How do I buy another investment property with my circumstance

Question

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.

Greg Scott · Answer

You are probably talking to the wrong lenders.

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.

Theresa Harris · Answer

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?)?

Cody Lewis · Answer

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.

Will Gaston · Answer

@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.

Will Gaston · Answer

@Jayden Hamilton you seem like you'd be a great fit for a small, local bank. Have you spoken to a commercial (business) yet?

I only do commercial loans now and I'm a huge fan. In my experience the underwriting guidelines are much reasonable.

Nicholas Mazza · Answer

@Jayden Hamilton

It’s likely the current lack of income unfortunately.

Account Closed · Answer

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.

Greg Scott · Answer

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.

Lynnette E. · Answer

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.

Jayden Hamilton · Answer

Will Gaston, I have not spoken to a commercial lender yet. Could you refer me to someone? That would be great.

How do I buy another investment property with my circumstance

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