All Forum Posts by: James Klafehn

I have a property that I currently own. Its 10 acres and had a single duplex on it when I purchased it about 4 years ago. My plan has been to build 4 more duplexes on it.

About 3 years ago I began seeking a construction loan for a second duplex. I wasn't able to get a loan because banks told me that they did not want to give me a loan and be in second position on the property. The construction loan was going to be larger than the existing loan on the property. I was acting as general contractor myself and a second bank said they would not approve the loan unless I hired a separate construction company and GC. I didnt want to waste the money so I didnt.

So then I tried to get a single large loan that would refinance the existing mortgage and include cash to build a second duplex. Denied, dont remember if there was a reason.

I spoke with another bank and even convinced the VP and the mortgage originator to come out, check out the property, look over my figures, review my building plans etc. They didnt believe in my concept and didnt think it would work. (I am building a sustainable, pet friendly housing community that includes passive solar duplexes) They didnt believe that the passive solar construction would work or that it was worth the investment even though its a tried and true method and has been around for decades. Loan denied

I think there was another denial in there but that was 3 years ago and I dont remember.

So then I sat down and opened 12 credit cards at the same time. I had an 800 credit score so I was approved for all of them and given very high limits. I used those and cash to finance the construction. My plan was to refinance the property once it was done because I would have plenty of equity.

I built the house. The passive solar features work excellent! Tenants utility bills are only about $100/month. For upstate NY, thats saying something. The property has been in very high demand. When units open I receive double digit applications. Each applicant must pay a $30 application fee so you can see how popular they are.

I have plenty of equity. The property is currently assessed at $500,000. The only loan on the property is a mortgage with a balance of $181,000. But now I was denied because my DTI was too high. It was round 45%. So I paid down my debt as fast as I could.

Over the last 2 years I have paid down the CC debt as fast as I could. I am currently around 38% with a credit score of around 675. I just applied for a HELOC at 2 different banks. Both denied me. I showed them that after using the HELOC to pay off my CC debt I would be at 33% but they still wouldnt consider it.

Sorry for spelling and grammar issues. I tried typing this as fast as I could. I have been a landlord for 14 years but I have always purchased existing properties. This is the first time I have attempted to develop anything. Maybe I am doing something wrong. I dont know. All I know is that I am really sick of hearing NO all the time.

I wouldn't know where to start without writing a book here.

Every time I apply and hear a NO I work on it, correct it, then apply again. Then I hear a new reason for a NO. I work on it, correct it, then I hear a new reason. Over and over again.....

I put together nice, bound proposals for every loan, include all of my numbers and figures etc. Very professional. It just seems like banks arent lending. This is ridiculous!

Im just wondering how people keep motivation. Who has had challenges getting loans? What worked for you to overcome the NOs?

I know your supposed to keep working and keep chugging forward but after 3 years of hearing "NO" from banks I am feeling really frustrated. How do you keep motivated to continue when continually getting denied. :(

Yup. There are a few of us. Welcome. 

@Derrick H. Yup! I loved the disk that it came with. I based my leases off of the one it gave me. I have modified it many times since but its was a great resource.

wow! Sorry about giving bad advice. I had no idea that some states had made Section 8 a protected class. That sucks!

I assume you dont live in the duplex? If you did you can usually get a HELOC or refi up to 95% LTV through a local credit union. Living in the house makes it much easier to get approved for a HELOC or Refi. Depending on the equity you have that may give you enough to use as a down payment on your next house.

Cash flow doesnt matter as much as your DTI. (debt to income ratio) If your mortgage is only $100/month, cashflow of $430 is great. If your mortgage is $2000/month, your cashflow is bad. Banks will always look at your DTI first so its very important.

Are you doing any subdividing of the property? If so you should do that first. I didnt and it slowed my development down a lot.

Yes, section 8 is not a protected category. You can accept a section 8 tenant one year and decide you don't want one another year. As long as you arent denying them as a tenant based on their age, race, sex, sexual orientation, religion, disability status, and familial status.

When I accept section 8 tenants I also make sure they pass the same credit and background check as all of my other tenants.

Thank you @Sam Clement. Emma's Acres has been a spectacular investment. The income is great and it is becoming the wonderful community that I always envisioned. I only wish I could grow it quicker to meet demand.