Financing for my second rental property

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Financing for my second rental property

Matt R.
Blue Springs, MO · Member since 2015 · 481 posts · 313 votes

Hello, all!

I've bought my first SFR, fixed it, and rented it, and I am now at the "refinance" step of BRRRR. To get my next rental property, I need to
go to some kind of lender and get some kind of loan, but I'm not sure exactly what to ask for.

Here are the moving pieces:

My one SFR. I own it outright, 100%. I have owned it since spring 2016, and it's been rented since summer 2017. I don't have any kind of HELOCor other loan against it. Based on 30 seconds of researching comps on Zillow, it would probably list on the MLS at $105K +/- if I decided to sell it today.

My next rental property. Most likely another SFR. I was originally thinking of something in the $90K-$100K ARV range, but the market has tightened so much that I might have to add $10K to that.

My "cash for investing" pile. I have enough to put 20% down on the types of properties I have been looking at, as long as it doesn't need
more than a few thousand dollars' worth of rehab. Beyond that, I would need to either have a lower down payment (down to around 15%), or figureout a way to finance some of the rehab costs, or both.

A local regular bank. I have my real estate account there. They have been good to work with so far, but I haven't asked them about loans yet.

A local credit union.  I have a personal account there. They have been OK to work with so far, but I haven't asked them about loans yet.

My real estate business. It's just me; not a partnership, LLC, Inc, or anything else.

My residence. I own it outright but I really, really, really don't want to take out any loans against it, based on a bad experience in the past.


My ideas so far include:

Go to the bank or the credit union and get a regular mortgage loan.

Go to the bank or the credit union and get a loan against the rental house - HELOC? Something else?

Go to a new bank (one I haven't done business with before) and do one of the above two things.

Go to a private lender and get some type of loan from them.


My questions:

Is one of these options much better (or much worse) than another for some reason?

Is there a good option I haven't thought of yet?

Thanks for your help!

Matt R.

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Andrew PostellPro Member
Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
8y

@Matt R. thanks for the post here.  Sounds like you have some resources to work with.  When it comes to loans, the terms of the loan are important but many loans will have similar terms.  So if you have a lender that you like, just stick with them.  It's kind of like a mechanic...sure, lots of other places can change your oil but if one gets done quickly, provides good service, and doesn't overcharge you, then stick with them.  Lenders can be the same.  So interview the lenders on what their tolerances are with closing times. 30 days is kind of what you want.  Also, ask if they use rental income IMMEDIATELY to qualify you for the loan. That will help you with qualifying you for future deals.  If you are working on your first 10 loans, then a Fannie Mae/Freddie Mac loan will be have the best terms for their loans.  They might be a little heavy on paperwork, but a simpler loan will have a higher rate, or a shorter period for you to pay the loan....so get all the information from the lenders and see who you like best.  Feel free to ask more questions if you need.  Thanks!

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    8y

    @Matt R. thanks for the post here.  Sounds like you have some resources to work with.  When it comes to loans, the terms of the loan are important but many loans will have similar terms.  So if you have a lender that you like, just stick with them.  It's kind of like a mechanic...sure, lots of other places can change your oil but if one gets done quickly, provides good service, and doesn't overcharge you, then stick with them.  Lenders can be the same.  So interview the lenders on what their tolerances are with closing times. 30 days is kind of what you want.  Also, ask if they use rental income IMMEDIATELY to qualify you for the loan. That will help you with qualifying you for future deals.  If you are working on your first 10 loans, then a Fannie Mae/Freddie Mac loan will be have the best terms for their loans.  They might be a little heavy on paperwork, but a simpler loan will have a higher rate, or a shorter period for you to pay the loan....so get all the information from the lenders and see who you like best.  Feel free to ask more questions if you need.  Thanks!

    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    8y

    Matt - thanks for the post

    I would recommend getting an owner occupied purchase loan for the new property you plan to buy ...this will allow you to get best rates available

    I would also recommend doing a  " cash out " refinance on the  free and clear rental  in order to obtain  a larger amount of  cash / working capital  for your  projected  plans  ......ideally a heloc  program would be best to set up but most lenders / banks wont  allow a heloc on a rental  property so you would likely need to  use a straight 30 yr fixed loan ..adjust the loan amt  so that the  cash flow you end up with is acceptable for you

    1Reply
  • Matt R.
    OP
    Blue Springs, MO · Member since 2015 · 481 posts · 313 votes
    8y

    @Andrew Postell, @Dave Skow - thanks for the replies!  I have a bit of an update.

    I went to the local regular bank where I have my real estate accounts and asked about a loan.  They turned me down, on account of not enough income.

    I went to a different local bank (kind of a community bank, with 4 branches in the area) and asked about a loan.  The loan officer there was more willing to listen to what I proposed than the one at the first bank, but they turned me down, on account of not enough income.  That officer did mention that "if we had an asset-based loan program, you would qualify, but we don't offer that".

    The only income on my tax returns for 2017 was the rental income, which started in summer 2017.  A couple of years back I have some income from "daytime" jobs (both W-2 and 1099), but nothing recently.  I have rental income in 2018, too, but that's obviously not on a tax return yet.

    I don't think either bank was interested in a HELOC against either my existing rental property, or my residence... they were trying to send me through the conventional mortgage route.

    So... what is my next step?  Darken the doors of more local banks until I find one that's willing to lend?  Talk to a local/regional/national mortgage company?  Talk to a hard money lender?  Go get a "real job" for long enough to qualify for a loan?  Drink heavily?  :D

    Thanks!

    @Dave Skow

    1Reply
  • Dave Skow
    Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes
    8y

    thanks for the update ......it sounds like the declines from the lenders  are  consistent .......so continuing the  traditional loan angle  right now  isn't  likely  going to prove  successful  ( I could be  wrong )  .....

    ideas :  1) Go to a private lender and get some type of loan from them  2)  as you mentioned that  one person stated  you would qualify for an " asset  based "  loan - try to  locate a  lender that  has a  program you might be able to  use your assets   as collateral for a new loan

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