NUTS & BOLTS
LONG TERM CREDIT
EXPERT FINANCING STRATEGY #1: CONVENTIONAL FINANCING
EXPERT FINANCING STRATEGY #2: COMMERCIAL BANK FINANCING
Underwriting Somewhat strenuous and based on personal history and creditworthiness When borrowing from a local commercial bank, the character creditworthiness of the borrower is of the utmost importance. Typ cally, the bank loan is less stri gent than a traditional mortgage compa- ny requiring only a tax return, a personal financial statement, and a rent roll on the property (in addition to a personal credit report). However, banks typically charge higher borrowing rates and have shorter amor- tization periods than mortgage lenders. Pro Tip: Having a strong commercial bank relationship is very beneficial for successful long-term real estate investing. Future Borrowing Capacity Limited to bank's discretion or legal lending limit
Guaranty Yes
Traditional mortgage financing for investment prop- erties is almost exactly like standard owner-occupant mortgage financing (i.e., stringent requirements, lots of documentation, high closing costs, fixed rates, long amortizations, etc.). The loans have to conform to Fannie Mae guidelines. Typically, the number of loans an investor may hold is limited to 10 properties, with each house being financed on a separate loan. In addition to the high costs and limitation of 10 actual loans, qualifying for the loan and obtaining a sufficient appraisal are the two primary hurdles for using mortgage companies to finance rental houses.
Key Variables:
Key Variables:
Interest Rate Lowest possible market rate
Term Up to 30 years
Loan-to-Value (LTV) Usually up to 80%
Term Between 5 & 20 years
LTV Up to 85%
Interest Rate Market rate
The Key to SuccessfullyOwning 8,000MultifamilyUnits 6 EXPERT STRATEGIES TO MAXIMIZE YOUR INVESTING ABILITIES, OPTIONS, AND RETURNS.
Underwriting Strenuous and
Future Borrowing Capacity Limited to 10 loans
Guaranty Yes
based on personal creditworthiness
Underwriting Somewhat strenuous and
Future Borrowing Capacity Limited to bank's discretion
Guaranty Yes
based on personal creditworthiness
EXPERT FINANCING STRATEGY #3: HARD MONEY LENDING
by Douglas Skipworth
Hard money lenders primarily lend against the proper- ty. They charge higher rates than banks and mortgage companies but are usually much more flexible with their terms and conditions. Hard money lenders are a great source of capital for foreign borrowers, un-bank- able investors, and less creditworthy borrowers.
Term Short (less than 5 years)
T
he quote "I owe. I owe. It's off to work I go!" is one of the most frequently repeated lines I hear about debt. Thankfully, an early mentor of mine told me that the real best quote about debt is, "Only borrow against income-producing assets." He said it was the secret to his success (and he owns 8,000 multifamily units!). CASH IS KING, BUT CREDIT IS VERY CLOSE Cash is the most effective way to purchase a rental property. It also comes with some big advantages: • Fast closings
• Leverage during negotiations
LTV 50-90%
Although cash is usually the best source of capital to purchase rental properties, most investors use other people's money (OPM) to finance their purchases. Whether you call it leverage, financing, borrowing, debt, OPM, or credit, obtaining funds from another party is the primary means by which investors purchase properties. The distinguishing mark of a credit purchase is that the subject property serves as collateral for a loan (i.e., a Deed of Trust is recorded).
Future Borrowing Capacity Limited to lender's discretion
Underwriting Not personally strenuous since it is asset based.
Key Variables:
Guaranty Negotiable
Interest Rate Well above market rate, the highest of all lenders
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