Creative Financing Options

9 Replies

Hi Guys!

I bought my first condo 2 years ago and it has appreciated quite a lot since. I am just getting my feet wet in terms of understanding investment property and I'm here to learn more but am rapidly beginning to believe it's a much better investment than the stock market. I'd like to learn about investing locally and nationally as well as learning more about property management.

I have about 100K cash for a down payment and I'm saving cash quickly (about 10K per month) but as a business owner I can write off so many expenses that my income doesn't qualify me for another loan because in addition to my current property (I still owe 600K, put 300K down and it appreciated 200K). In 2017 I should qualify for a higher loan because I have higher income, but right now they base loans on the past 2 years of tax returns and are using my 2014 income which was significantly lower than 2015 and 2016. I'd love some tips if anyone has any creative ways to finance when my debt to income ratio is already at 49%... Currently refinancing my home but that will only save about $200 per month. 

Thanks in advance for your time! 

@Brooke Sprowl , you as a real estate investor should only be worried about DTI if you are (for some reason) trying to purchase crappy rental properties. When working with competent persons, cash to close + reserves is more typically your constraining factor.

Many lenders have "overlays," which are extra BS requirements on top of Fannie/Freddie. Don't bother speaking with those persons.

Thanks for your perspective, Chris! Although I'm not entirely sure I follow. As a starter property I was thinking about finding a one bedroom in Los Angeles for under $400K. I just wanted to get my feet wet before jumping into buying a whole building. I think you're referring to buildings with 5+ units which do not consider DTI-- is that correct? If so, how can I qualify for these properties if I don't have experience in the past? What would give me a leg up against other investors as a novice? My credit is perfect so that shouldn't be an issue. Thanks for your time!

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As another general question how can I change my username so it doesn't show my first and last name? I'm not sure how I feel about having my first and last name tied to so much of my personal financial info on the internet... When I go to my profile there doesn't seem to be a way to modify my first/name and my username doesn't even show up...

Originally posted by @Brooke Sprowl :

Thanks for your perspective, Chris! Although I'm not entirely sure I follow. As a starter property I was thinking about finding a one bedroom in Los Angeles for under $400K. I just wanted to get my feet wet before jumping into buying a whole building. (1) I think you're referring to buildings with 5+ units which do not consider DTI-- is that correct? If so, how can I qualify for these properties if I don't have experience in the past? What would give me a leg up against other investors as a novice? My credit is perfect so that shouldn't be an issue. Thanks for your time! 

(1) No, I'm referring to residential 1-4 unit. DTI is calculated. But if you're buying good properties, and accurately reporting income to the IRS, then your DTI will continually go down as that rental income goes up. To the point that, after I've helped someone buy 3-4 good properties, sometimes I'll  simply verify that the new one is cash-flow positive the way we do our math, and if so then I can skip calculating DTI because I already know that it was 32% last time, and this time will be some number less than 32% because this one is also a good property.

@Chris Mason

A couple of comments:

First, make sure every property you buy cash flows after ALL expenses.  If each deal loses money, then eventually you'll not be able to continue doing deals and may have to declare bankruptcy...  You're in CA.  If you can't cash flow locally, consider investing outside of Oakland (I'm in Berkeley) or outside of CA all together (I invest in CA, TX, NC and a few other states).

Second, if all deals you buy cash flow, then obtaining financing on 10 properties (there are lenders that will do 10 Fannie Mae loans) won't be too difficult because your income will continue to grow as you acquire properties.

Third, you'll need to get 1 year of investing under your belt, including having the investment income on your tax returns, before lenders can consider your investment income toward you qualifying.

Fourth, if you still have trouble obtaining financing for any reason, you can consider Portfolio Lenders or Securitized Lenders.  There are a few portfolio lenders that lend in regions and a few national securitized lenders.  Keep in mind the terms for these lenders is not that same as the attractive terms for Fannie Mae loans. 

Fifth, once you get to 10 loans, get back in touch with me and we'll talk.  At that point, you can (1) refinance your SFRs into 1 commercial loan freeing you up to get 10 more Fannie Mae loans, (2) start buying multifamily properties with commercial loans, or several other options which I may be willing to discuss with you when the time comes...

There are links about my background, experience, and strategy on my profile page.

Best of luck to you.

-jon.

@Chris M. I do report all my income to the IRS but as as business owner I have a ton of write offs so the portion of income they count toward my DTI is low. They say I can only count about 10K per month and my current mortgage including HOA, property taxes, and mortgage is about 5K so I have already maxed out what they will allow me to borrow.

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