All Forum Posts by: Sasha Mohammed

This is a fantastic question, @Ryan Deasy! I'm sure you're not alone in this inquiry.

I'll start by saying the income approach on appraisals in and of itself are difficult to obtain. Appraisers are not typically told "go out and appraise this property based on income approach" -- they're given a property assignment, and when they get there (or after they've looked at the property and are sitting down to write their report), they determine "highest and best use" to decide which value determination best fits the property. 9/10 this is comparable sales. if there aren't good comps, next best option is most-often cost to rebuild. The caveat to this being if the appraisal was ordered WITH a rent-roll, and even still, the rent roll would be comparable rents from other neighboring and similar properties. 

Even IF you luck out and get the income approach, it will be based on comparable rents. Not your individual property's room-by-room income, even with lease agreements in-hand. 

With that said (because i'm currently in a similar situation and have looked into this for myself), there are lenders out there that will allow for a refinance based on the ACTUAL income of the property, even if the appraisal doesn't support it. Some lenders are opening up to things like Airbnb income, those might be where I would start my search if i were in your shoes. This is because lenders that are allowing you to qualify based off of short term rental income realize that your property may be cash-flowing better than the comps. So long as you have those lease agreements, and can document (maybe by bank statements) the deposits from tenants, they might be willing to take a look.

The other option is to look at lenders who might be willing to go negative cash-flow. The rates might be a bit higher, but if you're forced to use the appraiser's rent schedule as "income" for the property, may as well give it a try with a lender who is comfortable lending on the property, even if it doesn't meet a 1:1 DSCR. They exist, it's tough to find, but they are out there.

@Lincoln Kai this scenario doesn't sound impossible by any means, although you may need to work to improve your credit a little bit in order to get decent terms. 

I have a lender off the top of my head that would allow for sub-650 fico, but they max-out at 70% LTV under 650 credit. If you could improve credit to 650 and above, they would go 75% LTV with no tax returns and no income verification.

Typically a lender that doesn't look at your on-paper income will want the property to be cash-flowing to a certain extent. I believe these guys don't even look at this if the loan is under $500k (but i would need to double-check this for accuracy on this specific program).

In Idaho, their starting rate is 11.5%, and they charge points and fees... so you'd want to run the numbers and see if it makes sense to refi your 1st plus cash-out vs taking out a 2nd TD and leaving your 1st as-is. 

There isn't enough info in this post to accurately advise you one way or another as to the best options, but point being, there are lenders out there. 

I suggest reaching out to a mortgage broker who is familiar and comfortable with non-traditional financing methods, specifically tailored to investors to discuss. if you'd like a starting point -- try @Alex Bekeza.

Hope this helps!

@Scott Shimala how do you find other ways for funding? contact a broker. 

Here's the thing -- with traditional financing, you're right, you won't just get infinite amounts of money to invest in RE. You're capped to 10 financed properties, and you'll have to show (with tax returns and other financials) that you have the ability to repay each loan before they give it to you. 

BUT! With commercial lending, there's no cap... and they only look at the subject property's financials, not your financials as a borrower. 

With that said, you could essentially continue to buy an unlimited amount of properties, so long as you're strategic about which properties you want to buy (they need to be cash-flowing positive) and so long as you can provide a healthy down payment. 

Private money, yes, its rich people that want to make money off your interest. they usually offer interest-only payment options with a balloon after x amount of years. meaning they're collecting just the minimum interest from you for a period of time, and then they get ALL their money back once it balloons. It's pretty genius, actually. and the property is collateral so if you mess up on repayment, they can take the property through foreclosure. you have to put more down and subject yourself to higher rates... ideally PM is short-term, not a long term strategy for investing. be cognizant of balloons and prepayment penalties with PM.  

tons of schools of thought on this, and tons of ways to structure deals to make it work for you. it's all about the numbers. 

Hope this helps, sorry for the length. 

@Jacob Allweil, if you have the ability to qualify with income through traditional financing methods, this will be your best option as far as cost is concerned. typically traditional mortgages have the fees paid with lender credits, meaning you often don't have to pay much out of pocket (usually just the appraisal). Of course, it all depends on how the deal is structured with your Loan Officer, but it gives you better rates and typically less fees. Time, on the other hand, is a different story. Lots of paperwork for traditional financing, and a ton of scrutiny by underwriters as they pick through your financials. 

if you're looking for loan options which are quicker and less cumbersome to obtain, commercial lending is the way to go. although it's a trade-off between cost and time. typically commercial will offer higher rates, higher fees, and odd-ball terms like prepayment penalties and sometimes balloon payments (so be aware as you shop). But commercial is an excellent option for investors who write off all their income or simply don't want to waste the time duking it out with an underwriter. 

I suggest you reach out to a broker who is comfortable not only with traditional mortgages but also commercial. They could look at your paperwork and determine the best route for you and your situation specifically. 

I, too, would suggest a portfolio. I know of one off the top of my head that only requires about $50k value per door. They're out there, definitively. So long as the property is cash-flowing up to the lender's standards. 

I'm with @Kenneth Garrett on this one. Stop wasting your time with DTI. It's moreso for consumers than investors anyway.

Real quick disclaimer -- IF you CAN qualify with DTI, you should. almost always. the terms will be better, the rates will be lower, but you'll work for all of that with the amount of paperwork you'll provide in order to obtain it, and exactly what you're doing now -- time spent figuring out how to make it work.

Don't force your square-self into a round-lender hole. There are lenders that will accommodate your needs as an investor, and won't care about DTI. Some won't even ask for your tax returns at all!

Do some research on Debt Service Coverage Ratio (aka DSCR). this should open up a whole bunch of lending options that should make your life a whole lot easier. Or better yet, find a broker who is experienced in these types of loans, they'll guide you.

Best of luck!

@Jordan Russum this may work for a portfolio lender. Maybe a typo, but want to confirm, value is about $365k, correct? Not $36,500. Value per door should suffice (typically $50k per door), so long as they're cash-flowing over 1.25% DSCR you could do a portfolio 10 year term roughly in the 7's (rate).

IF you can provide your tax returns and jump through all of the hoops, i'm sure you could find a local bank or credit union to give you a 10-year fixed option, but still amortized over 25 or 30 years. And you would probably get way better terms... but this is much more cumbersome as it would require a ton of paperwork, and it would be up to the bank/credit union to make sure you "qualify". 

Being in lending myself, I've found that it's often not easy to qualify with these types of loans (banks and credit unions) as most of the income isn't on-paper (or written-off), and their decisions are made on whether or not you have the ability to repay the note. 

Without looking at your actual paperwork, I couldn't tell you for sure if a bank/ credit union would be worth your time or not. 

But if you need something fairly headache-free, I would look into portfolio. 

hi @Levi Fox,

I would say it's definitely possible, however it's all going to be based off of the numbers you're analyzing right now. 

What state is the property in? 

There are plenty of financing options for such property types, it's really going to come down to finding the right fit as far as lending goes. For something along these lines, if the property cash-flows nicely and has tenants in-place, you could probably achieve rates in the 5-6% range (assuming good credit and a solid down). 

Portfolio lenders may be a good option for this one, and then there is always private money or hard money options as well.

There's not enough info in your post to give you definitive answers, but generally speaking, yes, there are plenty of lenders who would lend on a $1.5M apartment complex. 

For now, work through the figures and determine if it's cash-flowing and how much. typically lenders want to see 1.25% DSCR, higher is obviously better.

Hope this helps, best of luck!

@Niti Jamdar i vote Portfolio lenders as well, but i would suggest staying away from big-banks and credit unions. 

You mentioned they were trying to talk you out of holding the properties in an entity/ LLC claiming unfavorable terms. Seems to me it would be unfavorable to them as they may not be ABLE to close a loan in an entity.

There are loan-types out there, and portfolio lenders, who have no problem with an entity owning the properties, and will finance the properties mainly based on the cash-flow; not your ability to repay. There are specific parameters you'll need to hit, such as minimum loan amount, minimum number of properties in the portfolio, and the location will have to have a certain population density in order to be considered. But it would avoid tax returns/ income verification, and would allow you to release the properties from your fannie/ freddie 10-cap. 

Yes, the rates may be a bit higher than the conforming loans you're accustomed to, but if the intention is to continue acquiring through traditional financing methods, a portfolio is a great option to free up your cap and keep investing. 

You can reach out to @Alex Bekeza, he can run some numbers and possibly find you a lender to meet your needs. 

@Darrell Braxton you can try reaching out to @Alex Bekeza. 

Since you didn't give too much info as to the scenario, I couldn't say for sure that it's possible. But it sounds like something he should be able to help you with. 

Best of luck!