The Entrepreneur Forum | Startups | Entrepreneurship | Starting a Business | Motivation | Success

REAL ESTATE question high debt/income ratio

quynn

PARKED
Nov 2, 2007
19
0
10
51
Hello Everyone,

I am new to this forum. I have 7 single family properties. I am trying to buy more properties, however the problem I am running into, is high debt/income ratio. I have great credit. I hear this problem is because of the new laws on lending. I have about 175,000 in equity in the 7 properties. Any suggestions?
 

Don't like ads? Remove them while supporting the forum. Subscribe.

JesseO

Contributor
Jul 25, 2007
548
31
33
Phoenix, AZ
Hey Guy,

I would recommend rolling your 7 SFH's into one multifamily unit. They don't look at your debt so much as the property that you are trying to buy. Commercial properties have many advantages over residential ones. I would ask Diane and Steve some questions on how to channel your widespread property ownership into one or two commercial properties. Best of luck =)
 

biophase

Legendary Contributor
EPIC CONTRIBUTOR
FASTLANE INSIDER
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Jul 25, 2007
6,696
30,261
5,083
Scottsdale, AZ
Hello Everyone,

I am new to this forum. I have 7 single family properties. I am trying to buy more properties, however the problem I am running into, is high debt/income ratio. I have great credit. I hear this problem is because of the new laws on lending. I have about 175,000 in equity in the 7 properties. Any suggestions?

Are these SFH's worth around $80k each or closer to $200k each? My first impression without knowing what they are worth is that you LTVs would seem pretty high.

Also, are they all cashflow positive?
 

Russ H

Gold Contributor
Read Millionaire Fastlane
Speedway Pass
Jul 25, 2007
6,556
1,289
381
58
Napa Valley, CA
Also, are they all cashflow positive?
Yeah, that was my first question.

But Jesse is right-- time to trade up the green houses into red hotels (or apt buildings) :)

-Russ H.
 

MJ DeMarco

Administrator
Staff member
EPIC CONTRIBUTOR
FASTLANE INSIDER
Read Millionaire Fastlane
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Jul 23, 2007
29,187
100,483
3,751
Fountain Hills, AZ
I have nothing to add about your situation, but just want to say welcome!:Welcome:
 

momoneyj

PARKED
Nov 2, 2007
3
0
9
Hi,

Something you can do is have people sign on to debt for you. It has to be good friends and family only as there is a huge trust factor involved here. If you can get a couple more debt signers you should be able to pick up maybe 5 houses in each of their names (maybe more). You will be surprised at who will do that when you ask. You can give them $2000 for signing immediately upon closing, and then when you go to sell the house give them a chunk of the profit. You'll have to negotiate whatever you think is best for you, but that's how I generally set it up with my debt signers.

You can also split houses with people that you know. Be careful here, because it can be looked at as selling securities. Hopefully all these houses you are buying provide positive cash flow..if so, you sell your idea to people living in areas that can't find positive cash flow on investment properties (New York, California, Miami, etc)..This is how it looks..you find a house that is a great deal, you get your friend or whoever to buy it..because you found the deal and will handle all property management..You haven't dipped into your pocket at all...The loan will be in their name, but you will rerecord the deed in your business name that you have created with this individual..you will also have a Joint Venture agreement saying that you own the house 50-50..from this point on you split all the proceeds and losses..but to get into half the deal..you are in with someone elses money..and credit. This is still best done with people you know.

That's my 2 cents. Hope it helps.

Jeff M
 
OP
OP
Q

quynn

PARKED
Nov 2, 2007
19
0
10
51
Thanks for all the responses. I need to talk to Steve O. on how to convert. These are the numbers: Owe: 60,000 Worth: 89,000(on 4 of the houses), Owe 300,000 Worth: 340,000, Owe: 200,000 Worth: 225,000 Then I live in one that we just bought for 355,000. We have a 80/20 loan-not the best. I make cash flow on the first four. The second was our primary residence until June. Because of the market, we decided to rent it instead of selling. We loose 100 a month. The last house is loosing 400 a month because we have tapped into the equity.
 

AroundTheWorld

Be in the Moment
Speedway Pass
Jul 24, 2007
2,909
1,865
550
.
Ideas to Ponder:

1) To trade up: You've got a total value of 921,000. Deliver the houses, free and clear to an apartment, or commercial seller as a down payment. How do you deliver them free and clear? You borrow the money you need to pay off your loans and secure that debt to the new property. Because your total equity is about 180,000 it might be tough to cashflow it - but could work if you find the right deal.

Say you find a 3,000,000 property. You borrow 1.8M. (at this LTV, you probably need to do an owner carryback)... w/ that money you pay your 740,000 in debt, deliver the houses to the seller, and the rest of the loan $ goes to the seller. You are now in your red hotel.

2) Time to form partnerships.... you supply knowledge, work, and/or cash - they supply credit.

3) Look into land trusts. You can control the property, enjoy the cashflow without using your own credit
 
OP
OP
Q

quynn

PARKED
Nov 2, 2007
19
0
10
51
okay- Seller will take my houses as a down payment. Does this happen often? You offer your houses free and clear plus money down.
 

SteveO

Legendary Contributor
EPIC CONTRIBUTOR
FASTLANE INSIDER
Summit Attendee
Speedway Pass
Jul 24, 2007
3,618
14,636
2,804
Don't make a move until you have fully researched your direction. I agree with the idea of exchanging into apartments. There are plenty of people that have jumped in head first to find that there are challenges. I know because I buy from these people.
 

SteveO

Legendary Contributor
EPIC CONTRIBUTOR
FASTLANE INSIDER
Summit Attendee
Speedway Pass
Jul 24, 2007
3,618
14,636
2,804
If you were able to sell all the properties within the acceptable time to do a 1031 exchange, would you still have the same equity?

I have never been a fan of buying houses and exchanging them for hotels because of the challenges. It is still doable though. Once you get into the commercial side, and with the proper planning and execution, your wealth can explode a lot faster than the single family route.

Perhaps you could figure another way to put some money together to get started or maybe sell some of the houses.

ATW has a great idea for making a purchase. I would expect that the seller of the apartments would want a discount for the trouble. You would need to find a seller that intends on cashing out and not exchanging. It will limit your potential deals.

Unencumbered deals for the seller will always get you the best price. It is difficult to get both terms and price.
 

Don't like ads? Remove them while supporting the forum. Subscribe.

traderjphx

New Contributor
Aug 30, 2007
43
3
12
Phoenix, Az
Have you investigated a blanket mortgage? I have not used them, but a friend did. They rolled eight houses under one mortgage. They had enough equity to do this, their lender went to a max of 80% of the combined Market Value. This was before the sub-prime mess though. Be sure they allow you to sell off each property individually if you have to.
 

AroundTheWorld

Be in the Moment
Speedway Pass
Jul 24, 2007
2,909
1,865
550
.
okay- Seller will take my houses as a down payment. Does this happen often? You offer your houses free and clear plus money down.
ATW has a great idea for making a purchase. I would expect that the seller of the apartments would want a discount for the trouble. You would need to find a seller that intends on cashing out and not exchanging. It will limit your potential deals.
Going this route will limit the deals you can do.... as it will depend upon the seller being willing to work with you. Having said that, there are a number of reasons a seller may want or be willing to do something like this.... perhaps they are in a partnership and the partnership needs to split. The seperate houses would allow this. Perhaps they are "down and out-ers" that are wanting to retire.... and ultimately just looking for the cash.

If you would be serious about this route - find an active exchangor to work for you.
 

biophase

Legendary Contributor
EPIC CONTRIBUTOR
FASTLANE INSIDER
I've Read UNSCRIPTED
Summit Attendee
Speedway Pass
Jul 25, 2007
6,696
30,261
5,083
Scottsdale, AZ
Another question I have is, what would your profits be if you sold outright? It may not make sense to even do a 1031 exchange on some of these.
 

andviv

Gold Contributor
FASTLANE INSIDER
Read Millionaire Fastlane
Summit Attendee
Speedway Pass
Jul 27, 2007
5,419
2,185
625
Washington DC
As of now, the tax rate is 15% if you've owned the property or more than a year. Bio may be onto something... just selling, paying a low tax rate on the gains and then moving to the next deal may be an alternative to consider.
 

Create an account or login to comment

You must be a member in order to leave a comment

Create account

Create an account on our community. It's easy!

Log in

Already have an account? Log in here.


Fastlane Insiders

View the forum AD FREE.
Private, unindexed content
Detailed process/execution threads
Monthly conference calls with doers
Ideas needing execution, more!

Join Fastlane Insiders.

Top Bottom