How to Finance
Your Next Property Purchase:
An Overview

Krista Reuther:

All right. Well, thank you for joining us for today’s webinar. We are going to talk about how to finance your next purchase. My name is Krista Reuther. I am the Senior Content Marketing Writer here at TurboTenant. And today I am joined by Grayden Guilford. He is the Vice President at Pinnacle Bank. Great. And if you’d like to introduce yourself, maybe talk about your experience here for a sec.

Grayden Guilford:

Yeah. Thanks, Krista. I’m over here in Central Valley in Prescott, Arizona. We’re about commercial lending. We do a lot of retail. I’m no expert on small to medium size multifamily, but maybe two dozen projects or so that we worked on that grew in our office over the last year and a half. Thanks again to TurboTenant and Krista for having me on.

Krista Reuther:

Fantastic. We’re so glad to have you. So at the very top, I should tell you a couple of things. One, we are going to go ahead and record this webinar for you. We will send it out with a link to the deck as well. So don’t feel like you have to take serious notes as I speak. Additionally, feel free to use the chat and Q&A functions to ask questions as we go along.

Krista Reuther:

We will plan to address most questions at the very end of our presentation, so feel free to stick around to hear that discussion. Additionally, at the very end of our meeting today, you’ll see a survey where you can vote on what we discussed next month. We would love to hear what you’d like us to talk about. We are here for you, so tune in to that to make your voice heard.

Krista Reuther:

And lastly, if you are in Prescott, Arizona, or you’re just interested in learning more from Grayden, gleaning his expertise, we will have all of his contact info at the very end of the presentation as well. So like I said, you’ll be able to access that through the link we set out and you can also take a note if you’d like to contact us sooner.

Krista Reuther:

He has graciously agreed to chat with folks who are looking for community bank expertise, portfolio loans, etc. All right. So let’s go to your property management empire. Today, we’re going to discuss whether or not you should purchase property right now given the economy. How to find a lender who meets your needs and then we’re going to go over six financing options you should consider.

Krista Reuther:

And we have that a range where, you know, whether you are a prospective landlord, you’re excited to get into this game, but you haven’t quite taken the pledge or you’re very experienced. We’ve got something for you within those six options, so do stick around. But before we jump in, we do have a quick poll for you. We are curious about whether or not you’re planning to purchase property this year.

Krista Reuther:

So please feel free to post. We’ll give you a minute or so to get your places in there.

Krista Reuther:

It’s always fun to get to watch this live because all of the answer shifts. The percentages change. I won’t spoil the surprise since we’re only 24 seconds in, but so far we’ve got quite a mix of the property. Right. And I’m going to give you about ten more seconds. Looks like many folks have participated. If you haven’t yet, it’s a click away.

Krista Reuther:

If you prefer to be mysterious, I cannot stop you. Don’t worry. There’s something here for you to check. All right. So how exciting. It looks like most of you are looking to purchase property this year. That’s fantastic. We’re really excited to share these tips with you. And if you’re saying no or you’re not sure that is okay, what we’re going to discuss today doesn’t need to be implemented tomorrow.

Krista Reuther:

You can take stock of this, go back to your lender and really explore your options when it feels right or when you’re more comfortable with the market. All right. So let’s go over that first question. Should you purchase property right now? The answer is yes. But with a couple of caveats. You don’t want to have to be reliant on the cash flow from the property immediately.

Krista Reuther:

Really should consider these purchases as long term investments and additionally, if you have a hard debt like a high interest credit card, now is probably not the best time to secure the lowest rate in terms of financing the property. But if you are comfortable, if you’re not going to be reliant on the cash flow immediately and you have low debt or soft debt, this could be a really great time to snag some property.

Krista Reuther:

So why now? Well, couple of reasons. Housing is a basic need. Residential real estate is typically a stable investment because housing is a basic need, and current economic conditions are not the same as they were when the dot com bubble burst. So specifically, Mark Zandi, chief economist at Moody’s Analytics, says overvalued housing markets could see home prices drop 5 to 10% over the next 12 months, while the national home price growth flatlines.

Krista Reuther:

Given the economic shock caused by spark spiking mortgage rates, meaning that this could be a good time to pay attention to your local market and grab a house or a property that you otherwise couldn’t reach before, or that you might get a better deal on. As the rates flatline. Hopefully, along with that price growth.

Grayden Guilford:

I just wanted to add this. I think there’s potential for a good deal in any market environment, and lots of customers have had great success through 2008. Thereafter, just wanted to highlight that we want to prioritize cash flow and value add or speculative appreciation. You can control your cash flow in value out of much easier on the market.

Grayden Guilford:

Those other kind of more speculative activities.

Krista Reuther:

Fantastic notes. Absolutely. So if you are looking to invest now and you don’t currently have a lender who meets your needs, this is a great time to consider what you should look for. Great. And what do you think?

Grayden Guilford:

I think it’s common when you’re looking for a lender to look at interest rates. That’s the easiest kind of metric to go off of when you’re searching online or getting quotes. While interest rates are important, I think it’s also crucial to consider how responsive your lender is, whether you’re a priority for them. You call themselves quickly in this industry and in this market.

Grayden Guilford:

So whether you’re submitting offers or trying to get quite close to make your offer more competitive, working with a letter to work quickly with you again, make you a priority is going to be key.

Krista Reuther:

Absolutely. And when it comes to finding a lender, you can use your network if you have other property managers in your life, in your professional spaces, check in with them to see if there’s a lender that they like. Alternatively, if you’re not quite, you know, plugged into that social sphere, look, people up on Google, look up a few lenders and then hone in on some candidates.

Krista Reuther:

That’s great. And what would you recommend in terms of testing their responsiveness over the course of a month?

Grayden Guilford:

Yeah, I think it’s good to group up maybe three or four lenders. At least give them a call, let them know what you’re looking for from the terms you’re looking for, the type of property and this kind of problem for how quickly they’re getting back to you and how they can help. Usually the first one to get back to you can make you a priority over the rest of them.

Grayden Guilford:

Fantastic use of that personal touch. Somebody that’s maybe willing to have one with you, somebody that gives you their cell phone number so they’re immediately available.

Krista Reuther:

Oh, yeah, that’s very important, too, is considering how they’re willing to talk to you and what that kind of responsiveness looks like. Didn’t at the end of the day, you really want to find a lender that you can be completely transparent with. So don’t underestimate the importance of getting to know them on a professional level and really what it should boil down to.

Krista Reuther:

It’s asking yourself the question If times are tough, will this professional simply send me a demand letter? Or they’re going to talk to me directly trying to figure out a best solution for me.

Jonathan:
And sorry, let me jump in here. We’ve had a few people in the chat point out that Grayden’s microphone sounds a little distant. I don’t know if there’s a different one you can use closer to you as we test out. Is that any better? That sounds about the same. If you want to keep testing.

Grayden Guilford:

Is that still pretty echoey?

Jonathan:
Yeah. Some people are saying they can hear fine. Yeah, I think we’re okay. Sorry to interrupt.

Krista Reuther:

No worries. Good looking out chat. We want to make sure you get all of this good information, so thank you for checking it. Okay. Hopping back into it. Big banks versus community banks. Great. What can you tell us?

Grayden Guilford:

Yeah, of course. I’m biased as part of a community bank here, but I want to say there’s nothing wrong with big banks have excellent online tools, nationwide associations and branches just about everywhere is a crazy stat. But against Chase, JP Morgan Chase has more technologists, programmers and so on than Facebook and Twitter combined. So tough resources versus going out to the online platforms of something that’s hard core community banks to compete with.

Grayden Guilford:

On the other hand, though, community banks to be more of a collaborative, hands on approach. Specifically, have yourself a number of opinion on whether deals can be financed in rough terms, things like that. You have the three established. It’s also an advantage to have a underwriting closing excited in those cases. Another aspect of the community banks are more involved in the community is much more imperative on your efforts than ad.

Grayden Guilford:

The only downside to the community banks. I mean the rock is invited to a specific state or lending area. So we rely on our our expertise in the market. Any deal I’m working on, you’ll just drive out and see that that property.

Krista Reuther:

That makes sense. And really it goes back to providing that personal touch, which can be really crucial in trying to figure out how to grow your property management buyers. Additionally, something that I learned from talking to you is that if someone does receive an interest rate that’s better with a bigger bank, they might be able to bring it into your community bank and try and work with you to get a better rate.

Krista Reuther:

Is that true?

Grayden Guilford:

Exactly. So anytime we’re trying to be competitive, our market and show our approval committees or our board, hey, this is what’s out in the market. These are the terms other banks are offering. We can also leverage that into getting you the best terms that are out there.

Krista Reuther:

That’s awesome. All righty. So now that we’ve gone over things to consider when looking for a lender, big banks versus community banks, we’re going to jump into just a couple of tips to expand your portfolio before we get into the financing options that you should consider. So first off, if you’re a newer landlord, do not be afraid to ask for help.

Krista Reuther:

Your lender is there to guide you through this process, and asking questions is a great way to make sure that you understand what the deal entails, what your responsibilities and payments will be, etc. So don’t be shy. It’s better to ask the question than to not and to be led astray or just to be confused about such a big purchase.

Krista Reuther:

If you’re a more experienced landlord, now would be a great time to diversify your portfolio, but be sure that you’re sticking to the must haves from your buy box. If you don’t remember what a five box is or this is the first time you hear the term, it’s a set of characteristics that dictate properties that you might be interested in, whether that’s their location, their price, their amenities, counterfeited, bath, etc.

Krista Reuther:

If you’d like to learn more about buy boxes, please go to TurboTenant.com/webinars. We discussed this in last month’s webinar and we have some great examples from our landlords on stuff available for you. But in terms of diversifying it, great time to consider pursuing smaller commercial properties, maybe multifamily units if you really stuck to single family units fixing and flips, etc., but having different types of properties in your portfolio is going to diversify that portfolio, which is highly recommended.

Krista Reuther:

Great. And what do you think about tips for landlords?

Grayden Guilford:

Yeah, I wanted to add that I think newer landlords really benefit from having local properties, something that’s in their backyard. They can drive by, see the property tax responses and maintenance issues. I’ve heard of connections with plumbers, electricians, property management and so on. If you’re more experienced in sourcing those resources for experienced landlords and that type of portfolio by moving into other markets, finding something that their market might not offer at that time.

Krista Reuther:

Great point. Yeah, you do not have to be bound, especially if you have that experience. You can go across state lines or really expand geographically too. So before we move on, we have one more poll question for you. We are just curious about the size of your property portfolio today, so feel free to weigh in. It’s great to see.

Krista Reuther:

I don’t know if anybody else in the chat is as big of a data nerd as me, but getting to see everything is really fun and it helps me to understand what you guys might be looking for. So as I mentioned earlier, we do have tips for portfolios of all sizes. If you’re looking to expand that, this is great to kind of understand what you guys are working with currently.

Krista Reuther:

So I’ll give you ten more seconds. If you have not yet indicated how big your portfolio is, now is the time. We are curious, right? Three, two, one. Look at that. So we do have a couple of people with no properties. I am glad you’re here. Hopefully we offer you something that helps you take that plunge, but then the majority of you are owning 1 to 4 properties at the moment.

Krista Reuther:

Fantastic. But some 5 to 9 couple, 10 to 14 and 315 plus property owners. Thank you so much for joining us. And as I mentioned before, feel free to share tips in the chat as we move through, especially if you are a more experienced landlord. On the flip side, if you are less experienced and you have questions, drop them in there.

Krista Reuther:

Whether we address them live or your fellow property managers and landlords chat with you. This is a great space to learn everything you need to know about expanding your business. That right. So expansion means financing a lot of the time. So unless you are lucky enough to just have cash flowing out of your ears, but unfortunately I have not yet reached that stage in my life.

Krista Reuther:

So financing is the way I look at these things. When it comes to financing multiple properties, it presents more of a challenge than just trying to purchase a single property. But that doesn’t mean you should be intimidated. First, you’re going to want to make yourself an ideal lender. So if you have debt, consider trying to pay that off, particularly if it’s the heart debt that we mentioned earlier.

Krista Reuther:

So things with high interest rates or other things that are really bogging you down, a financial perspective work on chipping away at that first because then you’ll maximize your financing abilities. Also, you’re going to be wanting to really understand your credit score. Most lenders require a credit score in the high six hundreds or better for a 10% down payment.

Krista Reuther:

And when it comes to financing rental properties, they might even have higher expectations, which will detail a little bit later. So the higher your credit score, the more opportunities there are available to you, which is, again, why it’s so important to speak to your lender and ask plenty of questions. If you do need help or you’re trying to understand what might be a good return on your investment, get a better sense of the cash flow that you can anticipate.

Krista Reuther:

Turbo Tenant offers a rental property calculator on our site that will help you better understand the financial aspects of deals you’re getting into. It’s not a replacement for talking to a lender, but it’s something that you might want to use with your lender to secure the best deal by the perfect property that meets their needs as they stand so down payment options.

Krista Reuther:

There are quite a few. For example, if you have a primary residence, why not tap into the equity? You can get a home equity loan which is secured by the equity in your home, meaning that interest rates are relatively low at prepayment terms or you see up to 30 years. You can also take out what’s called a key lock or a home equity line of credit.

Krista Reuther:

This is also, as the name implies, secured by your home equity, but most have variable rates, meaning you could pay more interest in the future, but you have a lower interest rate and just something to consider. Lastly, consider a cash out refinance. So this inherently cashes out your current mortgage and replaces it with a new larger mortgage, then gives you access to the difference in the form of cash.

Krista Reuther:

As a bonus, this method might allow you to secure a lower interest rate or shorter repayment term. So definitely something to consider as you look to wrestle the down payment and getting into the meaty stuff. So just something to note. These strategies are organized with the smallest portfolio to the largest portfolio in mind. So starting off as a traditional mortgage, this is the most common strategy for those looking to finance up to four properties.

Krista Reuther:

And if you have good credit, a sizable down payment, usually 10 to 20% in your current investment properties are performing well. You could expect to finance up to four properties using this traditional method. More is possible if you find the right lender, but count on up to four. According to Mike Tyson, co-founder of online Mortgage Marketplace, on up investment property rates tend to be 0.375 to 0.5 percentage points higher than those on primary residence.

Krista Reuther:

So keep that in mind. Currently, traditional mortgages are mortgage rates are 5.3% for a 30 year fixed mortgage and 4.5% for a 15 year fixed mortgage. As of this morning. A couple more notes on this one. The underwriting standards tend to be more strict when you’re looking to finance a rental property. So in general, to Sun says, mortgage lenders tend to focus on three primary factors when qualifying a borrower for a mortgage, your credit score down payment and your debt to income ratio.

Krista Reuther:

Everything we talked about the last couple slides, but there are also a couple more nuanced requirements like the minimum down payment to secure a mortgage. Property for rental is often higher than a primary residence, and you might be subject to stricter credit score and debt to income thresholds. The right strategy to Freddie Mac’s investment property mortgage program really rolls off the top, right?

Krista Reuther:

But this is intended for investors who need customized home financing options. Only downside is that you’ll have to meet very specific criteria to secure this flexible funding. So, for example, you cannot have more than ten one, two, four properties and you’ll need a minimum credit score of 720. If you have more than six finance properties, as you can see here, there are different down payment requirements depending on what you’re looking for with the property itself.

Krista Reuther:

But you will need to have six months reserves for each property. So they really want you to be able to prove that you’re going to be able to fund this and really carry it through. Given that it is a more flexible, customizable option, your maximum debt to income ratio can be 45%. It could be up to 50 in some cases, but count on 45 just for the safest bet.

Krista Reuther:

The mortgage that you end up going with must be an eligible fixed rate level payment mortgage where 7121176 or ten six adjustable rate mortgage. And just to fill you in, if this is a new term for you, seven one and all of these other fraction looking mortgages, it’s basically a fixed rate in the beginning and then switches to an adjustable rate.

Krista Reuther:

So the seven in seven one refers to the initial fixed period of seven years, meaning you’d have the same mortgage rate for seven years, after which the mortgage rate adjusts once yearly, plus a margin set by the lender. According to Bankrate.com. Also worth mentioning, you must use a loan product advisor or otherwise have a manually underwritten mortgage and you cannot be affiliated with the builder, developer or property seller for newly constructed homes.

Krista Reuther:

If you are going to be enrolled in this program.

Krista Reuther:

All right. Strategy three is also government backed, but this one is through Fannie Mae. So this is ideal for people looking to finance 5 to 10 properties. It’s not widely offered, though, mostly because it requires a lot on the lenders and a lot of paperwork and going through your requirements. So it’s possible, but you’ll have to look around and really ask good questions of your lender to find someone to engage in this program.

Krista Reuther:

It does have strict requirements, including the minimum credit score also has to be 720. You’re going to need a sizable down payment, whether it’s 25% or 30%. Once again, you’re going to need six months reserves for each loan. You cannot have delinquencies of 30 days or greater within the past 12 months on any mortgage loan, and you cannot have any bankruptcies or foreclosures within the last seven years.

Krista Reuther:

And you’re going to need to submit two years of federal income tax returns for each property that is currently in your portfolio. That’s right. Strategy for this is great expertise. So great. Would you like to speak to portfolio loans?

Grayden Guilford:

Yeah. So all we do here at Pinnacle is portfolio loans for the most part. We do have a mortgage department separate, but most people might not realize that traditional mortgages are all sold off to the secondary market. It’s rare for a bank to sit on their portfolio and just hold it. That’s exactly what a portfolio loan is. We are held to the strict requirements of DTI, as most other metrics, but the terms are a little bit different.

Grayden Guilford:

Typically, our rates only six for 5 to 10 years for the investment type properties, but rates, fees, etc. can be competitive with qualified mortgage products. But our underwriting relies a lot more on cash flow, debt service coverage and relationship history than DTI and credit score and things like that. So even if there is a danger to your credit that you have strong cash flow, your tax returns and financials prove it.

Grayden Guilford:

That’s often something we can work with. But given that it’s sitting on our portfolio, it’s again much more of a relationship based product where it’s going to be a 5 to 10 year process for us working with you, getting to know your portfolio and you as a person, fantastic.

Krista Reuther:

All right.

Krista Reuther:

Okay. So bridge loans, this is another option here. It’s a short term loan that allows the collateral to be the projected value of the rehabbed property. Great. And do you want to speak more to this one as well?

Grayden Guilford:

Yeah, we offer bridge loans here. I think the main benefits people talk a lot about the buyer method where you’re buying a property financing it on the front end, of course, and then using cash to go ahead and renovate the property, flip it into something else, and then refi again later on with a bridge loan. You can have lending against the RV.

Grayden Guilford:

So say for example, you’re buying a property for 500,000. You have a budget for 200,000 for the improvements. Well, in our case, we could lend 75% of that or a full 525,000 against that project, sort of a construction to term loan. And again, that’s similar to Brick, but without using 100% of your cash for the rehab process. And you can use that whether you’re flipping it to sell in a year or two, you can also do that for a longer term financing project.

Grayden Guilford:

If you want to buy rehab, rent and just skip that last refinance projects, you already got your money out on those costs.

Krista Reuther:

Fantastic. Good to point out. I think. All righty. Moving into the 1031 exchange, which is something that’s come up before in our webinars, this is just going to be a brief overview. If you’d like us to go more in depth, please let us know in the survey at the end, because this is definitely a methodology that requires a lot of very specific steps to be taken.

Krista Reuther:

So as with everything that we present to you today, this is just a brief overview and you really want to make sure that you’re going to your lender to ask specific questions. What a 1031 exchange is defined by rocket mortgage as a real estate investing tool that allows you to swap out one investment property for another and defer gains losses or capital gains tax that you otherwise have to pay at the time of sale.

Krista Reuther:

As I mentioned, there are a lot of requirements, including the fact that the property you’re selling and the property you’re buying must be light colored, meaning similar in quality. You’ll also need to work with a qualified intermediary who will hold your funds in escrow until the exchange is complete. This could be a dedicated company. There are a lot of those that work with this kind of tax exchange, but be sure to ask your lender for all of the options available to you in your state.

Krista Reuther:

You’re also going to have to follow very strict timelines. So the timeline here is about 45 days, which means you really want to understand every step of the process before it begins. Because while 45 days can sound like a lot while we’re sitting here, when you’re actually in the mix, that month and a half goes really, really quickly.

Krista Reuther:

So those are the six options of six financing options that you should consider. And if you’re ready, take the plunge. But first, be sure you find a supportive lender who really knows the industry that you feel comfortable talking about the strategies with. Ask Plenty of questions to figure out what would be best for your unique situation, and then you can expand your portfolio with confidence.

Krista Reuther:

Also here you can see the sources that we use to put together this presentation. And when you receive this deck, you can feel free to click through and learn more. Also worth noting the down payment options and investing in general. There is a risk associated, which is why it’s so important to make sure that you’re asking your local lender all of the questions you need to really understand the specifics for your situation.

Krista Reuther:

Okay. So now we are going to open up the floor for questions. Feel free to ask us about what you should ask your prospective lenders the benefits of working with community banks, general underwriting criteria, portfolio loans, etc. and we will do our best to address it also, as I mentioned earlier, if you’re looking for an excellent lender in Arizona, please reach out to Grayden.

Krista Reuther:

He has been fantastic. He really knows his stuff and Pinnacle Bank just seems like a lovely organization to work with. So we’ve left his phone number and email address here. We will go ahead and open up the chat some.

Grayden Guilford:

Thanks, Kristen. By the way, I updated my audio set up here to see if I’m coming in a little bit clearer now.

Krista Reuther:

I think you are. I’m hard of hearing, though, so I don’t know if I’m the best judge of how things sound.

Grayden Guilford:

Perfect. Looks like rave reviews in the chat. So we fixed something. Yeah, that’s fantastic. Everyone is much happier with that. So doing that. So we do have quite a few questions. We do have one person who has their hand up, Chris Dell. So not sure if you want to come off mute, if you want to put it in the chat, either way is totally fine.

Jonathan:
And also, you know, there is a Q&A function. So if you have specific questions, please do drop them in the Q&A. And we do have one right now, which is 30 Rock. After buying and selling 13 properties and currently owning two, I’ve hit a wall with purchasing another. Are there lenders that work with real estate investors specifically rather than cold calling at General Bank?

Grayden Guilford:

Some have no experience working with someone in my level. I’m not yet a very large investor, but not a newbie. Yeah, that’s a good question. They’re kind of in that middle ground where they’re looking for that longer term relationship, somebody that can take them to that next level. It is tough to find somebody that is going to be a good fit for you.

Grayden Guilford:

All I can recommend is finding maybe three or four people to kind of test the waters with, see who’s responsive, see who seems like a good fit unless you have any peers that are other similar investors in your area, ask them if they have a recommended lender that they’ve had success with.

Krista Reuther:

Great answer. And something that I’ll say I think is going to come up a lot is the value of networking and talking with your peers, especially locally, to see who they like, working with, what they recommend, different financing options that have worked for them because it’s going to be different area to area. So if you can get that personal touch, you get that in, it’ll cut down on your search time and finding a lender who can make this work for you.

Jonathan:
Awesome. All right. We’ve got a few more questions here, Norma. So says planning to diversify portfolio a lot of property turned into a rental. Second property will be a fix and flip. Are we moving in the right direction? And what a big question. It’s tough to say with that info. I think absolutely that could be a successful strategy.

Grayden Guilford:

The question I’d have maybe as we enter into you, rising rates, potentially decreasing prices. What I’d recommend is having a backup plan for that fix and flip. If you’re maybe 12 months out on finalizing that flip, having maybe a backup plan to turn that into a rental, if the market does soften something that’s going to keep that cash flow going instead of expecting a big gain on that sale in 9 to 12 months.

Krista Reuther:

Smart.

Jonathan:
Yeah, we had Jason in the chat, say with traditional lending, how long do you have to wait to buy the next property without paying 20% down? I think that’s going to vary lender to lender on a traditional loan. I would imagine that it might be a year you can demonstrate the cash flow coming in, be able to show it as income on that tax return.

Grayden Guilford:

But I’m not sure on the down payment amounts that it Wells Fargo or Chase would be looking for in a situation like that.

Jonathan:
Okay, we had a few people asking about hard money. Lavonne In the Q&A said, When is good to use a hard money lender? If we depleted our DTI? My my only opinion on hard money is if you have a very specific and I want to say low risk sort of end game in a project, hard money is usually going to be 10 to 12%.

Grayden Guilford:

And that’s a really high interest rate to sit on. If you don’t end up cashing out a project fairly quickly, if you’re already capped out on DTI in a traditional sense, it would make me, at least personally, for my own risk tolerance, nervous about taking on more hard money. But it depends on the kind of project you’re using it for.

Jonathan:
That’s okay. We had the Juana in the Q&A say I’ve established an LLC a couple of months ago. I know requirements for loans require income tax returns is impossible to apply for lending before filing for the first time next tax season. And I can speak for our institution. That would be just fine as long as this LLC is, I would assume, solely owned by you and if you’re willing to guarantee the loan.

Grayden Guilford:

So the LLC is basically just a holding company your own cash flow as a guarantor supports the repayment capacity on the loan. That would be just fine. Awesome. Kate in the chat said I have heard mixed reviews using equity as down payments on future purchases. What is the general sentiment around this practice? What is the best way to approach this strategy?

Grayden Guilford:

Yeah, I mean, I’d be curious what the general sentiment is to just among this sort of a group. Again, interesting poll, I suppose, but that’s really just down to one’s own risk tolerance. How much leverage you’re willing to bring into the situation. Do you want to eventually own your properties free and clear, or do you want to keep levering up into that next property?

Grayden Guilford:

Only have maybe 20 or 25% into each deal. That’s all kind of a decision you have to make as an investor. Awesome. Okay. R.B. in the chat said Any financial suggestions for anyone who is looking to take a single residence and add? To ADD, I believe they need accessory dwelling units to turn into rentals. Yeah, I’ve seen projects like this be very successful.

Grayden Guilford:

Kind of like what we were talking about with a bridge loan or a construction deferred loan. I would say if you can find a lender that’s willing to work with a project like that so you can get financing on the to use upfront and not to have pass out on those at 100%. The other trick is finding an appraiser that can understand the value out of that and make sure it’s appraising at least at cost, if that makes sense.

Jonathan:
So awesome. Margaret Bond good in the chat said question four 1031 since properties sell very fast in the current environment, what is the recommended number of properties to identify? Oh, that’s that’s tough for me to have an opinion on. I’ve seen customers pick out maybe three or four, but it is tough. I mean, in this market, there’s not a ton of opportunities that really make sense to a lot of our people to have a specific buy box.

Grayden Guilford:

So that’s a good question. I don’t have a clear answer for that. Fair enough. We did have somebody has is today a good time to be looking at properties with higher interest rates, low home inventories, inflation, etc.? And we kind of answered that in the earlier in the in the presentation. I don’t know if you guys want to kind of recap that.

Grayden Guilford:

Yeah. Add on to that that it is a very interesting market. I feel like everyone’s been saying that for the last even five or six years, though it’s always kind of a new market. We’re not sure what comes next. I think there’s always going to be good deals out there and it never hurts. Even if things are expensive, if rates are up, that it never hurts to keep your eye out there for that next deal because there are opportunities that always pop up.

Jonathan:
Absolutely. We had Fadela in the Q&A. Say, what about CSR loans? What do you think about those?

Grayden Guilford:

Yeah, that’s something I could have touched on more in portfolio lending. Really. For our portfolio loans, we primarily look at DCR, I think is debt service coverage ratio where instead of looking just at DTI, that top line gross income against your debt, we’re taking your fall on cash flows, we’re adding back interest expense for adding back your depreciation and really looking at the cash flow for your situation rather than just a blanket DTI. And yeah, I think that’s helpful. If you’ve kind of tapped out traditional lending in a DTI sense, you have really strong cash flow and that’s where a portfolio lender can look more at the DCR and work with you that way.

Jonathan:
Awesome. Then Mallika in the Q&A said, Is it ever a good idea to use a broker for a commercial loan or a portfolio?

Grayden Guilford:

The fees are more expensive at closing, of course. I think at least knowing and having a relationship with a broker can be incredibly helpful. Yes, there’s fees associated, but if they have their boots on the ground, their eyes on the market, and again, they’re bringing you deals before the rest of their clients, that can be a really great resource for finding opportunities as they pop up.

Grayden Guilford:

I would say 75% of my clients work with a broker. Their deals aren’t always coming from that broker, but they’re engaged with one at all times.

Jonathan:
That’s awesome. Okay. George has it looks like a two parter here. So George said so. I purchased my first duplex with an FHA loan two years ago, and I occupy one side. I used the FHA loan because of the low down payment. I really would like to start expanding. However, I just don’t know what should be my next step. Should I house hack again or should I look into hillock and purchase second property as investment property with a bigger down payment?

Grayden Guilford:

Yeah, that’s a that’s a good question. I like the house hack approach. I think that’s a good way to get into rental investing. If you’re past that two year threshold where you can take advantage of the capital gains deduction.

Grayden Guilford:

So that being your primary technically, then it’s a great time to move into the next property and do the same again. My question would be if the two units, if rented out, would cover the existing mortgage plus expenses on the the first property, then yeah, that would make sense. It sounds like it’s cash flowing if you are going to be paying into that month over month and covering two mortgages, the cash flow doesn’t quite cover.

Grayden Guilford:

That’s where I’d be nervous about expanding out at this point.

Jonathan:
All right. I am looking back through the chat. I think we’ve pretty much answered all of those in the Q&A. So if anyone has any additional, please drop them in the Q&A.

Jonathan:
We did have Dennis in the chat ask how many traditional mortgages can you get with an LLC?

Grayden Guilford:

That’s a good question. I don’t know off the top of my head that might have come up in Krista’s research, but I don’t know as much on the traditional side.

Krista Reuther:

Based on my research, you can get four. You can expect to be able to secure four properties with a traditional mortgage, but definitely touch base with your lender and see what they’re offering, what you could do with it.

Jonathan:
Okay. We had Jose in the Q&A say, I have great credit and a few successful properties. I would like to endeavor into how to purchase properties without the need to put 25% down all the time. Doing this in an LLC, just exploring options.

Grayden Guilford:

That’s a good question, Jose. We usually look for 25, maybe in some exceptions, 20% down. The only other suggestion I’d have is maybe partnering up with somebody, maybe split that down payment and move into a partnership on some properties. Would be an option for other lower down payment options. It’d be more FHA, so traditional lending. But if you already have a few properties, it’d be tough to go with those low down payment options.

Grayden Guilford:

As far as I understand.

Krista Reuther:

You might also want to check out our last webinar. We talked about how to find investment properties and there are some options like pursuing courthouse auction. Wow. There are some options like pursuing courthouse auctions that require less cash upfront. Typically, although there is more work on the back end at different levels of risk. So if you go to turbo tenant dot com slash webinars, you will be able to look at that, at your leisure, hear the presentation, look at the deck and maybe find a solution you’re looking for.

Jonathan:
Okay. We had Deloria asked what tax form should I be filing during tax time? It’s 1040, 1040. That’s all they ask.

Grayden Guilford:

So I assume if you’re, I guess recording your investment property income that’s on your schedule, if it’s just under you personally, if I’m understanding that question correctly, yes, I do think that’s what she’s asking. And then we had Jason ask any experience purchasing properties with credit cards, and I haven’t seen it. That would make me nervous. I guess at 18 to 25% interest rate, it’d be tough to carry that much debt on a credit card like that unless it is sort of a bridge structure where you’re buying another property, selling one and just needing to cover maybe a month or two.

Grayden Guilford:

But that interest expense would get very costly in a short amount of time. Stephen asked, Do you have to refinance to put a property into a new LLC? Not necessarily. We’ve seen that quite often on our side of the already have a loan to an individual. They need to move it into an LLC. We usually work with them to get that transferred over.

Grayden Guilford:

It makes the loan as then in the LLC name as well as the deed through title. The only thing to be aware of is to make sure you’re involving your lender in that decision. You don’t want to just transfer. That will usually trigger a do on sale clause, which could put you in default technically. Just make sure the lender’s involved is all I can say.

Jonathan:
Absolutely. All right. Sheri asks, What are the biggest flags lenders have with financing under LLC? In a traditional sense, I know there’s different rules for financing under LLC. In a portfolio sense, it really doesn’t change our underwriting decision as long as you personally are guaranteeing the loan behind that LLC, we wouldn’t have any issues with that. Okay. Richie asked for a down payment.

Grayden Guilford:

I have heard of owned, perhaps not borrowing but sharing on home equity, getting cash. Is this legit or what are your pros and cons?

Grayden Guilford:

I’m not sure I’ve heard of that home tab. I’m wondering if that’s maybe a reference to like a second deed of trust on the primary residence. It’s not something we would traditionally do, but I could see where that might be. A product out there. I’ll have to do some research, but I haven’t heard of that yet.

Jonathan:
Okay. Malika asked, what are the most popular portfolio commercial loans as far as loan structure?

Grayden Guilford:

Our bread and butter is a 25 year amortization on rental properties with a five year fixed rate rates. Obviously, they’re moving all over all the time, but it’s usually a five year fixed rate. In some rare cases, we can do a ten year fixed rate. But as far as loan structure, that’s usually our go to somebody has.

Jonathan:
If I already have one investment property, can I still take advantage of an FHA loan?

Grayden Guilford:

That’s a good question. I don’t do any FHA products on my side, but I don’t believe so. And I’ll take that back. I think you can get an FHA loan still. I just don’t believe it can be the three and a half percent down payment off to do some research on that. Okay. And then George asked, what’s a good alternative option other than an FHA loan for a low down payment on a second property?

Grayden Guilford:

On a second property? I’m not sure if it’s the first property I know VA and USDA or the other traditional low down payment options for up to 0%, even in the portfolio side, we’re really looking for 20 to 25% as a minimum. So.

Jonathan:
All right. And then we had Norma say, is it wise to have separate leases for each property?

Grayden Guilford:

That’s a good question. That would be maybe more of a legal or CPA kind of question from our side of the lending decision. It really doesn’t make a difference. Some people say that it does offer extra legal protection to have a separate LLC for each. There’s the term kind of piercing the corporate veil where somebody does get hurt on one property.

Grayden Guilford:

It has precedent before that those folks can come after the landlord and the other assets in other leases. So it’s maybe an extra layer of protection but it’s not foolproof. Okay. And then we had someone to ask, can you do a recast loan on a rental property? You can from our side. We usually would need to wait for two years of history on a given property to refi with either cash out or change terms and things like that.

Grayden Guilford:

If I’m understanding that right.

Jonathan:
Okay. I’m not seeing any other questions in our Q&A right now. So if anyone has any more, now’s the time. Drop them in. We’ll be closing it up here in a few minutes so everyone can get on with their day. All right. Looks like the lawyer is going off of what Duane said. I’ve also established an LLC and I know requirements for loans require income tax returns for proof. What’s a tax form? Should I be filing for proof of income?

Grayden Guilford:

If this is rental income, that’s usually going to go on your schedule, even if it’s personal. That LLC is a pass through entity. Otherwise, if this is like an S or partnership, can’t remember the exact form. That’s like an 8825 for the actual rental income. But a CPA would absolutely walk you through all those steps, making sure you’re getting the maximum information and so on when you’re preparing those taxes.

Jonathan:
Absolutely. All right. Daniel asked, how long do I have to live in the property before I could rent it and buy another one and use as a primary residence? That’s a good question if we’re talking about getting financing terms as if it’s your primary residence and then keeping that load on there and moving in to another primary, I believe that’s two years for most products.

Grayden Guilford:

I know you can do that with FHA after two years. Excellent. Gerri asks, Can you recommend a state to open up an LLC? Another good kind of legal sort of structuring question. I know Delaware is very, very popular. Typically I’d see the LLC being opened up in the same location as the properties that everything sort of held in local courts and so on.

Grayden Guilford:

But Delaware is very often just kind of an external state to open the LLC.

Jonathan:
Awesome. All right. Well, that’s the end of our questions. Krista, Grayden, I don’t know if you have any closing thoughts you’d like to offer.

Krista Reuther:

Oh, I’ll just say once again, thank you so much. Great. And for being here today. If anybody’s looking for a lender in Arizona, all of his contact information is on this final slide. You will receive an email with a link to the reporting and to the spec, so please do contact him. He’s been nothing but wonderful. This whole process.

Krista Reuther:

Additionally, when in doubt, ask questions, talk to your lender and really understand the various options whether you’re looking for the lowest down payment possible or you’re just curious about how to use luck. Your lender is there to guide you through all of this, and they’ll have more of the specifics of your unique awesome.

Grayden Guilford:

And I just wanted to add a huge thank you to TurboTenant and Krista and Jonathan for having me on here. It’s an awesome opportunity. They have a great product. I’ve had a few customers come to me needing help with rent payments, kind of managing their portfolio of rentals, and they’re awesome at rave reviews across the board from all of my clients.

Krista Reuther:

That’s so lovely to hear. Yeah, no matter what your portfolio looks like, turbo tenant can help you manage everything from finding tenants to moving them out, maintenance requests, whatever you need. So feel free to check us out and let us know if you have any questions and less survey that you’re going to see shortly. All right. Thank you all so much.

Krista Reuther:

Have a great rest of your day.

Grayden Guilford:

Awesome. Thanks, guys.