09-22-2010 06:13 AM
Hi my situation is this, my husband and I both retired, I'm 55 he is 60 years old. For the past 20 years we could show an income of around 100,000 . We have 401k and annuities until we can collect social security at 62. I receive a pension of 560.00 per month. our assets are above $300,000. I was told we could not qualify for a mortgage because we have no income. Is that right? I have a few blemishes on my credit, we put 3 kids through college. We are small time investors paying cash for our investment properties. is there any way to get financing for investment properties? Even with 50% down? Thanks
09-23-2010 10:26 AM
Thanks for participating in the community, hopefully we can get a response to your question. A quick question, what state or metro area are you in? Often laws are different by state.
09-24-2010 12:18 AM
Good evening Po.
In addition to working with Zip Realty, I own and manage a number of residential income properties in the Los Angeles area and think I may be able to offer some insight and assistance.
When buying an income property there are a few different groupings to consider when thinking about financing the purchase.
In general, a property that is 1-4 units in total will be considered very much like a loan on a primary residence and your income, credit ratings, debt to income levels and the rental income in the units that will most likely be rented are considered by the loan underwriters (the people at the bank checking to make sure it's a good investment for them). The main issue I see you facing with this type of property is that your income level is so low, you don't appear (on paper) to be able to cover the mortgage obligations along with the other operating expenses you'll face like general repairs, vacancy costs, property taxes and insurance. Do you have any other income from pension plans, retirement accounts or your annuities that you can use as evidence of ability to pay?
The path you may find more understandable given you have a large downpayment is to focus on properties that are 5 units and larger. This market is VERY different and is looked at by lenders as a simple math equation. Does the income on the property service the debt payments, operating expenses and cover their backs should a major real estate downturn occur. With you holding a large cash downpayment, you are actually the ideal borrower for this type of property because your cash allows you to reduce the debt costs to the point where the lenders will feel comfortable with the ratios.
Your best bet is to consult with a local mortgage broker and ask them specifically if they can help you with "commercial loans". Not all brokers are versed in this segment of the industry and if you can't find anyone you know, call a local property management company and ask them for a referral. In my business, I am always happy to refer leads to my lenders because me helping them, helps me in the long run. Before you meet with the lender, go over your finances and take a gut check. Do you really want to be a landlord? If the answer is yes, keep going.
Your next step is to see what 5-8 unit properties are selling for in the areas you are shipping and determining what the market rents, overall rental demand and basic metrics like Gross Rent Multiplier (GRM - price divided by yearly rental income) and cap rate (net operating income divided by price) to be able to shop like a business investor. Your goal is to find the best maintained property with the highest CURRENT rents in your price range. Remember that this is a long term investment and buying the least expensive property may mean you are buying one with deferred maintenance and perhaps problem tenants.
Almost all commercial loans will be adjustable loans. Accept this and realize that you will almost always refinance your apartment loan within 10 years as the rents increase and you can cash out money in a refinance (in some cases tax free or deferred).
Do your research on areas, make sure you are aware of the risks and challenges, and jump on in. Being a landlord can be a rewarding part time job.
09-24-2010 12:22 AM
One more thing I wanted to add.
In some areas, a nicely maintained 5 unit property will sell for LESS than a similar 4 unit property with the same rental income because of the challenges that small investors have in financing the purchase with 10%-30% down.
If you are able to come up with 50% down, you will almost always find success (although your cash on cash returns are lower due to less leverage) in finding and acquiring these properties.
Best of luck and should you want to know more about any of these items I've discussed please reply here.
05-09-2011 09:37 PM
It's next to impossible to get conventional(1-4 units) financing in today's market with your set of curcumstances. You should be looking for properties where the seller will help carry the financing!! With 50% down it shouldn't be all that difficult.