Hey guys, hopefully this question makes sense. I'm just a small time investor, but my portfolio is to the point where I will be expanding through 1031 exchanges into new properties. Within the next year or two I will need to purchase multiple properties within the same year (5 or more). How does this affect my credit? I've heard of big time investors that are purchasing hundreds of properties a year and they "borrow" or "rent" other people's credit. Although I don't know if that's accurate or how it works. Every time I get a new loan on a new property they pull my credit which obviously damages the score. I've also heard that there is a limit to the amount of loans a bank will give you within a certain time period. I am buying all of my properties with their own LLC and not holding them in my personal name, but the bank still wants a personal guarantee. Will there be a banking issue when my portfolio gets to the point where I'm needing to purchase say 20 properties or more a year?
Lastly, my salary is about $140K/year. Does income to debt ratio factor in or not? I assume as long as the property cashflows well and my debt coverage ratio is good (I usually shoot for 1.6 or more), then it won't matter, but I'm not sure. Thanks for the help!
When it comes to partnerships the banks will look at each person's credit. It is common for someone to come in as a partner solely to provide their liquidity and balance sheet to qualify for the loan. I wouldn't worry too much about the credit aspect. If you are getting commercial financing, they are more worried about how the property is performing. DCR is definitely a major metric banks look at for financing. If you start to look at larger properties you will find that banks look more at your experience in REI compared to your income. Liquidity will always be an important factor for loan qualification but experience plays a major role in qualifying for the larger deals. That is where partnering with someone that has the resume comes in handy.
@Liam Story , the amount of the leverage and type that is key. As you reposition your portfolio you can actually use the 1031 to consolidate debt, separate debt and cash (which will make you a more attractive lending prospect. And you can start to use more portfolio lending. It's not uncommon for an investor to have a number of properties under one portfolio loan that expands and contracts with additional collateral and partial releases. You're right on the verge of moving out of the conventional lending arena with it's limitations and into the world of investment banking where the properties and your expertise are what's important.
Keep finding good properties with superior cash flow. And stay away from consumer debt. You'll never lack for lending power.
Thanks Dave! That makes sense. I was talking to my banker and he actually mentioned doing a portfolio loan using the equity from my first property as collateral for the next one.