Leveraging “Group” Credit

[Elvin Green]

Good morning, not sure if this is in the correct blogosphere, but please direct me if you could.

I’m looking into properties and development. I have some friends whom have given me the ok I’m using them as private investors. They both have credit scores past 700. How could we come together and create funding to invest in properties? What steps should be taken ? What would be the best way to proceed. Thanks to all who responds.

-Ambitious Investors

[Andrew Postell]

@Elvin Green I can comment on the "buy and hold" strategy the best. And really, you will have LOTS of options here as long as you have cash to do them. What I mean here is that most buy and hold strategies (BRRRR included) are going to be dependent on having financing. And there are loans that will just be based on the income of the property. Now, there will be BETTER loans that you (or your investor partner) can guarantee personally...but there are plenty of investors that don't personally guarantee anything and are VERY successful. But you'll need some type of start up money in 99% of the properties you face.

Generally speaking there are 2 main types of loans for investors: “Conventional” and “Portfolio”

Conventional - I'll define these as loans that come from Fannie Mae and Freddie Mac (if you recognize those names). These loans are all 30 year fixed rate loans. They have the lowest rates we can find and since they are 30 year fixed...they allow us to cash flow better...which helps us qualify for other loans later. The draw back to these loans is that they are more paperwork heavy than the other "portfolio" types of loans....but if you have ever received a loan on your primary home, it's likely that you will go through the same type of paperwork here with conventional lending. Fannie/Freddie money = Fannie/Freddie rules. NOT the bank's own money.

Portfolio - I'll define these loans as loans that come from the bank's own "portfolio" of money. Sometimes referred to as "commercial" loans. These loans are a lot more flexible than "conventional" loans. Bank's money = Bank's rules. If they like you, then maybe they will lend to you. But since there is a limit to how much money the bank has access to....their rate will be higher...and usually a shorter term. The most common portfolio style loan in Texas is a 20 year adjustable rate loan. These loans are easier to get but the terms are different.

Fannie/Freddie types of loans will be available everywhere and those rules might change SLIGHTLY between lenders. Portfolio loans can run the gambit. Since each lender controls it’s own money you will have to call around to ALL the banks to learn about all the programs. A mortgage broker will help with this some…but even the best mortgage brokers don’t have access to ALL portfolio loans out there.

*WHEW*  I know that was a lot but feel free to ask anything additional if you need.  Thanks!