OT: Investment Properties

[Bulldogg31]

Hey guys, calling on your creativity and expertise here.

I bought a rental property in Starkville and have put a good bit of $$ into renovating. It's now finished and rented, and I'd like to pull most of the equity out and move on to the next project.

I've had a couple of lenders tell me they want me to keep at least 20-30% equity in the property, but I'd rather put that cash to work elsewhere.

Any ideas on lenders that will work with investors in this way? I get that they want skin in the game, but in trying to work in volume that's less than ideal.

Thanks for any ideas.

 

[thatsbaseball]

Do you need a new lender or new appraiser ?

 

[karlchilders.sixpack]

Shirley you kid

good luck.

 

[ronpolk]

Banks are required by federal regulations to have commercial real estate loans at least have an 85% LTV, which is why the bank wants you to keep equity in the project. Now a bank can lend more than 85% but it counts against a bucket of loans that the bank is allowed to keep above the 85%. This is obviously a very simplified version of this regulation but all that to say, it’s gonna be hard to find a bank that will allow to you to borrow more than 85% of the value of the property.

Hope that makes sense. I’m in banking and think what you’re doing is great but my only advice would be to make sure you don’t over advance yourself by being too leveraged.

Good luck.

 

[Bulldogg31]

Do you need a new lender or new appraiser ?

Ha! Maybe both. Just looking at ideas before moving forward.

 

[Bulldogg31]

Banks are required by federal regulations to have commercial real estate loans at least have an 85% LTV, which is why the bank wants you to keep equity in the project. Now a bank can lend more than 85% but it counts against a bucket of loans that the bank is allowed to keep above the 85%. This is obviously a very simplified version of this regulation but all that to say, it’s gonna be hard to find a bank that will allow to you to borrow more than 85% of the value of the property.

Hope that makes sense. I’m in banking and think what you’re doing is great but my only advice would be to make sure you don’t over advance yourself by being too leveraged.

Good luck.

Thanks for the reply. One of the great things about this message board is how much I learn from you guys.

85% LTV would be better than what I'm finding that out there. Maybe I need to push for that. Its not a very expensive property, I'm just trying to get a lot of them.

 

[RivaDawg]

Thanks for the reply. One of the great things about this message board is how much I learn from you guys.


85% LTV would be better than what I'm finding that out there. Maybe I need to push for that. Its not a very expensive property, I'm just trying to get a lot of them.

Also, bank may let you have less in if you can put it on a shorter amortization. If you can pay it back over 15 years instead of 20, they may be a little more flexible.

 

[Bulldogg31]

Also, bank may let you have less in if you can put it on a shorter amortization. If you can pay it back over 15 years instead of 20, they may be a little more flexible.

Good idea thanks. Anybody know banks in the Starkville area that are easy to work with? I don't live there.

 

[ronpolk]

Thanks for the reply. One of the great things about this message board is how much I learn from you guys.

85% LTV would be better than what I'm finding that out there. Maybe I need to push for that. Its not a very expensive property, I'm just trying to get a lot of them.

If this is your first rental house, that may be some of the issue you are running in to. Lenders like to see a track record of success but you’ll get there. But if you keep at it, you’ll get what you’re looking for or at least something more favorable.

Some banks are just apprehensive to jump too heavy into real estate. Most banks (even the ones that survived the recession) took heavy losses in real estate and then Dodd Frank made lending to real estate much more difficult.

 

[RivaDawg]

Good idea thanks. Anybody know banks in the Starkville area that are easy to work with? I don't live there.

PM sent.

 

[Junction John]

You might look in the Jackson area banks as well.

Good idea thanks. Anybody know banks in the Starkville area that are easy to work with? I don't live there.

I don't know how many banks there are in Starkville, but I assume the regional banks are there - Renasant, Regions, Bancorpsouth, Trustmark, BankFirst, etc. If they don't help, there are several smaller community banks we've used in and around Jackson.

State Bank
Community
First Commercial
Origin
Southern Bancorp
First Bank
Citizens National
Ouachita
Bank of Forest
Pike County

 

[Bulldogg31]

I don't know how many banks there are in Starkville, but I assume the regional banks are there - Renasant, Regions, Bancorpsouth, Trustmark, BankFirst, etc. If they don't help, there are several smaller community banks we've used in and around Jackson.

State Bank
Community
First Commercial
Origin
Southern Bancorp
First Bank
Citizens National
Ouachita
Bank of Forest
Pike County

This is great thanks!

 

[Bulldogg31]

PM sent.

got it thanks!

 

[She Mate Me]

What you're doing is much more risky than you seem to acknowledge. The reason banks and other lenders aren't going to loan you 95-100% is because they have to keep their risk to a minimum. You're getting the 10-20% return, not them (hopefully).

I have seen so many personal bankruptcies caused by a lack of awareness of the risk involved in out of town rental property ownership. Go slow and build equity in a property or two. Sleeping at night is a good thing.

 

[Bulldogg31]

What you're doing is much more risky than you seem to acknowledge. The reason banks and other lenders aren't going to loan you 95-100% is because they have to keep there risk to a minimum. You're getting the 10-20% return, not them (hopefully).

I have seen so many personal bankruptcies caused by a lack of awareness of the risk involved in out of town rental property ownership. Go slow and build equity in a property or two. Sleeping at night is a good thing.

Good point and understood, thanks.

ETA: I actually have a couple of properties already but they are newer homes. This is the first one we've done a big rehab on and I'd ike to get the equity back out rather than have cash sitting in the property. All the properties cash flow well, and they are all in college towns, which has worked well. I can put multiple renters in a house and they collectively pay more than a single family might. They are hard on a property but that is factored into the rent.

I'm also aware that the bank is taking more risk than I am with a 90+ LTV but they also have more money than I do so I'd rather them carry the risk than me! It may not be possible but I'd like to explore all possibilities.

 

[ababyatemydingo]

Try nugdog on here. He is sixpackspeak’s official mortgage lender. I imagine he can work with you. He helped me out a lot when my wife and I bought our new house in early 2016. He can finance anywhere in the state. Good guy

 

[bsquared24]

I try and leave 20% in for downturns as I think my market in New Orleans is a bit of a bubble but I'm also conservative with that line of thinking. Every market is unique.

 

[BoDawg.sixpack]

It's going to be difficult in this environment

Stocks and the bond market are going through turbulence, and the 30 year is rising. When you have real estate that has reached the kind of valuations we are seeing now and a rising 30 year mortgage banks are going to be even more nervous about breaching 20% LTV.

View attachment 9571

Proceed with extreme caution...

 

[Jeffreauxdawg]

I am in a different market, but be careful. Rental Market is getting a little dangerous. I sold my rentals about 2 years ago.. To fund a business.. I got lucky. Had no idea what was coming.

First.. Everyone is buying again, that alone hurts rentals (not nearly as much in a college town.)

Second.. Too many Rich Dad, Poor Dad's and Lifestyles Unlimited already, now we have every Asian in town using money from the homeland investors. Add in PE funds and the supply of rentals is outpacing demand. There is an apartment boom to boot. There are a dozen houses in my neighborhood for rent... Avg $1750-$2.3k. There are only 3 or 4 for sale for $375-$550k. The old 1% rule (monthly rent is 1% of purchase price) is more like the .5-.7% rule now.

The Asians and PE guys are just parking money until bond rates increase. They don't care about income, bc they have no mortgage interest. Even with management fees, appreciation is good and RE is safe.

Anywho. Check multifamily start permits on the census website if you can. If there is a big bump in multifamily permits in Starkville, that means a lot of apartments are on the way. Check the tax roles and see if you see an abnormal amount of Asian names. If either of these are the case.. sell and take your equity. If you are sure these issues are not coming to Starkville, there are plenty of loans online at higher rates that will let you have lower LTV. Stay away from hard money.

Since you have multiple properties, you should research the portfolio loans. My mortgage guy put me in one and I was at a much better LTV because the risk was spread. Easy to find out west. I had someone tell me that Private Equity groups are quietly trying to get out of rentals and will finance in house for investors buying 5 or more at a time, but that's on the properties they are dumping.. probably the very best sign the rental market is toppy.

I assume you are on biggerpockets.com, but if not you will find more information there than we can ever give.

My advice..

If you have solid remodel skills, don't waste your time on rentals. Sell it. Its a seller's market. Tax advantage will never be better. Yes, there are flippers on every corner, but there are three "passive income" investors on the same corner. Most flippers are trying to do it low risk and fast. Most stay away from the value in older homes because they are scared of something bad.. If you are not, the money can be good.

Rent out new homes with low expenses. Sell the old ones cause **** be breaking.

Knock em dead. I will reach out in 10 years when I need a place for my oldest!

ETA. I wrote this hours ago and just submitted when I hopped back on my phone. Plenty of other good advice and you sound like you know what you are doing.

 

[The Peeper]

I've done 2 real estate deals w/ Cindy Palmer VP of Mortgage Lending @ Cadence. She's top notch, works all the time. I'd be getting emails all hrs of the day and night and she uses e- signature for most everything so it's super convenient. Cadence almost immediately sold both of my loans but nothing you can do about that. My other advice would be open an account at a credit union and establish yourself for a little while then check their rates, much easier to work with than typical banks. I use Statewide Federal out of Flowood but they have a Starkville and Columbus office too.

 

[garddog]

For business loans I have found that Trustmark tends to work a lot harder and more aggressively for me. Not sure who handles the Golden Triangle for them but Doug Daly in Carthage/Philadelphia area is good. Linda Boykin down at Brandon is also top notch.

 

[patdog]

I'd keep at least 20% equity if I were you. Any more and interest rates will go up even if you find a lender to loan you the money. You'll be making less on the property and incurring a lot of risk. It rates go up just a little or the market goes down just a little, you could be in real trouble if you're highly leveraged.