All Forum Posts by: Joshua Fulenwider

All conventional mortgages should have identical underwriting standards.  In theory it shouldn't matter who you go to.  In my experience you are going to have better luck getting to 10 with a portfolio mortgage lender.  

You can also pursue portfolio/commercial lenders which have different terms but easier underwriting standards.

If you find a lender that likes what you are doing and you can live with the terms it may be easiest to stick with them.

Aqil, hopefully you have found your answer since you posted this. If not here is my thought. If you can find a lender that will do a HELOC spread across multiple properties that are not owner-occupied I think that is a great advantage for the same reason you mentioned. It definitely gives you a lot of flexibility.

However, right now as a lender we are treating the market as a rising-rate-environment. Meaning we expect prime rate to continue to go up. HELOCs are typically tied to prime. This could make your future borrowing on the HELOC much more expensive. Additionally, chances are once you find an investment and use up all your HELOC funds, I would imagine it may take time to pay it back down. This subjects you to that interest rate risk should they rise.

The strategy I currently use is a combination of the two. Rather than getting a $100k HELOC or $100k cash-out refinance. I did a $50k HELOC and $50k cash-out refinance. This is an example and not actual numbers. Also, the HELOC was jsut on my primary residence. However, it cuts down the risk of interest rates rising but also allows me some flexibility.

Let me know if I can be of further help.

Dan, I saw no one had replied so I thought I'd try to help.  A bank that looks closely at it probably won't count it as experience as land lording.  In addition to that you would want to talk to an accountant about an possible tax issues.  You may be limited on what you can deduct as possible losses on the business (from the extra rent payments) while having to pay more for the rental income received.  This is just an example of a couple of different issues that could arise depending on your tax situation.  

That being said, I find it easier to finance people doing rentals when they are already in business for themselves in another form (I'm a commercial lender not a mortgage lender).  It is fairly common for people with successful businesses to seek additional sources of revenue, tax shelters, and assets in the form of real estate.  

I don't know about traditional mortgage financing but I don't think 2 years of experience is a firm rule.  What that 2 years shows a lender is that you have experience and possibly have dealt with turning over a place between tenants at least once.

Hope this helps.  If not it will at least refresh your question and get it in front of new eyes again.

Portfolio lenders can do this (local and regional banks for the most part).  However, it may not make economic sense as most of the time they will want an appraisal on each property and then they may only lend up to 75% less the first lien.  So on a $100k property that you owe $65k they can lend you another $10k just on that property but you are may have appraisal fees, title insurance, loan fees and other miscellaneous fees that could add up to anywhere between $1500 and $3500.  A lot of these costs repeat across multiple properties as well.

Since you have, or are planning on having, so many paid off you could look into doing some sort of bridge financing.  I would guess you'd have to approach a bank that would be willing to get creative with you.  Essentially they would take a Deed of Trust or Mortgage on the new place and an existing place.  Costs to do the loan might be higher but you may be able to negotiate a way for them to release the initial property once the loan is paid down to a certain point at which point you could re-pledge it for the purchase of another property.

I have also seen, in rare circumstances, a large line of credit established on a free and clear portfolio.  Again, it would require a creative bank.  But that could lend you a great deal of flexibility.

Personally, the lowest I have seen for down-payments for investors is 15% and there was quite a bit of qualification that went into that.

Check with the local authorities either before you go under contract or during the due diligence period.  I recently heard of a big deal go bad because the town was out of water and refused to allow the builder to build until they purchased water rights for the project.  Lots were already plotted.  The local planning and zoning commission would probably be a great place to learn everything you need to.

As far as financing, what is the seller willing to do as far as financing for terms?  Without knowing your cash flow issues one of the big hurdles I see when I finance developments is that the developer or builder has to make monthly payments for a while before they get their first home sold and can generate cash.  If possible will the owner carry with zero payments?  Preferably zero interest as well.  If he insists on monthly payments I would try to negotiate them down to as little as possible.

I haven't done anything with them personally but the people I've talked to really like them.  My understanding is that they can be more hands-on at times and other times they practically run themselves.  How close are they to you?  My thought would be that if you can get the tenants set up on some sort of automatic payment system that they could cash flow very nicely.  Might take a while to turn the performance around.

On the other side I have attended storage auctions which lets the storage unit owner sell the contents of any locker to repay back rent.  You'd have to check your local laws on it though.

Chris, I have lent on similar projects in the past so it is possible. It is going to be largely based on the lenders LTV (Loan-To-Value) limit though. Most commercial lenders do not like to exceed 70%-75% LTV and that is after you subtract out the first.

My questions for you would be why do you not want to do a cash-out refinance? If it is a single family home you may be able to get as much as an 85% LTV using a traditional mortgage which will have favorable rates and terms than attaching a second to tap equity for the other deals. A lot of lenders do not like 2nd lien positions and thus have higher rates and shorter repayment schedules.

Is it being auctioned on court house steps or is it a private auction (like auction.com)?

The reason I ask is that I purchased a house through a private auction and their terms allowed for me to finance the property.  I had to be pre-qualified, show proof of down-payment funds, and let them know ahead of time but they gave me 45 days from the close of the auction to get the financing in order and close.

If it is being held on the court house steps I recommend talking to anyone you know with money.  If that doesn't work talk to a hard money lender.

Brian, all of what I am about to tell you is catered towards speaking to a commercial/portfolio lender.  If you are seeking conventional financing the criteria will be different.

Develop a business model (doesn't have to be a full business plan) but you should know what you are pursuing.  For example, if you are exclusively going to be pursuing 3-4 bedroom single-family homes in a college neighborhood and are going to focus on college rentals which you are going to hold for the next 7-10 years is a pretty defined focus that allows a lender to know you have done your homework and know what is going to best suit your personality.  You can have a multiple ideas as to the type of investment but make sure you know your reasons as to why you are pursuing those types of properties.

If you have a property in mind already you should come prepared with information on the property (estimated purchase price, number of bedrooms/bathrooms/garage spaces, estimated repairs, estimated rents, etc.)  Be sure to back these numbers up with some research (i.e. rentometer.com for rents, bids for repairs, or a home depot checklist).

Be prepared with your numbers.  If they are interested in financing you they will typically need to evaluate 3 years of tax returns and see a current balance sheet for you.  If the property is currently rented what is it rented for and when is the lease up?

Lastly, put together a letter of investment history.  If your experience is pretty thin you can dress it up by mentioning any classes you've attended, real estate networking groups you belong to, stock market investing experience, any relevant work experience, and also who you have on your team (business partners, your realtor, property manager, contractor, accountant, etc.)

Let me know if I can explain anything further.  Hope this helps.