Good Strategy for starting out?/Providence Investing/ CRE

[Eladio P.]

Hi BP, my immediate plans aside from purchasing a triplex to live in one unit with Rhode Island Housing were they have a program that finance 100% of loan, is to apply for a few Business credit cards (not linked to my personal credit report), cash them out for a down payment (not with cash advance, to avoid high fees) on 1 or 2 triplex in the Providence area. Of course the deal would have to make sense number wise, then obviously refinance those 1 or 2 properties with a HELOC to pay back the Business credit cards before the year 0% intro APR is over and repeat. looking to go in to the buy and hold strategy.

i also have a questions regarding commercial RE. 

1- is it true i need 1 million dollars in assets and a certain income per year to get financed from any bank for CRE ?

2- How does anyone recommend financing your first few (not commercial) properties ? with a commercial or portfolio lender? or under yourself until you reach that 4 property maxed? 

3- What advice can anyone give on investing in the Providence area? do Providence investors have/prefer Boston or CT as the "next door investing state"?  

4- Has anyone been to any of those Auctions listed on the Providence Journal? any suggestion or advice on that? 

i will be attending this next local REIG meeting to get a bigger picture of Rhode Island investing scene, even though i have been reading and learning for about 2 years now, but i am ready to advance now that i solved a credit issue. 

i know i asked a lot, i had a few questions and just figured to asked them all instead of posting a different post every few minutes. Thanks in advance everyone. 

[Anthony Thompson]

@Eladio P. here are my thoughts.

1 - No, that's not true. You will need to provide detailed personal financial statements, but I have never heard of, nor experienced, a 1M net worth requirement for a commercial loan. However every bank is different and there isn't nearly as much uniformity in the commercial loan space as there is in residential loans, so it's possible some banks might ask for this, but I've never heard of it with any of the banks I've dealt with.

2 - It's up to you, but I recommend you take advantage of low fixed rate (regular residential) loans until you can't do so any more. The reason is that commercial loans usually have higher rates and usually ADJUST every 5 years or so. Since rates were at historic lows previously, I would choose low fixed over higher adjustable any day of the week.

Also I believe "4 properties" is an old limit and it's been raised. This "mortgage limit" has been discussed extensively on BP so I'd recommend you research this some more.

3 - My #1 piece of advice for Providence is to watch the taxes and make sure you buy with the non-owner-occupied (i.e., higher landlord tax) in mind. Many listings post the tax rate for the current owner who lives there, which can be a nasty surprise if you take that # at face value without realizing it's going to jump up for you as an investor.

I know some experienced investors who avoid Providence completely due to the taxes. I also know an organization, the Providence Apartment Association, which was formed to fight the fact that taxes on landlords in Providence have skyrocketed, compared to owner occupants, over the past 10 years. If you own/buy in Providence I strongly recommend you check them out.

Providence has a commuter rail connection to Boston and does not really have a good one to CT that I know of. Most people consider Pawtucket and Providence to be partly "bedroom communities" of the greater Boston area; I've never heard anyone refer to Providence and CT in the same conversation. Usually the people who are active in CT are the ones who are active in southern RI such as Westerly.

4 - Yes, my advice is, if you are a beginner, avoid buying at foreclosure auctions, the price will get bid up these days by experienced investors, and beginners lack the sophistication to understand the risks they're taking. If you don't know how to do your own basic title search on a property, and understand everything that comes up, you shouldn't be going to bid at a foreclosure auction.

Re: business credit cards, you may find that you need to have an operating business for at least a year or two, and be able to provide separate tax returns, before you can execute that strategy. Like the "four property limit" (which I believe is now ten), the topic of business credit has also been discussed extensively on BP and I recommend doing more reading before assuming it's something you will be able to do quickly.

Great to hear you'll be attending the next RIREIG meeting. I'll see you there! Be sure to say hello of course :)