Portfolio loan options?

Question

Hello everyone. This is my first time posting on here but I am a big time fan and have been reading post everyday on here for a few years now. I have a question that I am facing and I figured why not put it out there and see what all the smart folks on here think.

I want to thank you all in advance for taking the time to read my post and responding to it. So with that here is my situation:

I am a full time real estate investor who used to pay cash for all my properties. Last May I purchased a home (my personal residence) for $450k and ended up needing to borrow the money from the bank to close. The bank loaned me $420k on the home for 12 months at 4% interest only. I also put up a 290 acre farm that is right next to my personal residence that I own free and clear and is valued/appraised at $420k (so the bank has plenty of collateral and equity between the two properties). Additionally at the time when I received the loan I had approximately 26 SFR rental properties all paid for and owned outright. They are valued at $30k-50k each and rent for $825 on average. Again, I had zero other debt and liabilities. The reason they gave me only a 12 month loan was the bank didn't like the numbers and basically wanted to give it 12 months for my tax returns to look better since I am an active investor and always buying more houses. I have since purchased 3-4 other SFR (all paid for in cash and owned outright) and 2 apartment buildings on land contracts. The land contracts I owe $75k and $120k on respectively (that was the total starting balance. I've been paying on them for a few months so the principle is slightly less but for simplicity sake those are the balances). Both of the apartments more than cash flow. Right now my monthly gross income is about $25k. Since I only have a 12 month loan I have to go back to the bank in May of 2018 and see if they will approve the loan on my personal residence again, however I am afraid that with these other two land contracts they will not loan me the money again. I would like to see what my options are in either getting a portfolio loan or just exactly what my options are so that when May rolls around I am not facing a time crunch. By the way I will have approximately $350k income between now and May of 2018 so if absolutely needed I could take that and pay off the two land contracts to satisfy the bank (I could do this although it wouldn't be the most beneficial to me in the long run and I would like to avoid doing so). By the way, just so everyone knows I am based in Ohio just in case that might matter so how for state law being different or for different lending requirements.

Brie Schmidt · Answer

Welcome to BP! It is a good thing that you are thinking of doing this now, as how you file your 2017 taxes will effect the loan. In my opinion, your best option is a traditional residential loan. They offer 30 year fixed rates around 4% and this being your primary residence they have the best terms. The problem you may run into is how your income is calculated. (I just did a refi and they wouldn't count over $90k in depreciation as income. )So if I were you, I would talk with a good local mortgage broker, who knows investors. Show him your tax returns for 2016 and see if you would be approved off that. If you wouldn't, ask what it would take to get you approved. How we line item repairs vs capex on our taxes makes a huge difference in how we are approved for loans. Another option is a HELOC which is generally a 10 year interest only line of credit. Rates fluctuate but you can go up to 90% LTV on owner occupied properties. That way you can pull out / pay down as you want. @James Wise - do you have a rockstar lender referral on Ohio?

Doran Summers · Answer

@Matt Harris send me a pm

Matt Harris · Answer

Ham merritt im Also interested in portfolio loan if you do anything in new york. It would be for a refinance Thanks

Ham Merritt · Answer

@David Becker an investor cash flow portfolio product is what you are looking for. I will PM you with more information.

David Becker · Answer

Thanks Brie and Andrew for the information. That is extremely helpful to know that they should be able to do it free of charge. I would have half expected to pay for something like that. I have only spoken with my local community bank that I have my current mortgage through. Do you have any suggestions as to a bank that might be good to deal with or what type of bank I should look for?

Andrew Postell · Answer

@David Becker in reading your post it seems that this is more of a "do I qualify for X loan" and the only real way to know is, as the post above suggested, to speak with a Loan Officer. I would certainly interview the loan officer (maybe interview 3 of them) to find out how experienced he/she is at self-employed persons. You are going to need someone who understands depreciation, how to add back in your deductions, and the impact of buying recent properties in qualifying. If you like a lender, or even 2 lenders, they should be able to "Pre-Approve" you for a loan. This is not to be confused with prequalified. Pre-Approval is when they send in everything to the underwriter. You will get a formal letter from the underwriter stating you are preapproved and what additional information they might need. They should be able to do this task 100% free of charge. After your are pre-approved then you can see which bank you like better and make your decision. Hopefully this helps in some way.