I recently quit my job to do real estate full time. I'm about to have my RE license, and we also have an LLC with our property income flowing through it. So My wife makes $60,000+ at her job and we also have 3 cash flowing rentals. These rentals don't just cash flow a few hundred, they cash $1000+ Profit each and every month like clock work. Each one was house-hacked. Bought one, lived in it for a year, then bought the next one and then moved. Its been a year + a few weeks now so we are ready to get the 4th.
So I talk to my broker to get the standard pre-approval letter, and she cant give me a loan for anything, saying that our DTI is 128%. I've tried a dozen banks and they all say the same thing. What is happening is that because the last house we bought doesn't have 2 years worth of rental income, they have to count that house mortgage against us, but don't count any of the rent.
So in a nutshell, my 3 incredibly profitable cash flowing rental properties are killing me in getting another mortgage. This doesn't make sense to me, and I'm stuck. Without my income from my job, her income is not enough to be able to get us the 4th mortgage. On top of that, everyone is telling me I need 2 years of self employment income before that will count for purchasing power, and the creation of the LLC is trapping me to where lenders wont count rental income. Nobody seems to want to lend for a new business.
Is there anyone who can provide me with any sound advice on how to move forward? I could just sit on my hands and wait 6 months for my properties to pull in enough cash to put a down payment on a house, but I want to go go go.
So my question is as follows: How do I "Afford" to get my next mortgage? I want to HELOC my house which I can take out $50,000 to buy an investment property, but they require income verification for that too. A business needs 2 years of income to get a business loan. I really seem to be stuck between a rock and a hard place, and I'm determined to break out.
I recently quit my job to do real estate full time. I'm about to have my RE license, and we also have an LLC with our property income flowing through it. So My wife makes $60,000+ at her job and we also have 3 cash flowing rentals. These rentals don't just cash flow a few hundred, they cash $1000+ Profit each and every month like clock work. Each one was house-hacked. Bought one, lived in it for a year, then bought the next one and then moved. Its been a year + a few weeks now so we are ready to get the 4th.
So I talk to my broker to get the standard pre-approval letter, and she cant give me a loan for anything, saying that our DTI is 128%. I've tried a dozen banks and they all say the same thing. What is happening is that because the last house we bought doesn't have 2 years worth of rental income, they have to count that house mortgage against us, but don't count any of the rent.
So in a nutshell, my 3 incredibly profitable cash flowing rental properties are killing me in getting another mortgage. This doesn't make sense to me, and I'm stuck. Without my income from my job, her income is not enough to be able to get us the 4th mortgage. On top of that, everyone is telling me I need 2 years of self employment income before that will count for purchasing power, and the creation of the LLC is trapping me to where lenders wont count rental income. Nobody seems to want to lend for a new business.
Is there anyone who can provide me with any sound advice on how to move forward? I could just sit on my hands and wait 6 months for my properties to pull in enough cash to put a down payment on a house, but I want to go go go.
So my question is as follows: How do I "Afford" to get my next mortgage? I want to HELOC my house which I can take out $50,000 to buy an investment property, but they require income verification for that too. A business needs 2 years of income to get a business loan. I really seem to be stuck between a rock and a hard place, and I'm determined to break out.
Help is appreciated,
Matt Nico
You need to work with a broker or loan officer that has experience in getting investors approved. What state are you looking to do business in?
Architect · Wenatchee, WA · Member since 2018 · 843 posts · 907 votes
6y
@Matt Nico Are you trying to get a loan under the LLC? If so, that is probably your problem. Bank's want LLC's to be established business to loan to. Otherwise they take a lot of risk lending to an LLC. Just do another house hack as an owner occupied with your name on the loan. If you really want to move it to an LLC just wait till you get ready to move onto your next house hack. Plus this way you get way better rates too.
You can use commercial mortgages. Need the property to be owned in an entity, not your personal name. They do not use DTI to qualify. They look at your DSCR , must be a minimum of 1.25. If the property cash flows then you will be approved. Contact local banks in your area. You will pay a higher interest rate, but it's an option. I have many commercial loans for my rentals.
@Matt Nico Are you trying to get a loan under the LLC? If so, that is probably your problem. Bank's want LLC's to be established business to loan to. Otherwise they take a lot of risk lending to an LLC. Just do another house hack as an owner occupied with your name on the loan. If you really want to move it to an LLC just wait till you get ready to move onto your next house hack. Plus this way you get way better rates too.
@Nik Moushon
I am trying to get the loan under my own name at the current time, so thats not my problem. What I am trying to do is exactly what you suggested; Get another house hack as an owner occupied with my name on the loan. I mentioned in my original post, I have a lot of people who are willing to lend me the money with a 15-20% down payment and an non-occupied loan. But I want to live in the house and do a live in fixer upper and then house hack. Its been working so well for me I want to do it 1 more time while I buy non-owner property later in the year.
Rental Property Investor · San Diego, CA · Member since 2020 · 26 posts · 32 votes
6y
@Matt Nico That's why they're including it as your personal income. You should think about getting the titles/mortgages transferred under the name of your LLC so the rent isn't recognized as personal income.
Shaun, Yes I agree with you 100%. I very much need a loan office that is experienced with investors. When I try to explain to my broker and to banks what I'm trying to accomplish they all seem to not really understand whats going on. I do business in Florida. If your company lends in Florida I would love the opportunity to give you some business.
@Matt Nico That's why they're including it as your personal income. You should think about getting the titles/mortgages transferred under the name of your LLC so the rent isn't recognized as personal income.
@ Brian Braddock,
Thats actually what I'm looking into now. I figure if I can clear my (and my wifes name) of all the mortgages, then its basically like we have the income with no debts. Have you ever done this personally? I figured I would start by calling up all 3 mortgage companies servicing each house and ask if I am allowed to transfer them.
Rental Property Investor · San Diego, CA · Member since 2020 · 26 posts · 32 votes
6y
@Matt Nico It's actually way easier than that. All you have to do is 1) pay to have a quit claim deed (cost varies by state and county - check out the county's website for more info), 2) submit a notice of change of ownership to each tenant/unit in the property, and 3) inform the tenants to start making payments to the LLC instead of you.
@Matt Nico It's actually way easier than that. All you have to do is 1) pay to have a quit claim deed (cost varies by state and county - check out the county's website for more info), 2) submit a notice of change of ownership to each tenant/unit in the property, and 3) inform the tenants to start making payments to the LLC instead of you.
Brian,
Wouldnt the banks be able to call the mortgage due if I do that? My understanding was that I had to get a written notice from them to allow me to transfer the ownership of the house into the LLC's name. Assuming they say yes, then I would go ahead with the quit claim deed.
Rental Property Investor · San Diego, CA · Member since 2020 · 26 posts · 32 votes
6y
@Matt Nico Not if you specifically use a quitclaim deed. Its only purpose is to transfer ownership of the property, not the note. A quitclaim deed doesn’t show any intentions to transfer the note. It assumes, legally, that the persons on the note will continue to be responsible for mortgage payments.
@Matt Nico Not if you specifically use a quitclaim deed. Its only purpose is to transfer ownership of the property, not the note. A quitclaim deed doesn’t show any intentions to transfer the note. It assumes, legally, that the persons on the note will continue to be responsible for mortgage payments.
I did not know that Brian. So just to make sure I understand, I would be using the quickclaim deed to transfer the ownership from myself / my wife to my LLC, but on the mortgage it would still show my name? If this were to happen, my name would still be on the mortgage payment, not my LLC, so when a loan officer were to pull credit and check the DTI, wouldnt they still see that I own the 3 properties?
Rental Property Investor · San Diego, CA · Member since 2020 · 26 posts · 32 votes
6y
@Matt Nico This is kinda where it gets complicated. It's nice to have a relationship with a lender so they know your situation. The title being in your name and the payments being made in the name of the LLC are enough evidence to show the lender that you are not getting that income and paying those expenses, your business is. The mortgage will still be in your name, but it's still up to the lender how they want to consider those numbers financially. They have the ability to manually separate business debt from personal debt if they choose to.
There is the option of completely refinancing the note and putting it into the name of the LLC that way, but as it was mentioned in your initial post, and again throughout here, it's not the best option because there are many regulations you have to abide by. And the rates are usually higher.
Rental Property Investor · San Diego, CA · Member since 2020 · 26 posts · 32 votes
6y
@Matt Nico Correction to my previous post: The title in your business’s name and the rent checks being made out to the business are enough evidence to show your business is responsible for that debt/income.
@Matt Nico This is kinda where it gets complicated. It's nice to have a relationship with a lender so they know your situation. The title being in your name and the payments being made in the name of the LLC are enough evidence to show the lender that you are not getting that income and paying those expenses, your business is. The mortgage will still be in your name, but it's still up to the lender how they want to consider those numbers financially. They have the ability to manually separate business debt from personal debt if they choose to.
There is the option of completely refinancing the note and putting it into the name of the LLC that way, but as it was mentioned in your initial post, and again throughout here, it's not the best option because there are many regulations you have to abide by. And the rates are usually higher.
Brian, that was my exact problem....I had a relationship with a Broker who seemed to understand the situation we are in. But apparently not. I'm going to give her a call tomorrow to explain what you said about the LLC making the payments. Maybe that will be enough. If the 3 rentals I have were to not be in my name anymore, I would immediately qualify for a large mortgage.
The Refinance would be a terrible decision on my part. 2 of the 3 loans are at 3.625% interest or lower, so my mortgage is too good to change on them. The 3rd is around 5% so yes I could do a refi on that one into the LLC.
Contractor · Nashville, TN · Member since 2014 · 1k+ posts · 1k+ votes
6y
I would recommend verifying the advice in this thread. Especially the quitclaim stuff. All I've ever heard is that would activate the due on sale Clause. It would for the loans I have.
a lot of ideas bouncing around in here, from the financials you gave it sounds like you should be more than in the clear for a loan. Your financials are better than mine and I can get loans for rentals. I suspect you are not talking to the right Banks. Someone asked about that earlier in the thread, I didn't see a response if there was one as to which banks so far.
Shaun, Yes I agree with you 100%. I very much need a loan office that is experienced with investors. When I try to explain to my broker and to banks what I'm trying to accomplish they all seem to not really understand whats going on. I do business in Florida. If your company lends in Florida I would love the opportunity to give you some business.
Call @Melvin List. He is in Florida. He will EITHER tell you "yeah you're good to go, these clowns are clowns," or he will tell you what is "really" going on so you can adjust aim and fire for effect. Either way, you win.
Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
6y
Traditional lending has their own kind of criteria. You might want to look into private lenders if they haven't ceased operations since the virus started. Look for non institutional private lenders. They will likely still continue to operate.
I recently quit my job to do real estate full time. I'm about to have my RE license, and we also have an LLC with our property income flowing through it. So My wife makes $60,000+ at her job and we also have 3 cash flowing rentals. These rentals don't just cash flow a few hundred, they cash $1000+ Profit each and every month like clock work. Each one was house-hacked. Bought one, lived in it for a year, then bought the next one and then moved. Its been a year + a few weeks now so we are ready to get the 4th.
So I talk to my broker to get the standard pre-approval letter, and she cant give me a loan for anything, saying that our DTI is 128%. I've tried a dozen banks and they all say the same thing. What is happening is that because the last house we bought doesn't have 2 years worth of rental income, they have to count that house mortgage against us, but don't count any of the rent.
So in a nutshell, my 3 incredibly profitable cash flowing rental properties are killing me in getting another mortgage. This doesn't make sense to me, and I'm stuck. Without my income from my job, her income is not enough to be able to get us the 4th mortgage. On top of that, everyone is telling me I need 2 years of self employment income before that will count for purchasing power, and the creation of the LLC is trapping me to where lenders wont count rental income. Nobody seems to want to lend for a new business.
Is there anyone who can provide me with any sound advice on how to move forward? I could just sit on my hands and wait 6 months for my properties to pull in enough cash to put a down payment on a house, but I want to go go go.
So my question is as follows: How do I "Afford" to get my next mortgage? I want to HELOC my house which I can take out $50,000 to buy an investment property, but they require income verification for that too. A business needs 2 years of income to get a business loan. I really seem to be stuck between a rock and a hard place, and I'm determined to break out.
Help is appreciated,
Matt Nico
Matt, I was in your shoes some time back. My wife and I had two good paying W2 jobs in the 1st case, and I had a business in the second case. Short story, I got my mortgages. I was a credit manager involved in credit and lending in the commercial area and understand the world of ratios, like DTI, how it's applied, how rules are bent.
At one point, like you, I was up to my third property, triplexes and a SFR, all cash flowing, when I went in for a refinancing. It was 1993, mortgage rates dropped from a high of 18% in the 80's to 7.5%, though mine was 13.5%. Thought I'll refi out but DTI might be an issue, so I just refi'ed for the same amount plus a few dollars for closing costs. My cash flow would increase by at least $15K/year to $20K, a no brainer right? Wrong! But the funny thing was my SFR refi was approved, but the triplex was not, and both refi's went thru the same bank. Question is why.
Turns out I partnered with my mother in law on my triplex. Thought she was no issues as she's retired, on social security, owned a mortgage free triplex where she lives rent free and lives off the rent Turns out she also had a pile of cash, and invested with us, and her other children a total of six properties, mainly triplexes, her favorite type. Even so, she still had a pile of cash in the bank. What happened? Her other properties had mortgages with her son, who's a doctor, good income, but the good doctor invested with other doctors, and it goes on a on with the DTI calculation. Mortgage banker says everyone must be included. So I told the loan officer, when you're done with this, you'll have to add in half the doctors in San Francisco for the DTI.
Turns out I have a private banking account with my commercial bank, happened to chat with the banker. Told him with the refinancing will increase my annual cash flow by $15 to $20K, and the mortgage banker is asking for the tax returns of al of my brother in laws real estate partners. So my banker said "give it to us, we'll put it through with no issues without using your mother in law in the processing though her name will be on the mortgage". I was shocked. I was even more shocked it didn't go through as a commercial mortgage.
Some years later, I did another refinancing. This time I knew I have issues as I quit my W2 job, bought a business, didn't have the 2 years required in normal residential mortgages. This time, I called around mortgage brokers, and one introduced me to a local banker, several blocks from me who does "no doc" loans, back then, called liar loans. It was approved with no problems. Though stricter guidelines since the banking crises, these loans are making a comeback. I have not look into it in recent years as my properties are all mortgage free at the moment.
One issues I want to bring up is for small property owners, business owners, LLC's mean little to bankers. I bought a business via an LLC, and when I went for a $200K SBA loan, it was personally guaranteed by me any way, and I got the loan because the business had been in the neighborhood for years, I used the same bank the previous owners use, and the bank just want to stand by local businesses. I was advised by the business broker to do so, use the same bank. I don't even think the bank ran a credit check on me personally, didn't see any inquiries, and the loan never appeared on my credit report even though I personally guaranteed it.
As other suggested, you're at a stage where you have to call around mortgage brokers, banker etc. to see what loans are out there. I had to do that some years ago.
Call @Melvin List. He is in Florida. He will EITHER tell you "yeah you're good to go, these clowns are clowns," or he will tell you what is "really" going on so you can adjust aim and fire for effect. Either way, you win.
Chris,
Thanks for this contact. I will get in touch with him and see what he can do.
Traditional lending has their own kind of criteria. You might want to look into private lenders if they haven't ceased operations since the virus started. Look for non institutional private lenders. They will likely still continue to operate.
Ian Walsh,
Could you give me an idea of how I could find local banks? I have done many searches in my area for banks, and most of the time I have gone into the bigger banks because I'm just having trouble finding the little guys.
I've tried: Wells, BOA, Regions, Addition Financial, A few credit unions, and 3 brokers.