All Forum Posts by: Doug McLeod

Ask Jerry Padilla.

@Jerry Padilla

Welcome to BP.  Check out the the podcasts, the blogs, and the books.  Ask questions on the forums when you have them.  Happy investing!

Absolutely it's sketchy. If you can evaluate the property, you can't tell if it's a deal. If you know the market well and are experienced you might be able to assess close enough to go ahead based on the lower unit if the price is a slam dunk. I don't buy what I can't evaluate. You might come up with a clever way to talk to the tenant upstairs to see that unit before contacting the seller or realtor. Or maybe you can talk reason to the seller/agent.

Hi Calvin. Have you done investing on your own or are you just starting out to get your own properties?

Do you have comparable sales and rentals to assess what value should be?

It reduces your personal risk in the deal. Also another deal might come along or you might need reserves to get long term financing if you change exit strategies for some reason. It helps you build a track record with the lender. Creating a win for a private lender will build trust and help increase your likelihood of getting another loan where you don't have your own cash in future. But you can certainly go it alone if you have the means to do so.

a) If you are buying in an entity or have used all your Fannie/Freddie (you get up to 10 under current rules - if a bank tells you 4 or 6, that's THEIR BANK's rule - keep looking for other lenders), then these non-banks can help you keep buying.  But so can local banks and credit unions if you talk to their commercial lending departments or ask about portfolio loans.

b) Your personal income and credit qualifications are not as important as the property and its income in securing the debt. And sometimes these can be non-recourse loans (ie - your liability for the debt is limited to the property - not your personal assets or ability to pay from other sources).

c) They provide a lot of flexibility to refinance and get cash out of a porfolio of properties that has been paid down so you can put your equity to work.  Once you have more than 4 Fannie/Freddie loans, you cannot do cash out refi conforming loans (except under the delayed financing exception for cash purchases).

Otherwise, their rates are higher, fixed rate periods are shorter, amortization time frames are shorter, etc. which means the deals need to be better for these to make sense.

@Frank Gigliotti

Not clear what the 55% applies to. Is that the LTV for a cash out refi of your free & clear property or is that the line of credit? You should be able to do a cash-out refi for up to 75% of the appraised value (if not 80% since you are living in it). Line of credit offerings will vary by bank. Keep shopping.

Selling will clearly give you the most cash - will it be enough?  For an apartment you may be able get 75-80% financing depending on the lender and the property condition and your strategy. Or you may even be able to get some owner financing - have you asked?

a) work with a credit repair service to clean up your credit report - and make sure to pay everything on time from now on - avoid using credit cards if you can't manage your spending otherwise

b) look for owner financed properties. if you can come up with a downpayment and can make payments, it is still possible to borrow, just not from regular banks and mortgage lenders until your credit is better

Most lender dealing with conforming Fannie/Freddie loans will not count rental income until you've shown it on one or two tax returns. After that, they typically count 75% of the rent as income including any new rentals, so you take a hit to your DTI on the first one until it's been on your tax return for 1-2 years. The gain/loss after depreciation and interest and taxes doesn't seem to matter. You may show zero taxable RE income but still have 75% of the rent counted as income.

I was fortunate to keep my first home as a rental.  When I started buying rentals several years later, I had no issue getting mortgages and each additional rental added to my income, so I was able to finance several properties in a short time frame.