Struggling to find the right financing partner

[Jake DeBoer]

Struggling to find the right financing partner, here is our situation:

We bought our first SFR just over three years ago with 5/20 CRE Loan, we have 19mo remaining on the original 5 years. We closed on our second SFR earlier this month. We paid cash. So now we have about $90k debt on $425k worth of assets and I can't find a lender who isn't offering us outrageous terms. I'm looking to pull out our $195k cash (second SFR purchase price), putting us at $285k loan or 67% LTV.

I don't get it. We're three partners with strong credit, net worth and income. I could personally go out and get a traditional mortgage for more than I'm looking for at a great rate, but our properties are owned by our LLC.

Any advice? We're in this for the long haul and would like to actually build a relationship with our lender, we're just getting started.

[Andrew Postell]

@Jake DeBoer your main issue here is just the LLC part. But having several partners could also cause some challenges too.

In the investing world there are 2 main types of loans:  "Conventional, Conforming" and "Portfolio" loans.

• Conventional, Conforming - these loans are governed by Fannie Mae and Freddie Mac. They are the 30 year, fixed rate loans with the lowest interest rate out there. These are the loan types that most beginning investors try to receive because they allow you to cash flow so much better than other loan types. And since the loans are 30 year loans, the payments are lower which help you qualify for future loans. These loans are lower risk for the bank, the money is unlimited (they just go back to Fannie/Freddie for more), and you can find them at just about any bank. However, it means you have to abide by their rules. The loan has to "conform" to Fannie/Freddie rules. So closing in your LLC will not happen with this loan. They want you to close in your personal name. And title will be in your personal name too. However, most investors just change the title back to the LLC after closing. Good loans. A little harder to fit their qualifications.
• Portfolio - These loans come from the banks own portfolio of money. Their money. Not to be confused with lending you based on your portfolio. Sometimes they are referred to commercial loans. Since it's their money, the bank gets to call the shot. So they can lend to LLC's, maybe ignore income...all sorts of benefits to these loan types. But this money is more risky to the bank (so a higher rate is normal), and they have a limited supply...so they need it back sooner (so shorter terms). The most common features to this loan type are a 20 year loan, adjustable rate every 5 years, and at about 1 point higher than their Fannie/Freddie counter part. And since each bank could lend their money differently....that means you may have to call ALL the banks to find a good loan for you. In theory, there are 15,000 lenders in the US. So there could be 15,000 different portfolio loans. That's a lot of calling. Good loans for people who don't fit the Fannie/Freddie mold.

I know that is a lot of information so feel free to tag me with any questions.

For any future investors who would read this post I would encourage everyone to be prequalified ahead of time.  It's easier to try to fit into a loan rather than trying to find a loan that fits our scenario specifically.  The more complicated your scenario the harder it will be to find a fit.  And sometimes you can't undo what you have already done.  With a good plan you can find good techniques to fit into the best loan for you.  And if you don't fit...that's fine too. Then you know how to adjust your offers on your properties so you can still turn a good profit.

Hope this helps!  Thanks!