HML plus conventional financing?

[Colten Thiel]

Hi everyone! First post to BP forums after learning from the sidelines the last few months. Ok right to it. I haven’t seen or heard really of anyone mixing two types of financing on one deal. Is this common/ethical/practical? Example, I want to buy a $300k house but cannot get approved for conventional financing at that amount. Instead, I decide to borrow $150k from a HML and finance the other half with a bank. Do people do this? I understand the terms with the HML have a big impact, also having the money in your account for 2 months for the banks before applying could be important. Financial wizards of BP please help me on this! -Colten

[Jon Holdman]

When you "invest" you must invest something.  And there are only two somethings that produce income - capital and labor.  You either need to have your own cash to invest or you will need to invest significant labor.  Labor in the form of shaking the bushes to find owner financed deals that you can acquire with little cash.  Labor in the form of swinging a hammer so your renovation costs are low.  Labor in the form of managing your own properties rather than paying for a PM.   If you're willing to do all those things you can get into deals cheaper than buying fixed up properties with conventional financing.

Once you have two years of landlording experience, that is, two tax returns with the rental income, you'll be able to include the rental income when qualifying for loans. Lenders will use actual data from your tax returns and estimate net rental income for a new property as (75% * rent) - PITI. So, if you're buying profitable rentals every purchase helps your DTI and improves your ability to buy more. Profitable as in really producing income after ALL expenses and debt service. As in generating that 8% (or more) cash on cash return.

Borrowing from another source or taking on investors may help you acquire properties.  But that may not help put money in your pocket.