My Lender is Great But Where Can I Find More Money Faster!?

Question

We are having a lot of success using a commercial lender to convert SFR equity into a LOC.  We then buy deals with "cash" and term out the debt.  Basically, it's the BRRRR process. However, I think we have the deal flow to scale faster if more money was available.  At what point did you move away from institutional lenders and into the private money world?  Any reviews on the internet based crowd funders?

Andrew Postell · Answer

@Amy Raye Rogers I wanted to comment on some things in your post if you don't mind:

• At what point did you move away from institutional lenders - I would guide you to NEVER move away from institutional lenders.  An institution, whether you are using "conventional" or "portfolio" style of money should have better terms and MORE money for you than any private lenders.  Trying using all private money when you need $3million a year.  Maybe you can get extremely lucky but for most of us we need institutional lending at all stages of our career.
• we've exceeded our DTI doing 6 deals this year - this also struck me funny.  In theory, you should NEVER have a DTI issue with rental properties.  We should only be buying rental properties that cash flow...right?  So if we cash flow, then our DTI should be BETTER with each property we have.

So based on these comments I would recommend trying to find a different lender.  And this is also part of your real estate path.  You might actually outgrow some of your venders and need different people.  You need to be prepared for this as you gain more and more success.  The things we MUST have as investors from our lenders:

• Using rental income immediately to help me qualify
• Absolutely no seasoning requirements
• Using the ARV immediately
• And some others

And in this formula, even if you are only going to use commercial/portfolio style of loans - you should be getting a 30 year, fixed rate loan.  There are plenty of lenders that will offer that at this point and I would suggest seeking this out as well.

I hope you don't mind me saying it in these terms but it's time that you have more cash flow with less restrictions.  That will catapult you even further.  Hope all of this makes sense.

Marty Johnston · Answer

@Amy Raye Rogers there are portfolio lenders who offer some pretty attractive terms on delayed financing for SFH's or 2-4 Unit NOOs. I see your in ND which may have some more limited options with some of the larger National Lenders in mind, but have you looked to some of the national guys? They'll go 30-yr ams, and why rates may be in the 4's or 5's, the longer am and options for I/O periods will still increase your cash flow. If credit is good, and DSCR is 1.1+, you may even be able to realize an 80% LTV on delayed financing, since it's treated as purchase funds rathe than CO Refi (which often takes a -5% LTV hit).

Hope this helps!

Andrew Postell · Answer

@Amy Raye Rogers basically a lender needs your W2 to cover your own personal debts.  And they should ONLY be using current income. Not last year.  So if you quit your W2 job and don't have any income...then that would be an issue.  But if you still have that job, and you received a raise...then CURRENT income should be used. So without getting too personal here, if you aren't in debt that greatly, and your current W2 income is good, then you should be ok.  And the cashflow from the properties should be ok....which means DTI should not be an issue.  That's the concept at least.  Again, there might be more to it but am certainly open to speaking on any of these items offline if you would like to discuss it further.  Here to help in any way if I can.  Thanks!

Timothy Hero · Answer

Marty is right.

Commercial/private lenders will do 30-year fixed and not report the mortgage on your credit. The sector is averaging mid to high 4's currently.

They don't require income docs, so no dti concerns. Approval is based on credit and the property must cash flow.

Jason Wray · Answer

Amy,

One of the issues is your bank as they must have strict guide lines or overlays maximizing you at (6) on the W2 side.  You still have the DSCR loan program and bank statement programs to avoid the tax returns/W2's.  As far as the delayed financing those programs are still open :)

Amy Raye Rogers · Answer

@Andrew Postell

We are finding all of your points to be EXACTLY true.  I should have clarified that the DTI comment I made is based on W2 income off the previous years tax return.  Our local lender is now using our rental income right away.  The only piece we haven't worked out with them is the 30 year fixed... however, several brokers have reached out to offer that solution.

Thanks for your input!

Amy Raye Rogers · Answer

@Jason Wray Unfortunately, in our market, we haven't been able to track down a lender that would offer delayed financing.  Plus, we've exceeded our DTI doing 6 deals this year on last years W2.  For that reason, we are almost exclusively working with a commercial lender and doing 20 year amortizations w/ 5 year balloons.  The numbers still work, but it's not ideal.

Jason Wray · Answer

Amy,

When you buy all cash and want cash back out ASAP you have delayed financing where you can pull out 75% for example and use the purchase price as the appraisal rather then waiting (6 months) for title seasoning.  Were you talking about something different geared towards the loan based on the cash flow?

My Lender is Great But Where Can I Find More Money Faster!?

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