Do Lenders Prefer a Borrower Has Real Estate Portfolio When Lending On Real Estate?

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Do Lenders Prefer a Borrower Has Real Estate Portfolio When Lending On Real Estate?

William Coet
Lititz, PA · Member since 2013 · 595 posts · 272 votes

If a multifamily owner sells a portfolio and then owns only a personal residence, but has cash from sale, will they be a less desirable borrower to lenders?  In other words, does owning an unencumbered cash-flowing RE portfolio make the borrower more desirable to lenders, or is cash on hand all that matters?

Owner doesn't want to put themselves into a less desirable borrower position for future acquisitions...

Thanks!

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Jamie Jones
Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
2y

Like others have stated, it really comes to what kind of financing you are looking for. In many cases, it may actually be a more streamlined process when obtaining financing if you are getting a conventional mortgage. If you are getting some form of commercial or portfolio loan, then it will really be lender specific. Most depository banks would rather have their clients have liquid assets compared to real estate, which they deem as illiquid, with the hopes that they can eventually get those deposits/investments under their own management. I work for a bank and we would be way more likely to make an exception to a borrower who has $1m+ in liquid assets compared to someone with $5m+ in RE holdings. Hope that helps! 

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    2y
    Quote from @William Coet:

    If a multifamily owner sells a portfolio and then owns only a personal residence, but has cash from sale, will they be a less desirable borrower to lenders?  In other words, does owning an unencumbered cash-flowing RE portfolio make the borrower more desirable to lenders, or is cash on hand all that matters?

    Owner doesn't want to put themselves into a less desirable borrower position for future acquisitions...

    Thanks!


     The more assets a borrower has the more desirable it is. Some states have homestead exemptions where you cannot go after their primary residence. 

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  • Derek BrickleyBusiness Member
    Lender · Ann Arbor, MI · Member since 2021 · 685 posts · 232 votes
    2y

    Every lender is going to probably have a different opinion on this.  If you are using conventional financing for future acquisitions, then it makes no difference at all.  If anything, not having other properties may help streamline the financing process especially for conventional lenders not experienced working with investors.  On the other hand, if you are looking to use some form of commercial financing or a Debt-Service loan, other properties do increase your desirability.  It's definitely a tradeoff, but in our residential world it doesn't make a big difference at all.

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  • Jeff Prow
    Lender · United States · Member since 2023 · 73 posts · 13 votes
    2y

    If it increases monthly cash flow that is always a positive, it does also give additional asset but it comes down to what kind of loan you are getting and all the other factors as well. Credit, LTV and DTI will always play the largest roll.

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  • Jamie Jones
    Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
    2y

    Like others have stated, it really comes to what kind of financing you are looking for. In many cases, it may actually be a more streamlined process when obtaining financing if you are getting a conventional mortgage. If you are getting some form of commercial or portfolio loan, then it will really be lender specific. Most depository banks would rather have their clients have liquid assets compared to real estate, which they deem as illiquid, with the hopes that they can eventually get those deposits/investments under their own management. I work for a bank and we would be way more likely to make an exception to a borrower who has $1m+ in liquid assets compared to someone with $5m+ in RE holdings. Hope that helps! 

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  • AJ ExnerPro Member
    Lender · Springfield, MO · Member since 2023 · 661 posts · 320 votes
    2y

    Most HML or DSCR type lenders would still count those as 'experience' as long as you keep record of them, either by keeping HUDs or something like that.

    As long as you try to purchase/flip/etc. within a couple of years, it can be leveraged pretty well by having the 'experience' of them while being able to utilize the liquidity of the sale of the portfolio.

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    2y
    Quote from @William Coet:

    If a multifamily owner sells a portfolio and then owns only a personal residence, but has cash from sale, will they be a less desirable borrower to lenders?  In other words, does owning an unencumbered cash-flowing RE portfolio make the borrower more desirable to lenders, or is cash on hand all that matters?

    Owner doesn't want to put themselves into a less desirable borrower position for future acquisitions...

    Thanks!


     it depends on the financing you are applying for. 

    If you are looking at long term commercial financing, they will consider your current experience, assets, etc.. 

    If you are looking at a hard money loan, most will only care about the equity in the deal, and your experience in the last 36 months 

    If you are looking for conventional, full doc financing, they won't care about your experience, but will look into your personal income, credit and assets. 

    So it is relative to the type of loan you are applying for 

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  • William Coet
    OP
    Lititz, PA · Member since 2013 · 595 posts · 272 votes
    2y
    Quote from @Jamie Jones:

    Like others have stated, it really comes to what kind of financing you are looking for. In many cases, it may actually be a more streamlined process when obtaining financing if you are getting a conventional mortgage. If you are getting some form of commercial or portfolio loan, then it will really be lender specific. Most depository banks would rather have their clients have liquid assets compared to real estate, which they deem as illiquid, with the hopes that they can eventually get those deposits/investments under their own management. I work for a bank and we would be way more likely to make an exception to a borrower who has $1m+ in liquid assets compared to someone with $5m+ in RE holdings. Hope that helps! 

    What if the sale means there will be no income (because all income was from the multifamily that is part of the sale)? The goal is to buy more multifamily.
    0Reply
  • Jamie Jones
    Lender · Nashville, TN · Member since 2017 · 205 posts · 107 votes
    2y
    Quote from @William Coet:
    Quote from @Jamie Jones:

    Like others have stated, it really comes to what kind of financing you are looking for. In many cases, it may actually be a more streamlined process when obtaining financing if you are getting a conventional mortgage. If you are getting some form of commercial or portfolio loan, then it will really be lender specific. Most depository banks would rather have their clients have liquid assets compared to real estate, which they deem as illiquid, with the hopes that they can eventually get those deposits/investments under their own management. I work for a bank and we would be way more likely to make an exception to a borrower who has $1m+ in liquid assets compared to someone with $5m+ in RE holdings. Hope that helps! 

    What if the sale means there will be no income (because all income was from the multifamily that is part of the sale)? The goal is to buy more multifamily.

     What kind of property/loan are you looking to obtain?

    0Reply
  • William Coet
    OP
    Lititz, PA · Member since 2013 · 595 posts · 272 votes
    2y
    Quote from @Jamie Jones:
    Quote from @William Coet:
    Quote from @Jamie Jones:

    Like others have stated, it really comes to what kind of financing you are looking for. In many cases, it may actually be a more streamlined process when obtaining financing if you are getting a conventional mortgage. If you are getting some form of commercial or portfolio loan, then it will really be lender specific. Most depository banks would rather have their clients have liquid assets compared to real estate, which they deem as illiquid, with the hopes that they can eventually get those deposits/investments under their own management. I work for a bank and we would be way more likely to make an exception to a borrower who has $1m+ in liquid assets compared to someone with $5m+ in RE holdings. Hope that helps! 

    What if the sale means there will be no income (because all income was from the multifamily that is part of the sale)? The goal is to buy more multifamily.

     What kind of property/loan are you looking to obtain?

    Multifamily
    0Reply
  • Henry ClarkPro Member
    Developer · Member since 2020 · 4k+ posts · 4k+ votes
    2y

    Doesn't matter to our bankers.  You have to determine if your business plan is to always shop around for rates or is it to make your lender part of your team.

    If they are part of your team and know your plans it doesn't matter.  They already know your track history and plans.

    Also, if you plan to scale, you will be able to cross collateralize between properties and loans, if you are with the same lender.  Less paperwork also.

    Look at the size and types of loans you will be doing.  Construction, SBA, Permanent, etc. then pick and stick with your lender.  Check their Federal Lending Limit matches your ultimate goals.  

    a.  Don't go shopping for 1/2% point. 

    b. They will waive loan fees.

    c.  Give you preferential treatment on Balloon periods 3/5/7.

    d.  Speed- We can call on Thursday and have a loan to sign by Monday or Tuesday subject to our deal analysis.

    e. They may even send you deals.

    f.  Make you a loan in economic questionable times.  Right now, our bankers will only loan to people they were already doing loan business with.  Will not take on new loan clients. Even if you had a checking account with them, they won't.

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  • Beth JohnsonPro Member
    Lender · Renton, WA · Member since 2018 · 227 posts · 216 votes
    2y

    If you are willing to show strong cash position with the sale of that portfolio and put more money down, if needed, then I don't think it'd matter much to private money or hard money lenders. Commercial lenders will like the strong cash reserves and conventional would likely underwrite easier anyways than having to provide and prove out your rental income on a portfolio. 

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  • Jacob Sherman
    12 Penns Trail Suite 138 Newtown, PA 18940 · Member since 2023 · 1k+ posts · 319 votes
    2y

    Nope experience is good for 36 months 

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