Help! In need of financing strategy ideas

8 Replies

Hello everyone,
I have a long and complicated problem. Here is the basics:
I'm in the process of closing on an investment property with a friend of mine in Columbus, OH, and we attempted to use conventional lending. My friend has the lower credit score of the two of us (645-650), but he also has the only income that can be counted for loan purposes since I'm a part time intern with less than two years of history. His income is significant enough, and our Debt to income ratio is low enough that we shouldn't have any problem there. We had planned to use a gift from my father for about 1/3 of the downpayment of 20 percent and closing costs, but our lender only discovered that this was an issue for investment properties after we entered the closing process. We do not have any assets to take a secured loan against for the downpayment except for a wedding ring appraised at $14k. We have an LLC formed, but we were planning to purchase the property in our own names. We tried to see whether we could sell part of the LLC to my father so that his money was not considered a gift, but they shot that idea down. We may be open to short term financing and then refinancing out later, but we wouldn't want to pay some ridiculous interest rate, or have the loan be for too short of a time frame in order to do so. We currently have 30 days left to close, so whatever we do needs to be quick. I'm looking for recommendations for a lender, or just strategic ideas of how we could continue to use the conventional lender that we have.
Any help would be greatly appreciated.

Instead of "SELL" part of the LLC to your father, why not make him a member and that's his investment in the company, there is nothing wrong with that. for liability reasons i would also put the house under the llc, not your personal names, that defeats the protection of the LLC.

Originally posted by @Jason Boulter :

Hello everyone,
I have a long and complicated problem. Here is the basics:
I'm in the process of closing on an investment property with a friend of mine in Columbus, OH, and we attempted to use conventional lending. My friend has the lower credit score of the two of us (645-650), but he also has the only income that can be counted for loan purposes since I'm a part time intern with less than two years of history. His income is significant enough, and our Debt to income ratio is low enough that we shouldn't have any problem there. We had planned to use a gift from my father for about 1/3 of the downpayment of 20 percent and closing costs, but our lender only discovered that this was an issue for investment properties after we entered the closing process. We do not have any assets to take a secured loan against for the downpayment except for a wedding ring appraised at $14k. We have an LLC formed, but we were planning to purchase the property in our own names. We tried to see whether we could sell part of the LLC to my father so that his money was not considered a gift, but they shot that idea down. We may be open to short term financing and then refinancing out later, but we wouldn't want to pay some ridiculous interest rate, or have the loan be for too short of a time frame in order to do so. We currently have 30 days left to close, so whatever we do needs to be quick. I'm looking for recommendations for a lender, or just strategic ideas of how we could continue to use the conventional lender that we have.
Any help would be greatly appreciated.

Is the property more or less than 4 units? I've looked into many of the same things for our clients here in town and I can say that if you purchase in an LLC you will be looking at 25% for the majority of lenders if it is a conventional Fannie or Freddie loan. I know a guy that does some really creative financing through a few local columbus commercial real estate meetups I've gone to here in town. I'd really have to dig deep but if you want to use that wedding ring (risky in my opinion) but he may do it. He lends on Gold, i think cars, and a few other types of assets. It's a case by case basis. I'd also second what the other commenter mentioned about making your father a part of the LLC. But if you are purchasing it in your names it may not matter. Whether you occupy the property or not can also make a big difference. If it is less than 4 units I would really look into occupying one unit in which case you can get loans lower than 25% and even 20% depending on who is purchasing the property. Hope this helps

@Patrick Liska Yeah sorry I did not clarify. We started the LLC, but then we realized that we would have to put 25 percent down, and most of the lenders we looked into were only offering 20 year loans. Eventually we would like to secure property in the LLC, but considering we do not have any assets to protect other than the property itself, we decided it wasn't as critical of a detail. This is both of our first properties, so we are learning as we go. The conventional loan we are applying for will not lend to an LLC. When I said we wanted to sell part of the LLC I meant to include him as a member, but for some reason, our lender told us that we are not allowed to have him buy ownership in the company and then distribute the funds from the LLC account into our personal account.

@Robert Ellis ^^ that should answer some of the questions that you brought up. I agree that lending on the wedding ring is quite risky. We only really looked into it since it was going to be my father who was providing the loan, and we knew if worse comes to worse, he would not request the ring. It was just one strategy we pursued in order to disguise his money as something other than a gift. This is a single family, 3 bedroom, university rental property that we are attempting to buy. So unfortunately, the only way that we could qualify for an owner occupied loan would be for one of us to break our current lease and occupy the property for at least 90 days. And the problem with that is that we want to start a lease on January first to allow for students to rent it before the spring semester begins. If we do not start the lease then, then we run the risk of the property going unoccupied until the fall. Thank you for your help, and let me know if you have any other ideas. 

Originally posted by @Jason Boulter :

@Patrick Liska Yeah sorry I did not clarify. We started the LLC, but then we realized that we would have to put 25 percent down, and most of the lenders we looked into were only offering 20 year loans. Eventually we would like to secure property in the LLC, but considering we do not have any assets to protect other than the property itself, we decided it wasn't as critical of a detail. This is both of our first properties, so we are learning as we go. The conventional loan we are applying for will not lend to an LLC. When I said we wanted to sell part of the LLC I meant to include him as a member, but for some reason, our lender told us that we are not allowed to have him buy ownership in the company and then distribute the funds from the LLC account into our personal account.

@Robert Ellis ^^ that should answer some of the questions that you brought up. I agree that lending on the wedding ring is quite risky. We only really looked into it since it was going to be my father who was providing the loan, and we knew if worse comes to worse, he would not request the ring. It was just one strategy we pursued in order to disguise his money as something other than a gift. This is a single family, 3 bedroom, university rental property that we are attempting to buy. So unfortunately, the only way that we could qualify for an owner occupied loan would be for one of us to break our current lease and occupy the property for at least 90 days. And the problem with that is that we want to start a lease on January first to allow for students to rent it before the spring semester begins. If we do not start the lease then, then we run the risk of the property going unoccupied until the fall. Thank you for your help, and let me know if you have any other ideas. 

If your father is the quickest way I'd recommend rewriting the LLC to include his membership interest and also finding another lender. There are plenty that could do a loan. You can find better than a 20 year amortization as well. I'd look at talking to arlington bank or a few others that aren't commercial banks. I talked to a commercial bank on a refinance today for a duplex and a residential bank here in town and both were very different conversations. Try both, talk to at least 3-4 lenders around Columbus or community banks and a good one will be able to give you any options they can think of. They are on commission as well and want to see a deal get done of course. Hope this helps!

@Robert Ellis Any clue how long Arlington Bank takes to close? I have seen them mentioned a couple of times. I actually tried calling them today but it was late in the day. A big concern of mine is that we also plan to finance some minor renovations with a loan from my father, and if we close any later than our current December 2nd closing day, then we may have trouble having the work completed in time. I will try to call several banks tomorrow. Thank you again for your help!

@Jason Boulter you quickly need an investor friendly portfolio lender (Fannie and Freddie do not lend to LLCs unless it is delayed financing).

You could also get a hard money lender or private lender because at this point you are running out of time. Most banks will need 45-60 days to fund.

Where is the funding for rehab coming from?

If the timing does not work, keep saving and get ready for the next deal.

Originally posted by @Jason Boulter :

@Robert Ellis Any clue how long Arlington Bank takes to close? I have seen them mentioned a couple of times. I actually tried calling them today but it was late in the day. A big concern of mine is that we also plan to finance some minor renovations with a loan from my father, and if we close any later than our current December 2nd closing day, then we may have trouble having the work completed in time. I will try to call several banks tomorrow. Thank you again for your help!

 No idea but I have another guy that can close quicker that is very knowledgeable on these types of things, just PM me and I can get you his info. He has closed many with buyers we couldn't get to do other types of investment loans, although he isn't a commercial lender he understands the ins and outs of investment real estate. 

Try Vinton County Bank or FC Bank in Columbus. Owner occupy a unit if you can.

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