Q: I have a higher debt ratio because I own a number of properties (3 long-term rentals, my home, and two commercial lots that I am reselling) and don’t want to just use banks and mortgage companies to finance my purchases.

I have good credit and a solid income, but know there is a limit of how many properties I can buy with traditional lending criteria. I have been successful with my investment properties and have a proven track record of success buying and renting out properties.

I don’t want to do fix-and-flips because I have a full-time job and prefer long-term investment strategies.

How can I find other sources of financing? I think the best way is to find private money sources, but I am not sure how to go about it other than just asking people that I know.

A: You’re right; eventually you’ll run out of options with a traditional lender because your debt-to-income ratios will be so out-of-whack that you won’t fall within traditional lending guidelines.

If you’re doing the investment property thing correctly, you’re depreciating your properties against your income. If you own enough property, you’ll show nearly no income on your federal income tax form. No income means you don’t pay any taxes, which is great.

On the other hand, showing no income means it’s difficult to get a regular lender to help you.

One thing you should do is to start looking for a commercial lender who works with small to medium-size investors like yourself. Banks will only take you so far, particularly now when the market is truly skittish about real estate and investors like yourself.

But that doesn’t mean there aren’t some banks or lenders, particularly community banks and some savings and loan institutions, that can help (look for those that portfolio local loans, thus giving them wider lending guidelines). One way to find them is to work with an accountant who handles other real estate investors. Ask for some names and referrals to different lenders. Ask other real estate investors who they use. Join a local investors group and meet the sponsors. Find a good financial planner or an estate attorney and work with them to get to the money people.

Two final thoughts: When you finally find some of these money people, you may find that some of they will only be willing to lend cash to you for credit card interest rates. You might easily pay 18 to 20 percent, per year, for this cash. It’s too expensive long-term to make it work with your investment properties but it might help you get over the hump when you purchase something, and then you can immediately refinance with a more traditional lender.

Last idea: You should explore the idea of having the seller help you finance the property, at least initially. I think that can work, especially now, when sellers are motivated and just want to get out of their properties.

Given that so many sellers are desperate and anxious to move on, I would start there and see if you can come up with two-to-five year seller financing. At the end of that period, you should have enough equity to refinance more reasonably with a traditional lender.

Good luck, and thanks for writing.

Nov. 26, 2007.