Struggling to get financing!!! Own 2 rental homes - no debt

Developer · Sherman, TX · Member since 2015 · 7 posts · 3 votes

Hi All,

I have 2 homes, free and clear, in Dickinson North Dakota that i am generating $1500 each in rent per month. I have an opportunity to build 2 more homes and sell them but I am struggling to get financing to build them. Banks are telling me that I cannot use the rental income to qualify for the loan until I have been renting for 1+ years.

Do you have any ideas on how I could get financing to continue moving forward on building up my portfolio? Any help and suggestions would be greatly appreciated.

Thanks,

Arthur

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Joel OwensBusiness Member

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Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes

10y

Get an investment partner that has the cash to go in it with you or go after passive investors.

You would need to know how much the land and building all in costs are compared to the rent ratio.

So if the land and building costs you 100,000 and you have 1,500 in rent per month that is a 1.5% rent to cost ratio.

75,000 all in for land and building is 2% rent to cost ratio.

Unless a local investor to partner the outside investors will read all the new stories and will generally want increased yield for the extra perceived risk.

If your rent to cost ratio is 1 it will be a very tough sell because people can buy in very high quality areas that are not oil dependent for that metric that are seen as very safe.

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Alex Brookbank
Investor · Cincinnati, OH · Member since 2015 · 90 posts · 44 votes
10y
@Arthur Nunez Most lenders like to see that 1-2 years of experience before they give you credit. So the answer is to keep cold-calling lenders ... or ... hunt down 2-3 mortgage brokers and tell them your dilemma. They will each work with a bunch of lenders (and have special relationships with them that they could leverage). I would do it that way and see where it takes me.
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Alex Brookbank
Investor · Cincinnati, OH · Member since 2015 · 90 posts · 44 votes
10y
big banks are typically annoying, if I may say so myself.
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Tyler HunterPro Member
Real Estate Broker · Fargo, ND · Member since 2014 · 37 posts · 12 votes
10y
@Arthur Nunez this is a relatively common issue right now in ND. With oil prices down and population numbers slowly going down and or spreading to other parts of the state lenders are being tight on their loan requirements. I agree with @Alex Brookbank 100%, banks want to see your properties are producing for at least a year. Also, calling smaller lenders is something I would definitely be doing. If your calling banks in ND try some in other parts of the state as well.
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Victor N.
Investor · Meriden, CT · Member since 2013 · 201 posts · 145 votes
10y
@Arthur Nunez Large banks have strict lending practices set up by the government. Your best bet is to look for a portfolio lender ( basically a small bank or credit union) which will keep your loan on their books and not re-sell it. Since they are keeping the loans themselves, they are usually very flexible in their requirements.
Credit unions are wonderful to work with so I would start there.
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Regina Abayev
Professional · Manhattan Beach, CA · Member since 2015 · 37 posts · 10 votes
10y
How much are you looking to borrow and how is your credit? Banks generally do not like from the ground-up construction. What about using alternative funding sources (crowdfunding, hard money lenders, etc)?
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Brandon Battle
Real Estate Agent · Buena Park, CA · Member since 2016 · 743 posts · 424 votes
10y
You need a hard money lender,pure and simple.No traditional bank is going to finance you now with the oil bust there.Be prepared for sky high interest rates from HML's.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y
Any place that is an oil heavy area banks are pulling back on loans. They want to service what they have on the books already and mitigate any losses or problems. To add more new loans onto a shaky area and situation would put them in a bad position. The regulations and audits on banks now is much heavier than the past so anything that is not vanilla they get skiddish unless you have lot's of money sitting in their bank.
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Joel OwensBusiness Member
Moderator
Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
10y
Get an investment partner that has the cash to go in it with you or go after passive investors.
You would need to know how much the land and building all in costs are compared to the rent ratio.
So if the land and building costs you 100,000 and you have 1,500 in rent per month that is a 1.5% rent to cost ratio.
75,000 all in for land and building is 2% rent to cost ratio.
Unless a local investor to partner the outside investors will read all the new stories and will generally want increased yield for the extra perceived risk.
If your rent to cost ratio is 1 it will be a very tough sell because people can buy in very high quality areas that are not oil dependent for that metric that are seen as very safe.
Podcast Guest on Show #47
NNN Invest53 Reviews
Website View Page
1 Reply
Marcus Svehlak
Real Estate Lender · Martinez, CA · Member since 2015 · 30 posts · 6 votes
10y
If you're in California and own property here, free and clear or with enough lendable equity, a lender in CA would likely be able to help you.
Best, Marcus
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