All Forum Posts by: Aaron Byrne

Personally, I have clients using mainly Forge Trust (formerly IRA Services) and Equity Trust. These companies would be my primary recommendations. I have also worked with uDirect and they seem to be a good third option as well. As an investor, depending on the amount of activity you plan to devote to this vehicle, creating the LLC arm for your SDIRA could be invaluable so be sure to explore that option as outlined by Brian Eastman above before making a final decision. Best of luck!

What type of lender are you using? Conventional, hard money, etc. Different lenders have different underwriting requirements and some may care while others will not. Without knowing more, I agree with Jake Wiley that simply increasing your credit limit would not affect your DTI, but lenders generally prefer to not have changes made to your financial situation during their underwriting process. Thus--unless it is time-sensitive--I would likely opt to wait until my loan closes before I make a change to my personal credit limits.

I would highly recommend you check out the Property Financial Calculator on Marshall Reddick's website. You can use the Debt Service Section to run the numbers you described. I will PM you with the link. Happy number crunching!

Another contact you can reach out to is Dino Champagne at Asset Preservation, Inc. She has helped several of our clients in the past and is very knowledgeable. Feel free to PM me if you would like her contact details. Best of luck!

Hi Brad,

Each offer different pros/cons, so I would, do a little independent research before making your decision as you never want to invest in something you don't understand (in my opinion). Each have their place, and are good for different things.

Some differences between the 3:

1. Heloc offers the best flexibility as you can draw down and pay back balances as needed. Negatives include the potential for a variable rate. With rising interest rates projected, you may not see many lenders offering a fixed rate on these unless you convert the loan down the road to an amortized payment.

2. Home equity loans are a lump sum of cash at a fixed rate. Some negatives are that you must pay interest on the full balance right away, so you should try to have a property identified to purchase before closing so you limit your exposure as much as possible. Easier said than done in this seller's market, though.

3. Cash-out Refi is much like a Home Equity Loan, except that it replaces your 1st lien with a higher balance. This works if you have a low LTV 1st and may carry a more competitive rate considering the loan would be secured in 1st position instead of 2nd--safer for the lender.

At the end of the day, it is important to be vigilant about the amount of leverage you are using. Typically, a 4/1 ratio or 5/1 is also suggested to ensure you have enough cushion to weather the market cycles. The best way to a healthy portfolio is through strategic planning, so be sure to think through the benefits and repercussions of these debt options before selecting one. Happy investing!
 

@Scott Winter 

The examples listed above are very valid. It is a lender's worst nightmare to end up with paper secured by an upside-down asset as the cumbersome default management process is time consuming and chances are high that the lender may never recoup their investment. 

Another angle to consider is if the lender is a correspondent or portfolio lender. 

For a portfolio lender, they intend to hold onto the paper until maturity so they set all the rules--rates, LTVs, FICO, etc. This can be a benefit to borrowers (hard money lender requiring zero seasoning period) or a detriment (choosing to cap LTVs for properties owned less than 5 years). Essentially, portfolio lenders are the folks to approach if you are looking to work around that seasoning period as they have leeway over what risk they are willing to stomach for the note rate.

On the flip side, correspondent lenders play by a different set of rules. Instead of holding the paper to term, these lenders are looking to earn the up-front fees before selling the note in the secondary market. This allows these lenders to essentially "recycle" the cash and make money from originating loans in volume. However, these lenders typically have predetermined agreements with wholesale lenders (FNMA as a prominent example) so if the correspondent lender wants to sell the paper, they have to abide by the rules of the lender who ultimately will end up holding the paper long-term. In this situation, the wholesale lender makes little from the fees charged up front, so they want the note to last as long as possible and collect the most interest possible. For wholesale lenders, having a note pay off within the first few months is not attractive. Thus, these wholesale lenders require the paper to last for a specified period (say 6 months) before it can pay off without penalty. If the note pays off earlier, the wholesale lender may require the note be bought back by the correspondent lender, which would inhibit the correspondent lender from originating a new loan, thus hurting their model and tying up their capital. For correspondent lenders, it is common practice to establish a seasoning period of around 6 months to avoid scenarios like the ones I describe above.

There are a number of factors at play, but hopefully that helps explain a few reasons why your lender might require a seasoning period while others might not.

Be sure to proceed with caution. Scams of all shapes and sizes have increased within real estate lately. I do not have experience working with Landshark lending personally, but be especially wary if they ask for up front fees which are not industry standard (like appraisals). Go at your own pace and avoid anything you are not comfortable with. At the end of the day, there are a ton of lenders out there. If Landshark just doesn't sit right, move on to the next.

I would explore lending programs that are more asset-based. For example, while a decent credit score might still be required depending on the lender, a DSCR loan may be a good option for you. Otherwise, look around for HMLs who lend based on the underlying collateral asset. Asset-based lenders are typically less concerned about a borrower's FICO and more concerned about metrics such as loan to value, DSCR ratio, reserves, etc. Just remember to proceed with caution and complete your due diligence when searching online as there are a lot of scammers out there. If a lender is asking for fees up front, beware!

I will echo Joe Homs, @Dmitriy Fomichenko would be a fantastic resource for any and all SDIRA questions. Had the pleasure of working with Dmitriy on several transactions involving self-directed retirement accounts and he is an expert in that space.

If you want to explore the hard money space, both Civic Financial and Kiavi (formerly Lending Home) offer products up to 80% LTV. As to the business entity documentation, I believe that has more to do with who owns the property on title (whether you own the property in an entity or personally). Each lender will have their own guidelines, but most have a rhyme or reason as to why they ask for certain documentation.