either your debts or income, so your debt ratio doesn't really take much of a hit at all and may actually increase your income. If you properly plan out a property in advance of buying, you will know going in that it will add income to your bottom line. Done properly, its a great investment tool and a great way to buy your wealth.

I hope this helps?