Bought, reno., and rented property with cash. Now need money, CT

[Jorge Pesok]

I bought a single family residential property using my own cash, renovated it, with my own cash, and have now had a tenant in the property for going on 2 months.  I am looking for a bank to finance the property, which is in CT, but am having difficulty finding a bank that will do it.  I used Lima One for my first deal, but they are giving me a hard time now (mainly because they want me to show 6 months of mortgage, interest, and insurance payments to cover the new loan AND the previous loan I closed with them last year?!  This amounts to close to $15,000.  Also, they are EXTREMELY restrictive with how I can obtain these funds, e.g., no gifts (even from wife), credit card advances, etc.  

I now realize that the smarter way to do these deals is through fix to rent loans and plan on doing those moving forward.  But I can't move forward until I pull cash out of this current property.  Any advice is much appreciated.  

[Scott Hollister]

Hello @Jorge Pesok,

If you're looking for conventional financing then you will need to show reserves. Moving forward you will need two months for your primary and 6 months for each of your investments. 

Here are you options because I was and am in your same position. (Saving for reserves) But I'm also in another pickle with being to aggressive on my returns and showing a loss:(

• Find a NEW bank. Thats right, just because one bank says no doesn't mean another will. You have to have tough skin and go through 100 no's to find one yes. 
  • Local Credit Unions. Typically some can be more lenient on the reserve contingency because they keep them in house. Most will have them because they underwrite them just in case they have to sell them to freddie/fannie. 
  • Conventional Lender. I'm pretty sure that the bank is giving you the run around, why would you need a "gift" from your wife when she is your wife? I would dig deeper into this and ask why because you too are married. But they might have really tight policies, because there is more risk if they give one person 10 loans. You have to think in their "shoes", "what if this person can't pay his mortgages?"
  • PS please don't take a Credit Card advance for reserves...ha. You want to run your business in the green at all times. 
  • Also, do you have a 401k or ROTH account? I may have heard that some banks will accept this as reserves just as long as you can access the funds. (This may be incorrect, check with you lender)
  • Commercial Lender. There are some in CT that are great and come to our local meet ups. However your LTV and terms won't be as favorable as conventional. But they can get you out because they don't have reserve contingencies per se.

Just remember that those reserves are there to help you, what if you have an eviction in one and have to put a roof and a furnace in the other at the same time? I know this is a long shot but you don't want to be skinny dipping when the tide goes out. 

Warren Buffet says it like this: "You can tell who was skinny dipping when the tide goes out."

My wise advice for next time: 

• Partner with HM or someone else that has deep/bigger pockets, if you are of the Rich Dad Poor Dad mindset you should never spend your own money. 
• For instance a HM money lender will only require 15% down and cover 100% of the rehab up to 75% LTV. With those numbers you would of had plenty of reserves for the next deal, even enough to do two at a time if you decide to scale up and stick with conventional financing. But first I would decide where you want to go. But I think the road to get there is cheaper with conventional lending up to 10 loans.
• Find a mortgage underwriter that knows how to underwrite and understands what you do, most people don't have an investor mindset. Some will understand that when they cash you out you WILL have the reserves. Its all in who you talk to!
• And my best advice, don't take NO for an answer:) 

I would find conventional financing with money from your wife for this time, but I'm not sure why they can't see those reserves. Do you have separate checking accounts?