My First Deal, YIKES

[Ryan Urban]

Thought I would share with you how things are going on my first deal. I'll keep it as brief as possible.

I identified a city that has several properties that can generate positive cash flow with just 10% down on multi-family units, and obviously even more with 20% down. In my town, Colorado Springs, such properties are very rare. But in a town south of here it's much easier.

I found a realtor experienced in multi-family properties and we looked at several last weekend. I found a couple that interested me, one in particular that is a 5-unit property.

Boy, what a mess. Properties with more than 4 units have an entirely different set of loan rules and requirements. To make a long story short, even with 20% down, the lowest interest rate I've found so far is 9.5% to 10.5%. The loan is assumable, but that's just too high of a rate.

So back to the drawing board I went. I called a lender about 2-4 unit properties. I had spoken to her before, and she warned me that 5+ unit properties were a pain, and she laughed when I told her about my experience so far.

Then she told me "since you have no history of being a 1-4 family landlord, they will not use the potential income from the tenants to qualify you income-wise. To use the rental income, you must have a two year history on your tax returns as being a landlord. This is critical, because you would have to qualify for both your current house payment and the 4-plex payment based on your current pay."

So now I'm doing a pre-qual that will give me NO credit for rental income. Maybe this is a result of the current mortgage mess, but this is ridiculous. Good down payment, good credit, postive cash flow day one, and I'm STILL getting the runaround.

I'll keep you posted.

:shock:

[Account Closed]

Urban,

1. You are learning the ropes.

1-4 unit properties are residential property when talking about funding.
5 units or more are commercial. The key is no one can get an owner occupied loan for a 5+ unit building. Commercial loans are less likely to be repackaged and sold to wholesale market.

2. Your lady lender is representing the lender's perspective. She is not talking about other lenders. Her rules are not normal for most lenders.

3. Live and learn. You are learning to crawl when it comes to RE. As you have climbed the learning curve before in other business areas I am sure you can climb the RE learning curve.

Your assumptions about what is true is one problem. What you do not know what you do not know is another. Both can be fun if you like to learn. Bursting bubbles and finding out where the boundaries really are.

Some successful people pick a sport or something similar to learn every few year. They want to be reminded what it is like to be a beginner.

John Corey