Financing and owning many properties

[scine]

Hello all,

So I've finally gotten around to investing in my first rental property and all is going well. However, I have a few questions about financing and hoped some people on here would be able to help out.

So, according to just about every lender out there, banks will only count 75% of your rents as income towards purchasing the next house.

For example, I make $60,000 a year, have a $1,600 a month mortgage on my home I live in, and would have a rental that rents for $1,000.

So, the banks will only count $750 of that $1,000 a month towards my "income" to qualify me for the next property I purchase.

Thus, it seems like it would be harder and harder to get financing as you accumulate properties.

So, my question is how do you get around this? I'd love to be able to pick up say 10-15 properties over the next 3-5 years, but it seems like that is very unlikely, unless I can figure some way around this issue.

Secondly, I keep hearing people talk about hard money loans to purchase my properties, then immediately refinance them with a normal bank. Is this a good strategy, and would it work around the 75% issue?

I have about $25,000 in cash at the moment, and have found a property listed for $135,000 and I offered $110,000. The seller accepted and now we're waiting for bank approval (short sale).

Any and all tips would be greatly appreciated. My goal is to have about $3,000-$4,000 a month in cash flow within 3-5 years.

This plan has been a long time coming, and now it's almost here!

Thanks in advance for all your advice.

 

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[bflbob]

I'd stay away from Hard Money, except to pick up a super deal that you can flip or refi quickly.

Hard Money usually comes with terms like:

18% interest
6 points
Due in full in 6 months

 

[Kak]

In this market it shouldn't be very hard to keep rental property occupied. Hope the bank comes through for you!!!

Im about 3 years out but I will be going after condos.

Im going to buy a whole floor and rent out 75% of the units as apartments and the other 25 percent as short term vacation rentals with a management company that takes care of the place. Hopefully FLs real estate market still sucks then or i am going to have to restratagize.

 

[CEBenz]

Start looking for owner financing where possible. That's how someone I know just picked up a lake front property.

 

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[Chitown]

Scine,

You want to look for portfolio lenders -- small community banks, credit unions, etc -- who "hold their own paper". These are banks/financial institutions who keep the loans they make for their own portfolios, as opposed to the circle jerk money center bankers who underwrote "liar loans" because they were never going to hold the paper on their books.

When you hold loans in your own portfolio, sound underwriting guidelines are a must, therefore the banker is going to take an interest in you as a person, as well as your credit profile. Speaking of credit, these banks are concerned primarily with the cash flow thrown off by the property being considered. FICO may enter the picture but will not be the overriding concern. "Will this property comfortably cash flow sufficiently to service the loan I'm thinking of making?" That's the question these bankers will ask themselves, among others.

In addition, portfolio lenders are not bound by Fannie Mae underwriting guidelines. As a result, they can be a lot more flexible in how they structure loans for their clients. A good way to identify these types of institutions is to take note of construction sites. Examine the name cards that list all the companies involved with that particular project. 9 times out of 10 you'll see ..."Financing Provided By (Insert Bank Here)". That will be your target bank.

I wish you well in your endeavors.

 

[DeletedUser2]

Hard money is good only if its a killer deal you need to close fast.

I do hard money with only a select few investors that I have known for years.
my prices are 18%
10 Points,
50% LTV (up to 65% sometimes)
and on rare occasions, and equity piece.

so I am on the expensive side. and yet my investors keep me out of money, because they still find deals like that

your best bet, is to learn how to do owner finance. master that one skill and it could push you really far.
I bought up over 250 apartments in 2.5 yrs with no money, and no bank. all owner finance.

btw, banks are now putting limits of 4 rental properties at a time on people. so even if you get 75% financing, you can only have 4 loans (besides your personal residence) via banks. after that, you get a "no" with no real explanation.

Portfolio lenders are awesome, if you can find them, but even small community banks, are having a hard time with to much risk in 1 person, in to large a portfolio compared to their assets (check FDIC.GOV for the banks finances, and see if you would overwhelm their asset base, or their loan loss coverage) even though they are not bound by fannie and freddie guidelines, they are bound by the FDIC on loan loss, and risk profiles. (to many eggs in 1 basket type of thing)
If your going to acquire single family, then learn the owner fiance models.

if your going to acquire apartment complexes, its a totally diff ball game, and then your in commercial lending. but that's diff.

the biggest thing, is advertising via word of mouth. I used to tell everyone i bought houses, and bring me one, and I will pay a referral fee. I used to pick up 10-12 houses a year, with out even trying, and with advertising, (except word of mouth) all zero down, owner fiance properties. then I would rent them out, but mostly I would owner finance them, so i didn't have any repairs to do, no taxes to pay, and they carried the insurance

hope that helps

 

[Runum]

Scine,

You want to look for portfolio lenders -- small community banks, credit unions, etc -- who "hold their own paper". These are banks/financial institutions who keep the loans they make for their own portfolios, as opposed to the circle jerk money center bankers who underwrote "liar loans" because they were never going to hold the paper on their books.

When you hold loans in your own portfolio, sound underwriting guidelines are a must, therefore the banker is going to take an interest in you as a person, as well as your credit profile. Speaking of credit, these banks are concerned primarily with the cash flow thrown off by the property being considered. FICO may enter the picture but will not be the overriding concern. "Will this property comfortably cash flow sufficiently to service the loan I'm thinking of making?" That's the question these bankers will ask themselves, among others.

In addition, portfolio lenders are not bound by Fannie Mae underwriting guidelines. As a result, they can be a lot more flexible in how they structure loans for their clients. A good way to identify these types of institutions is to take note of construction sites. Examine the name cards that list all the companies involved with that particular project. 9 times out of 10 you'll see ..."Financing Provided By (Insert Bank Here)". That will be your target bank.

I wish you well in your endeavors.

This is true. The first deal you do with them will be your toughest. After you have proven that your deals will cashflow and they are viable each deal becomes easier.

Also, this has worked for me 100% of the time, when you present a property for financing build a presentation. I buy a decent folder from an office supply store. On the left side I put all the stuff I am currently doing and how it is cashflowing. I include my history of my business and I include the bank's required financial statement. I make spread sheets and show(vacancy rates, cashflow) the not so good and the great. I explain why things were not so good and how we survived.

On the right side I include details about this deal and how it will fit into my business model. I include pictures and every fact I can gather about the place. I will get a CMA from a realtor and include that. I include a statement of property tax and an estimate of insurance. Also, include spreadsheets about this property's income projections based on best and worst case scenarios. I want to answer every question the banker would have before he asks it. I am showing him how important this is to me and my commitment to the deal.

I print it all up in color, put it into the folder( a bright red one), and present it to him when I make my pitch. You should see his eyes light up when he sees all the info I provide. It makes him look good to his boss and it greases the wheels significantly.

Good luck.

 

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[Runum]

Also, if you are looking just for cashflow you may look into MH on land. Try this on... 2005 double wide, nice, on acre. $30,000 asking price, $28,100 accepted price. Bank to finance 75% for 15 years at 7%. I am out of pocket $7000. It needs about $2000 in touch up repairs. So now I'm in $9000. The loan payment ~$197/month. The insurance is $30/month and the Texas property taxes are $100/month(uggh). It will rent for $800 to $850 and, best of all, the CAD appraises the property for $62,000. Essentially this property will cost me $330 a month + $50/ month maintenance = $380/month. Net is $420 per month and I could sell it to own, rent it out, whatever. $420/month is $5040/year. I would be completely out in less than 2 years and moving on.

The down side to the deal is there will be no appreciation. But you said you wanted cash flow. With $25,000 you could do 3 of these deals and bring in $1200/month($14,400/year). That $14,400/year would get you at least one more deal. That would make 4 deals and $1600/month in one year.

It's just a strategy but I do know it works. Good luck.

 

[scine]

Also, if you are looking just for cashflow you may look into MH on land. Try this on... 2005 double wide, nice, on acre. $30,000 asking price, $28,100 accepted price. Bank to finance 75% for 15 years at 7%. I am out of pocket $7000. It needs about $2000 in touch up repairs. So now I'm in $9000. The loan payment ~$197/month. The insurance is $30/month and the Texas property taxes are $100/month(uggh). It will rent for $800 to $850 and, best of all, the CAD appraises the property for $62,000. Essentially this property will cost me $330 a month + $50/ month maintenance = $380/month. Net is $420 per month and I could sell it to own, rent it out, whatever. $420/month is $5040/year. I would be completely out in less than 2 years and moving on.

The down side to the deal is there will be no appreciation. But you said you wanted cash flow. With $25,000 you could do 3 of these deals and bring in $1200/month($14,400/year). That $14,400/year would get you at least one more deal. That would make 4 deals and $1600/month in one year.

It's just a strategy but I do know it works. Good luck.

Honestly, I didn't think about a mobile home on property. I always thought that it wouldn't work because people would think it was "cheap" or "beneath them". But I will take a peek and see what's out there. Thanks for the tip! I'm also going to do some searching around for owner financing to see about getting around the 75% rule. Basically, I want to be able to fire my boss in 3 years or less.

 

[DeletedUser2]

oh I made a ton of money on mobile home, land based, even in parks. they are one of my faves for cash flow fast.

bought one 7K in a park, sold it for 23K the next day, she put 3K down at 360 a month, for I don't remember how many years. but just paid me off about 4 months. ago. I LOVE LOVE LOVE me some trailers, on land or parks. and just because YOU wont live in one, doesn't mean there isn't a HUGE portion of people who will.

I agree, I think that's one of the best cash flow models for what your doing and for your limited cash.

PS. I always sell on a note, or chattel (depending on the state) so you don't have the fix up costs... THEY do.

PSS. Lonnie Scruggs has the best book out there on mobile if you ask me.

 

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[scine]

oh I made a ton of money on mobile home, land based, even in parks. they are one of my faves for cash flow fast.

bought one 7K in a park, sold it for 23K the next day, she put 3K down at 360 a month, for I don't remember how many years. but just paid me off about 4 months. ago. I LOVE LOVE LOVE me some trailers, on land or parks. and just because YOU wont live in one, doesn't mean there isn't a HUGE portion of people who will.

I agree, I think that's one of the best cash flow models for what your doing and for your limited cash.

PS. I always sell on a note, or chattel (depending on the state) so you don't have the fix up costs... THEY do.

PSS. Lonnie Scruggs has the best book out there on mobile if you ask me.

I'm of the notion that there's no such thing as a stupid question; So I have a stupid question. What does "sell on a note" mean? Thanks in advance!

 

[DeletedUser2]

I bought the house, or property,
sold it carrying the note like I was the bank.
they paid me

360 a month, at 12.5% for 8.75 yrs years.

I collect the money like a bank.

pay no taxes, fix no toilets, don't touch the house.

when was the last time the bank stopped by your house to check to see if you had broken windows, or leaky sinks?

if you act like the bank, less headache. and you can outsource the management of the note, for 7-15 bucks a month.

 

[scine]

I bought the house, or property,
sold it carrying the note like I was the bank.
they paid me

360 a month, at 12.5% for 8.75 yrs years.

I collect the money like a bank.

pay no taxes, fix no toilets, don't touch the house.

when was the last time the bank stopped by your house to check to see if you had broken windows, or leaky sinks?

if you act like the bank, less headache. and you can outsource the management of the note, for 7-15 bucks a month.

Oh I see. So when you go to sell a place, you offer to carry the contract instead of just outright selling it through a bank or what have you?

 

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[DeletedUser2]

Oh I see. So when you go to sell a place, you offer to carry the contract instead of just outright selling it through a bank or what have you?

Yep.
a NOTE.
here is my experience. I can sell a note in 3 days. I cant sell a house that fast usually. so the paper is more liquid to me than the house.

I get a great ROI and my money keeps from being lazy.
I get income, and cash flow, FAST but never have to fix anything.

I can trade the paper for other things, but its harder to trade a house.
I made money on the buy side, so I don't care about appreciation.
I paid cash for it, so I don't have debt to diminish my cash flow.

I maximized the value by adding "financing" that they couldn't get from a bank because the banks are picky, but people still need places to live. I get to charge all the fees, and more that they would expect to pay to the bank, but goes to me instead increasing the price.

hope that helps

 

[scine]

Yep.
a NOTE.
here is my experience. I can sell a note in 3 days. I cant sell a house that fast usually. so the paper is more liquid to me than the house.

I get a great ROI and my money keeps from being lazy.
I get income, and cash flow, FAST but never have to fix anything.

I can trade the paper for other things, but its harder to trade a house.
I made money on the buy side, so I don't care about appreciation.
I paid cash for it, so I don't have debt to diminish my cash flow.

I maximized the value by adding "financing" that they couldn't get from a bank because the banks are picky, but people still need places to live. I get to charge all the fees, and more that they would expect to pay to the bank, but goes to me instead increasing the price.

hope that helps

Actually that helps me out very much. I haven't bought my first place yet, and am going through the normal channels to do so (bank, realtors, etc.) But just even with a minor search online for owner financed properties, it shows I could make a lot more money, have less out of pocket, and it looks like an easier way to go. Thanks for all the tips! You're my new best friend.

 

[DeletedUser2]

Thanks!

 

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[Bozigian]

I been looking online at some mobile parks for like 20-30g.

Say you had all cash and money in your hand.

I dont know if this may sound dumb but is it better if someone had full cash and bought a mobile home without bank financing?

Like if I was going to buy a mobile for 20g and I had 20g in my pocket, should I buy it with all cash?

Or should I get some bank financing?

 

[PrincessK]

Thanks so much for this !! I get it . I purchased a program on notes basically creating notes for cash and you just gave me a great example of becoming the bank - and how selling paper is easier . The only part I dont get is how you dont have to fix anything if you are basically a landlord do you tell the tenants they are responisble for repairs in the lease agreements or do you just hire a management company ?


Sincerely

PrincessK

 

[Runum]

The only part I dont get is how you dont have to fix anything if you are basically a landlord do you tell the tenants they are responisble for repairs in the lease agreements or do you just hire a management company ?

If you are the landlord, repairs are generally your responsibility but can be negotiated. Bottom line it is still your property.

If you sell on payments or lease to own, you are creating a mortgage and you are the bank. The repairs are the buyer's responsibility.

 

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[PrincessK]

Okay than ks so much for responding to my post ! I am learning a lot !

 

[CEBenz]

Runum and zen******* just laid out a pretty solid groundwork. I know it's solid because I know someone else who does pretty much exactly what they mentioned and I'd actually forgotten all about it until it was mentioned in this thread.

@ Boz
Honestly, I'd see if I could find something noticeably below market. If the deal you're talking about is a below market deal and you think you could turn around and sell it at a noticeable profit, by all means go for it. I don't remember for sure, was it on land? Or was that without land? Without land, figure out how much you could turn it for.

Speed and thanks to both Zen and Runum.

 

[DeletedUser2]

just ask anyone with a mortgage, when was the last time the bank stopped by your house to check to see if there were any leaks.


I like being the bank. the only checks I do are the ones I cash every month

 

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[Bozigian]

@ Boz
Honestly, I'd see if I could find something noticeably below market. If the deal you're talking about is a below market deal and you think you could turn around and sell it at a noticeable profit, by all means go for it. I don't remember for sure, was it on land? Or was that without land? Without land, figure out how much you could turn it for.

Well it was at a website. All the mobile homes for sale were on land. Like a mobile home park. The cheapest one I found was 19g. However, I can no longer find the website. Damn Me.

I am wanting to buy a mobile home all in cash and rent it out.

But I do not know if mobile homes will depreciate in monthly rent since mobile homes do not appreciate right?> Only houses do, I think appreciate

 

[Runum]

Well it was at a website. All the mobile homes for sale were on land. Like a mobile home park. The cheapest one I found was 19g. However, I can no longer find the website. Damn Me.

I am wanting to buy a mobile home all in cash and rent it out.

But I do not know if mobile homes will depreciate in monthly rent since mobile homes do not appreciate right?> Only houses do, I think appreciate

The mobile will not appreciate. But it will depreciate on your taxes. If you buy it right it can be a cash cow. If you overpay it can be an albatross. You might try this out:

Homes for Sale/U.S. Department of Housing and Urban Development (HUD)

 

[bflbob]

Well it was at a website. All the mobile homes for sale were on land. Like a mobile home park.

I think the 'land' they are speaking of is land you are buying. If you are in a mobile home park, you rent the land.

While you can do Lonnie Deals on MH's in parks, owning and selling them on plots of land (as opposed to lots in a park), means you are selling a total package -- home and land.

As I recall, Lonnie's book doesn't speak too much on owning and selling the land, but it sure does make sense. And you don't need to deal with MH park managers, etc, then either.

 

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[Rickson9]

I been looking online at some mobile parks for like 20-30g.

Say you had all cash and money in your hand.

I dont know if this may sound dumb but is it better if someone had full cash and bought a mobile home without bank financing?

Like if I was going to buy a mobile for 20g and I had 20g in my pocket, should I buy it with all cash?

Or should I get some bank financing?

That is a personal question.

I would purchase with all cash because I don't like to be beholden to anybody.

Others would use bank debt to boost their return on investment.

It's a trade off that is based on personal preference.

Good luck and best regards.

 

[Bozigian]

Okay, I finally found the link. Thank goodness.

52 Manufactured and Mobile Homes for Sale or Rent near 91706

What do you guys think?
On the listings I dont see anything about land. Just the mobile home, but then again. Im a newbie.

Is this a good start to get feet wet?

 

[Runum]

Okay, I finally found the link. Thank goodness.

52 Manufactured and Mobile Homes for Sale or Rent near 91706

What do you guys think?
On the listings I dont see anything about land. Just the mobile home, but then again. Im a newbie.

Is this a good start to get feet wet?

All of those look like they are in mobile home parks. All of them appear to be asking retail price.

Some MHP do not like investors working in them. Some will let you buy and sell but not rent them out. Some will let you rent them out. If you are going to begin dealing with MHP's you need to get to know what each park will and will not allow you to do.

I do not think any of these MH's on your website are motivated sellers but you can call them to find out. You ask them about the condition of the MH. You ask them why they are selling and when it needs to be sold. You ask them if there are any outstanding liens, lot rents, or taxes on the MH. You want to make sure they have clear title to the MH. Then you can go by and take a look if it sounds promising.

While you are there you want to learn how to haggle. You are looking to verify everything they told you on the phone. You also want to find anything wrong with the MH right now. You are looking for evidence of roof leaks and soft floors. You want to check all the electrical and plumbing things you can. You want to see what kind of HVAC they have and if it is working.

After you have gone over the property you need to begin leaving and acting kind of disinterested, indifferent. Don't make an offer if you can help yourself. Try to make him tell you what he will take for it. Even then, unless its a killer price you need to give him your card, thank him for his time, and nicely leave. Write down everything about the place because he may call you back soon with a better price.

Oh yeah, you do not want to have to move a MH, ever. It is expensive and will eat your profits.

You need to be clear on what this MH will do for you and how you are going to manage it. Then you also need to know how you will get rid of it. Plan, plan, plan. Your first deal will not be your best deal. You will look at a whole bunch of them before you will make a deal. That is good, you will learn the market.

Take lots of notes, written or on voice recorder. You will look at so many houses you will get them confused. Take lots of digital pics. Take a flashlight and tape measure. Wear work clothes. Drive an older car. Look like a tired working man.

I will not buy anything with less than 3 bedrooms in it any more. It's just my market, it is hard for me to rent anything out with less than 3 bedrooms. Your market may be different.

Look on the HUD website for mobiles on land. Usually they are on an acre of land or more.

Questions?

 

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[Bozigian]

Omg. It all sounds hard and I got information overload.:coco:


Is investing in mobile homes good for monthly cash flow models?
Dang, I still have a lot to learn. HAHA

 

[Runum]

Omg. It all sounds hard and I got information overload.:coco:


Is investing in mobile homes good for monthly cash flow models?
Dang, I still have a lot to learn. HAHA

It's hard in the beginning. That is why you practice many, many times before you take the plunge.

After you buy it, then comes a bunch of new lessons. Kinda like chasing a wildcat. Chasing is one thing, catching and holding is a completely different set of skills.

Your first one is exhilarating and scary at the same time. I literally slept with my phone, on, beside my bed every night for a while. Always expecting a late night call. They never came. All the boogie man stories didn't come true. They still may come true one day, but my phone won't be on until the morning.

Yes MH's are great for cashflow.