Heres my situation: Many banks and credit unions are instantly turned off because I have so many properties financed as it is. Ive 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 wouldnt mind using that cash for investments. But were turned off and worried about the multitude of the IRS rules regarding the use of those funds. Ive 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?
A: Congratulations on your real estate investing success. The problems youre running into stem from the fact that youve outgrown the regular residential financing system. Residential mortgage lenders are not equipped to finance your 10th, 20th, or 100th property purchase.
Youve grown your way into the ranks of commercial lending, but because most lenders have lost money in the real estate world, theyre extra careful about financing large scale residential deals these days. The fact that youve made money in the past is irrelevant to most of them. Now, its 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 youre on the up and up.
If you start to investigate commercial banks in your area, youll want to look at big national banks, regional banks and local banks. You may even find that theres a credit union or two willing 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 whod 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.
Youll 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 your next 10 properties on your own, 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 itll cost. Dont 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 youll have some sort of context in which to measure the financing opportunities as you uncover them.
Good luck.
(Ilyce R. Glinks latest book is Buy, Close, Move In! If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. Contact Ilyce through her Web site, http://www.thinkglink.com.)
Tags: Commercial
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