All Forum Posts by: Patrick Roberts

Do these borrowers have ITIN's at least? Without an ITIN/SSN, I'd be worried about running into KYC/AML violations, fed tax liens, the borrower being deported, lien enforcement, etc. Ultimately, it's difficult to confirm the identity of the borrower. This is not something I would take a risk on, but maybe others would. I'm not an SME on immigration law, but I know that you can get burned pretty badly if you run afoul of OFAC and AML stuff. 

I dont know of anywhere that you can cashout $270k against equity in an RE portfolio without closing/origination costs other than through a private banking relationship as a HNW individual. I also dont know of anyone who will lend against an IRA since that's basically untouchable as collateral.

 I guess Im not really understanding what youre looking for. If you want to close with cash, it sounds like youre going to have to liquidate your collateral or borrow against it, which will likely be more expensive that a mortgage. If youre wanting to make a cash offer, all I can say is that Ive never seen a competent seller/listing agent accept a cash offer without proof of funds, meaning a bank statement or similar document(s) showing liquid cash for closing. I cant speak for what this seller will or wont do, but my suspicion is that an offer accompanied by a balance sheet or list of collateral and not liquid funds wont fly - it wouldnt with me. The whole point of a cash offer is speed and certainty - if you can bring a pile of money to the closing table today, I dont have to worry about you not getting the money to close. If you cant close the deal without borrowing money or selling stuff (which both frequently take time), then its not a cash offer until those funds have settled in your account.

If you are going to borrow money, a 15yr or 30yr mortgage is probably going to bring the lowest interest rate available. Most margin loans and SBLOC are Prime + or FFR +, and the ones Im familiar with are 8-13% right now.

The only other thing I can think of is that if you're a HNW with a good relationship with your private banking team, maybe theyll give your a personal line based on your net worth and assets with them. 

If your existing rental properties reported their financial performance on your most recent Schedule E, then your lender should be using a net cashflow analysis based on the Sched E figures for your DTI for those properties in most scenarios. If they have not reported on your Sched E yet, then 75% of the gross rent is appropriate. This is specifically for conforming loans.

If youre referring to the rental income from the new property that youre buying, then 75% of the gross rent for that specific property is what's used in almost all cases. 

If DTI/income calc is the only thing holding you back, I recommend looking into DSCR loans. Most programs will use the full gross rent for the new property, not 75%.

I dont know all of the specifics of your scenario, but this is a general overview.

5C's of credit are a good framework to understand the fundamentals. The type of lending matters as well. ABL, which is the basis for HML/fix and flip lending, will have different criteria and different focuses than multi-year loans based on cashflow and borrower credit score (long term mortgages). Within each of these loan types and structures, you'll find commonalities and similar bases, but only conforming and govvy loans will have the exact same rulesets universally.

For instance, in my private lending, I dont really give a numerical credit score much weight, but I absolutely look at the composition and history of the individual tradelines on a report if the borrower is a smaller outfit, such as a single member LLC or similar solopreneur-type operator. But, if the deal is a true ABL play, I may not even look at a credit report at all. I always dig into the borrower though (character) - honesty, experience, skill-level, etc. Dishonesty and lack of integrity in any form is a dealbreaker for me. "The first thing for me is character, before money or anything else. Money cannot buy it..."

This is a complex question that will not have any one answer. Credit analysis and underwriting are as much art as science. 

Angel oak and A&D mortgage are two of the bigger lenders that I know of who will do 2nd's on investment properties as of a few months ago. Lots of restrictions and tight underwriting on these. Expect them to be expensive, also. 

Theyre out there, but they are largely impractical and not viable except in the most profitable deals. I would plan for having to put 20%+ down for most deals. 

 This is the framing for my approach, also. Creating a catalogue of info and answers for the general benefit of those in the future in addition to the poster.

FHA 203k wont work unless youre going to live in the property as your primary. Freddie has a reno loan product that can be used for investment properties; this is only for first position, though.

For the Heloc - it goes back to whether your mom wants to continue carrying the loan for income, and if so, how will you pay off the heloc once the rehab is complete? In other words - if you do not cashout refi either the new property after rehab or the existing rental, then where will you obtain $100k cash to pay off the heloc? 

I would only use the heloc if you plan on cashout refinancing one of the properties to pay it off once the rehab is complete. If your mom continues to hold the 1st lien on the property, you would need a 2nd position equity loan product for investment properties to stack behind this to extract your rehab funds. While these technically exist, these are typically difficult to execute and are very expensive. I also suspect the vast majority of lenders will take exception to your mom being the 1st position lien (look up strategic default). I also wouldnt let your mom go into 2nd position on an investment property with any sort of restructuring; it doenst sound like she's in a position to risk being wiped out.

Overall, though, if you want cashflow on the new property but cant achieve that after a refi into a market rate loan, it probably makes more sense to just flip it, pay off your heloc and your mom, and use the remaining capital for the next deal.

Am I understanding this correctly that youre expecting to get a $700k property for $500k because youre paying cash? Or are you using an SBLOC to bring $500k and then bringing another $200k in cash out of pocket? I also doubt very seriously that any brokerage/custodian is going to allow this kind of loan with 401k assets; it's likely going to need to be a 401k general purpose loan, which is highly regulated (as someone else mentioned). 

Every market is different, but paying cash doesnt necessitate a huge reduction in price - it might, or it might just make the offer more competitive than other bids that require financing. 

I recommend you speak with a lender about reviewing whether you could qualify for a loan prior to making an offer, as I've seen these kinds of things blow up. I've received apps in the past where this was the exact situation only for the borrower to not qualify and be stuck. 

What I've had clients do in the past is make an offer without a financing contingency where they tell the seller that they are getting a mortgage to close the deal, but also provide proof of assets to show that they can/will close by liquidating the assets if the loan gets declined. A smart seller/listing agent will likely require a large EMD to tie you to performing on your offer, so be prepared for that.