Here are a few tips on how to find a commercial real estate lender and other ways to get financing if you are denied a home loan.
Q: I have been investing in real estate since late 2009. My business partner and I have accumulated eight single family homes, all held in a limited liability corporation (LLC). These are lower income properties, but our returns have been fantastic.
I have some money set aside and I want to replicate this strategy personally. I am running into a number of problems, and it just so happens that I saw your tweet about investing in real estate. So I thought I’d ask for some help.
Here’s my situation: Many banks and credit unions are instantly turned off because I have so many properties financed as it is. I have had problems getting banks and credit unions to do loans for smaller dollar amounts (say, $20,000 to $50,000).
My wife and I have been fortunate enough to save a substantial amount in our 401(k) and IRA accounts, and wouldn’t mind using that cash for investments. But we’re turned off and worried about the multitudes of the IRS rules in using those funds. I have also considered buying properties in cash, with hopes to refinance and pull equity out, but I keep running into the problem of lenders being turned off by the number of properties I own and the prices I want to pay.
What is someone in my situation to do? Am I just working with the wrong banks? Thanks in advance for any advice you can give me!
A: Congratulations on your real estate investing success. The problems you’re running into stem from the fact that you’ve outgrown the regular residential financing system. Residential mortgage lenders are not equipped to finance your 10th, 20th, or 100th property purchase.
You’ve grown your way into the ranks of commercial lending, but because most lenders have lost money in the real estate world, they are extra careful about financing large scale residential deals these days. The fact that you’ve made money in the past is irrelevant to most of them. Now, it’s all about how the numbers work.
You have two choices: you can start shopping around for a new lender, or you can finance your next round of purchases in cash, using your savings and converting your IRA to a self-directed IRA, which allows you to purchase investment properties as long as you use a third party to make sure you’re on the up and up.
If you start to investigate commercial banks in your area, you’ll want to look at big national banks, regional banks and local banks. You may even find that there is a credit union or two that wants to do business with you. If you look a bit harder, and talk to your accountant and real estate attorney, you might find that they know of investors who’d want to back you in this venture, and loan you the cash you need to cover these investments. They might want some equity, or not, but that would be subject to negotiation.
You’ll find that commercial lenders charge more, and require more in equity, but can create loans that are more flexible. For example, you might be able to combine all of the loans on the 8 properties you own into one big loan – and there are plusses and minuses to doing that, by the way. You might purchase these next 10 properties on your own, and then refinance them to take out 50 percent of the equity to use to finance additional purchases.
What you may want to do is find a commercial loan broker who, along with your real estate attorney, can discuss how the financing might work for these purchases, what your options are and how much it’ll cost. Don’t forget to check in with your accountant, as all of these options are linked to tax consequences.
By engaging in a broader discussion, at least you’ll have some sort of context in which to measure the financing opportunities as you uncover them.
Good luck.
[…] Source: https://www.thinkglink.com/2012/11/23/tips-find-commercial-real-estate-lender/ […]