Investor · O'Fallon, IL 62269 · Member since 2021 · 134 posts · 44 votes
Hello, so currently, I own one single-family home that's completely paid off; I would say it's worth 150-160k market value. I also own a duplex that I purchased for 144,000, and I put 29k down on the home. I owe the bank 115k for the loan on the duplex. Currently, I have 100k liquid cash in my bank that is just sitting there. I'm receiving income from all these properties. I want to sell my single-family home and purchase an apartment complex with the money I make from the sale. Still, lenders keep saying my "debt to income ratio is too high." I don't understand this because some millionaires and billionaires still get loans. Their debt-to-income ratios have to be way higher than mine! How do I get past this roadblock? I want to do what's most advantageous and make the most money and take on the least risk. Any suggestions? I really want to get into owning multifamily properties such as an apartment complex, I just don't know how to get my debt to income ratio down to get lenders to lend money to me. In my mind, I'm not a big risk at all. I own a home free and clear and owe 115k on a duplex, I have 100k liquid cash in my bank... This is very mind-boggling for me.
People on BP often use multifamily for duplexes, tris, quads, and apartments. In reality, anything 4 units or less the bank treats as a single family property. Things like comps and debt-to-income are important.
In the apartment space, the apartment qualifies for the loan. Debt-to-income is generally not part of the discussion, although with smaller apartments, you often get forced into bank loans instead of conventional. Mortgage lenders will want to see a track record and solid liquidity. Talk to a lender that handles the kinds of properties you want to buy.
Depending on how big you want to go, you may still not qualify but it will likely be liquidity that hampers you. In that case, consider working with other investors.
People on BP often use multifamily for duplexes, tris, quads, and apartments. In reality, anything 4 units or less the bank treats as a single family property. Things like comps and debt-to-income are important.
In the apartment space, the apartment qualifies for the loan. Debt-to-income is generally not part of the discussion, although with smaller apartments, you often get forced into bank loans instead of conventional. Mortgage lenders will want to see a track record and solid liquidity. Talk to a lender that handles the kinds of properties you want to buy.
Depending on how big you want to go, you may still not qualify but it will likely be liquidity that hampers you. In that case, consider working with other investors.
There's no way I need to partner with someone to get more deals done. I have a property paid off in full worth 160k, and I have 100k liquid cash in my savings account. I have a duplex producing rent, but I owe 115k on the mortgage. I'm not sure how I'm that great of risk in the lender's eyes. There has to be a way around this, the rich get richer, and their debt to income ratios have to be way higher than mine, but they're still getting loans? How does that work?
How many banks have you talked to about this deal? Are you only looking at the "big" banks? Often times it's about relationships at small banks and them believing in what your business plan is for the property. Big banks typically have a cart they go by that some actuary made for them. If you haven't tried that route or tried multiple banks, I would give that a shot.
I've tried multiple big banks near me, I've tried small credit unions, and I've tried lenders who lend money from different states with their own lending programs. It's just confusing because the rich get richer by borrowing more money/debt, which I need to continue doing as well. I have 100k liquid cash in my bank account, I have a single-family home paid off in full worth 150k roughly, and a duplex I owe 115k on in debt for the mortgage. I don't see how this is a stopping point in my investing career. I need to keep moving forward and buying bigger and better deals. How though is the question. Truly, the next purchase I'd like to make is buying an apartment complex; how could I make this happen based on the information I've given. Thanks, guys, so much for your feedback. It means a lot, really.
If you sell your single family home between that and your cash, you have about $250K. How big of an apartment complex do you want to buy? Ask the bank how much you could borrow and start there. Perhaps you sell the single family and buy two more duplexes. You'd have most of the cash to do that along with a small loan. Sometimes you have to take a few smaller steps before the big leap.
Do you have any other debt? Can you do something to increase your income (second job?)?
How did Robert Kiyosaki and Grant Cardone get so big? They made their money strictly from passive income. They did not have an additional job to have "extra income" to qualify for more loans. They started from nothing like I am. There's always away. Just have to figure out how to get another loan to purchase an apartment complex while I'm in school full time with no job.
There's no way I need to partner with someone to get more deals done. I have a property paid off in full worth 160k, and I have 100k liquid cash in my savings account. I have a duplex producing rent, but I owe 115k on the mortgage. I'm not sure how I'm that great of risk in the lender's eyes. There has to be a way around this, the rich get richer, and their debt to income ratios have to be way higher than mine, but they're still getting loans? How does that work?
First of all billionaires operate at another level so lets not compare. For large multis (like 200 unit apartments etc) it is actually quite common for banks to want to see net worth of the sponsor equal to the loan amount they are asking for. This is in addition to the underwriting of the income numbers from the apartment. Plus there are reserves etc banks will demand. Now you may feel rich with a net worth of $250K but in the world of commercial real estate you dont even register as a tiny dot. So I dont know what size loans you are talking about but in your world debt to income is most certainly a real limiter. You can certainly leverage your equity and cash to buy properties but probably no more than $1M worth, assuming you have income to support a 4-5K/month mortgage payment.
Sounds like your wanting to sell you home to generate the cash to buy another duplex. Since your home is free & clear, what if instead of selling, you keep the home & put a new 1st mortgage (lower rates bc it's your residence) for say 90% to generate $130k tax-free cash. Then, depending on the cost of the new duplex or MFH, you have money to use for a down payment or if it's only $130k-$150k pay all cash. If you want to spend more on the duplex or MFH, you may get the same lender to make the new first loan on the newly acquired duplex as well. This way you expand your portfolio, you keep your home and will have 2 income producing MFH's. If you do this and pay cash for the newly acquired MFH, fix it up with some of your extra cash or put on zero interest credit cards. Increase rents. Apply RUBS to pass on water, sewer & garbage expense to tenants (if applicable in you jurisdiction). Increase rental income, lower expense and boost that NOI. Then go and do a new loan on the free & clear duplex (probably limited to 75%-80% LTV) and then use that tax-free cash to shore up reserves and/or go buy another duplex & do it again...Hope this helps. David
@Jayden Hamilton debt-to-income refers to income, not assets or savings. Banks can count 75% of your rental income and use that to offset your current mortgages and the one you are trying to qualify for. You don't have enough rental income to replace an active income so you will not qualify for loans with a job. There are alternative, more creative options that are trickier but I figured I'd explain this to you.
@Jayden Hamilton call the smallest 4-5 banks or credit unions in your local market. The smaller (5-10 branches) the better and are the ones you want in my experience. Tell them what you're looking to do and what your struggles have been with conventional loans/banking. They will most likely loan based on the asset and the debt service rather than your personal debt service.
My personal rule of thumb: Small banks value your business. Big banks could not care less.
I don't have any other debt. I'm in school full time so I currently do not work
THAT is your problem. You need income so that your debt to income ratio is in their standards. They want to know that you can pay for the loan and want you to have income to pay for it. Yes, the rent money coming in will pay for some of the loan, but what if the renters do not pay, or there is a major expense or turn over is expensive? You have no other source of $ to cover a problem. You do not have the income to cover it. The money in the bank and equity in a house you want to sell will all be spent on the down payment for the new property. Leaving you with no reserves, no income, other than rent. That will be hard to convince conventional lenders you are a good risk.
There's no way I need to partner with someone to get more deals done. I have a...
You probably can do a small deal without partnering, if you find a property with great cash flow and if you find a bank willing to lend to a newbie apartment owner with no personal income. The probability is quite low however.
What makes you think the big dogs made it to where they are without partnering? Did you know that Robert Kiyosaki didn't even write his most famous book solo? He had a partner. They just had a messy break-up so it isn't publicized now.