financing when you are asset rich, but cash flow poor?

[Tom J.]

Hi All,

I am planning to buy several real estate properties.  I have enough cash to buy them, but I have a bit of a unique situation.  I have seven figures in wealth (cash and equities), but I have made my businesses super tax efficient such that I have only about $20,000 AGI for tax-reporting purposes.  Everything is in IRAs, 401Ks, etc.

So for purposes of getting a lender?  I don't show much income.  I have heard there are mortgages that you can get that are tied to your assets rather than income.  Does anyone know about these?

Would I be way better off to just get a family member with a more traditional financial profile to just cosign the mortgage (in terms of interest rates).  

Thanks for any perspective you can provide!

[Jeff Dulla]

@Tom J. To piggyback off the other post, it depends and there are also different kinds of asset based lending options. 

I know of a couple banks that do what is called asset depletion. Most banks allow for asset depletion under normal fannie/freddie guides but the equation they use to calculate the income based on your assets is extremely conservative. The places that are known for "lending off your assets", will take your asset base and dived by 60 (rather than the amortization of the loan - 360, 180, etc). Therefore your assets earn you a higher qualifying income. These loans are priced near market rates. 

You also have Non-Prime loans coming back out that will lend based on your business asset accounts and the "cash flow" into those accounts. These loans are typically priced at much higher rates. 

Lastly, if you truly have large asset accounts that you can move to a retail bank, you are more than likely going to come across some banks that will do aggressive financing as long as you move a lot of money over to their bank. 

Unless you have a large payment on a primary residence, a lot of these investment properties could potentially cover themselves - meaning you don't have to have a really high reported income to qualify. You will get credit for fair market rent when the appraisal is done.