Real Estate Investor · Mountain View, CA · Member since 2009 · 49 posts · 16 votes
As in the title, I have no income but I do have cash. Do you think I could get a loan at a reasonable rate, or am I limited to cash-only deals? It would be nice to utilize a little leverage. My FICO is around 800.
I'm interested in SFR with break-even cash-flow. Might be part of a 1031 exchange.
From my experience. No. DTI (Debt to income) ratio is a big issue these days. I don't think anybody offer a conventional loan for investors with stated income (Even for low loan to value ratio). Unless, of course you already established a business relationship with a local bank.
From my experience. No. DTI (Debt to income) ratio is a big issue these days. I don't think anybody offer a conventional loan for investors with stated income (Even for low loan to value ratio). Unless, of course you already established a business relationship with a local bank.
As Eddie pointed out, not a conventional loan through a large lender...
But, you may very well be able to get portfolio loans through small, local lenders (banks) if you have a good investment deal. Oftentimes, the small banks will look at more than just your DTI...they'll consider your assets/cash, your FICO, the deal, your experience, etc.
When I started in real estate, I had no income, but I was able to get large lines of credit based on my assets and FICO score.
Before I got into real estate for about 2 years prior I just sat around living off savings.
When I went in to meet with my banker(Local Bank) she asked for my previous two years of tax returns. I told her I made 0 dollars. She said that is fine just provide me those tax returns anyways.
This was like 3 years ago so things might have been different then. I had also done 3 real estate deals using cash before I approached her. That probably had some influence on her decision.
Jason, although I agree with you that income may be secondary under certain circumstances, debt is a total different ball game. If that the bank sees your debt is too large and a big liability, income has a lot to factor.
Jason, although I agree with you that income may be secondary under certain circumstances, debt is a total different ball game. If that the bank sees your debt is too large and a big liability, income has a lot to factor.
Yes, absolutely! DIdn't mean to imply otherwise...
I guess I just assumed that if he had a decent amount of cash on-hand, that he didn't have any debt...
Thanks for all the advice. No debt is a correct assumption. I may try a small bank, but I see now that these loans are apparently not common.
I went to a real estate seminar tonight and the leader suggested, firmly, that I should make all-cash offers and play that up as much as I can. In other words, try to find deals where paying cash is a strong bargaining point and gives me an edge. I'm not sure which types of deals those would be, but I'll look for them.
Update: after posting this I'm thinking maybe an advantage I could offer is a quick close. Assuming I was able to do inspections, title search, etc quickly, I could close within a few days.
If you're trying to get into real estate as a business hard money lenders will loan you money. If the property is a good deal and you're willing to put $$ into the game you'll be able to get a loan.
If you have the capital to make all cash offers and can close quickly, then you will have an advantage over other real estate investors that have to make their offer contingent upon financing.
I've had lower offers accepted over other RE investors by offering all cash, quick close, no contingencies, and by offering a significant earnest money deposit.
When you make your offer, make sure you include your proof of funds.
Re getting a hard money loan, if you have cash and good credit, then you should have no trouble getting a hard money loan.
Here is another possible solution, though a longer term one:
1. Buy the property cash.
2. Create an LLC or a corporation but DO NOT transfer the property to it.
3. Create a paper loan from the company to you of 50% of the ARV or the purchase price and make sure to record it. Structure it like a regular mortgage with payments and all.
4. After 12 month, you could do a rate and terms refinance for the full amount of the loan.
Robert, if you have good credit and enough cash for a down payment, you can get a loan to buy commercial property. The bank considers the income of the commercial property rather than the income of the buyer.
Robert,
I have gotten financing for several of my investors who have similar situations. While cash is obviously king, we all know the importance of leverage in this business. You are far better off if you spread your money across several sfr investments using leverage rather than dumping all your cash into one deal. We use hard money initially and once the properties are fixed up and rented out, the lender will give you a blanket loan covering all the properties. At that point, the income being produced from the rents will make up for the lack of personal income. This is not typical with most lender's however there is a way to make it happen, and you will have far more success in this business if you do so!!
Here is another possible solution, though a longer term one:
1. Buy the property cash.
2. Create an LLC or a corporation but DO NOT transfer the property to it.
3. Create a paper loan from the company to you of 50% of the ARV or the purchase price and make sure to record it. Structure it like a regular mortgage with payments and all.
4. After 12 month, you could do a rate and terms refinance for the full amount of the loan.
Interesting Eddie...Can you shed any more light on how this works? Specifically, what is going on in step 4? Is that where the bank gives you a conventional loan?
Robert,
I have gotten financing for several of my investors who have similar situations. While cash is obviously king, we all know the importance of leverage in this business. You are far better off if you spread your money across several sfr investments using leverage rather than dumping all your cash into one deal. We use hard money initially and once the properties are fixed up and rented out, the lender will give you a blanket loan covering all the properties. At that point, the income being produced from the rents will make up for the lack of personal income. This is not typical with most lender's however there is a way to make it happen, and you will have far more success in this business if you do so!!
Sean, I have caught wind of these "blanket" loans before, and I am in a similar situation to Robert, so I'd love to hear more about how these loans are structured. Does the bank like these loans more than the 'one loan secured by one property' conventional loan because it spreads out their risk (through a kind of property diversification?) And, how much does a bank typically determine a loan amount in these situations? Are they looking at total net worth and experience in the industry, or are they looking at LTV and property income, or is it something else altogether?
Hey - I assume you are planning to buy a rental ( investment) house. Since you are looking for break even cash flow.
You did not say how much cash do you have. Also assume that you are not workinga nd do not need tax shelter.
Here are your options my suggestions:
1. Yes -you can get a loan with 30 % down -on investment property. First if possible - have prospective tenant. You can get that from Section 8 housing --at your city or county.
2. Call several doctors or attorneys in your town - and ask for Private Investors to do loan at 70% LTV - and offer 6% or 7% rate -- 30 year amortize - five year ballon - interest only payment. Make sure the numbers work with rental income.
3. You can also go to court house and find private investors who has made loans. Contact them for loan or JV.
4 Advertise in local --nearby large city - for investors and offer 8% interst or 50%
profit sharing --
5 Better yet--why buy and rent --buy fixxer upper - and sell to other Invetsor -called Flipping and make more profit without landlording hassels. Learn more here in BP about REO and Wholesaling or Joint Venture with other invetsors in your area. Hope this gives something to think about.
Lot will depend on how much cash you have, what you feel comfortable doing
and what price houses available in your area.
Hey Robert - one more thought
Having cash and quick closing is good-
Find Motivated seller --through realtots --with listing over 90 days, owner lost job or moving out of town - divorce etc--make sure they have 30% or more equity based on current FMV -then pay all cash and buy --do minor cosmetic repairs and sell again -or rent it out.
Check BP otehr forums on how to find Pre Foreclosures and Motivated Sellers.
Quick sale -does not matter to Lenders -
only for motibvated sellers and cash is king for REOs for flipping.
If you have good enough equity --you can sell to other investors with some profit -- as said above.
champak shah
A followup....and something unexpected. I was able to get a loan on the basis of the following: I have most of my money in a brokerage account, and a smaller amount in a checking account. A monthly wire transfer moves money from the brokerage into my checking so I can use it for daily expenses.
According to two different lenders, the amount of this transfer counts as income as long as it has occurred for 3 years and can continue for 3 more years. It appears this counts as "regular reliable income" per Freddie Mac guidelines. This was surprising to me, as I'm just moving money between my own accounts, and no accountant in his right mind would call this income. I went on to refinance with one of these lenders and Freddie Mac now owns the loan.
I'm actually in a similar boat as Robert. Been umemployed for almost a year. FICO 750+, with cash to invest at 30% down for properties. Looking to reinvest (have on rental property already) in Phoenix. Properties (sfrs or multifamily) that meet the 50% rule that can produce cashflow. Should I get ahold of my PM out there to recommend me to some small banks that can help?