Due to lack of credit and pretty much no money, I had to sit tight until i came across a flexible seller, which I did.
The seller is willing to take back a second of 40%. In approaching lenders for the other 60%, I assumed that ‘asset based, or equity based’ financing would be my best option.
In my first call to a mortgage company that deals with bad credit/no money/hard money/etc…
the guy said, “Sure no problem, but I need to see “The Financials”, email them to me.”
So I emailed him the following:
11Single Family Homes + 2 Duplexes
Scheduled Gross Income $86,412
Occupancy 92% $6,900
Net Operating Income $60,198
then, he wrote back…
"I will need actual financial for each house or combined. This way I have something to show some lenders. I will also need to meet with you to have fill out an application.
what does he mean by “actual financial” then?
any insight, i’d appreciate.
-D in the MidWest
Not being part of the conversation, I am assuming that he wants to see your P&L statement and taxes. Depending on the type of loan you are doing, he/she will need documentation supporting the numbers that you e-mailed.
Do you think he wants something ‘certified’, like by an accountant?
And just to clarify, we’re talking about the sellers P&L, his experience with the properties?
it looks like you gave him pro forma (estimated) numbers, he wants know the actual number of dollars collect in rent (last year for example) and that you spent $5177 in maintenance in 2006, etc . I would just pull numbers from your Sch E on your taxes rental properties. No need to be certified, but they may want a copy of your tax return as well.
Unless you are applying for a commercial blanket loan I don’t know why they would be asking for a P&L from the seller. If you are just looking for conventional financing; each one of these properties will have to be done seperately and the lender should allow you to use the operating income state from the the appraisal. They will base the approval on each properties merits alone not on the group of properties as a whole. You have not given us an idea of what the sales price is, but you have also not included the carrying costs in the budget you submitted either. So your operating income is going to change drastically.
Based on the numbers you provided with your occupancy set at 92% you will be bringing in gross rents of $6626/month. After your maintenance, taxes , and insurance of $1609/month is subtracted you will be left with $5017/month to pay yourself and pay your debt service.
Depending on what this whole bundle is costing you coupled with the fact that you said you are using bad credit/no money/hard money lender your interest rate is not going to be pretty. Which means you could end up just breaking even on this deal every month, and you will still have to manage the properties AND keep your regular job just to make ends meet.
It sounds like you may have a decent deal on your hands, but just be careful not to be blinded by the seller carried financing and jump into something that you don’t have an exit strategy for.
it’s ironic that ChristopherW mentioned a blanket mortgage, b/c if any or all of the properties physically touch you can use a blanket mortgage and have fewer loans along with raising their value at the same time, which an assemblage does. I would simply ask the loan officer what he is talking about, there is no reason to have any confusion (by using rarely used jargon) and ask him what he wants in plain English.
This is what your broker means by “financials” as it pertains to residential property?
a. What is your current mortgage payment on all investment properties.
b. What is your current mortgage balance " ".
c. What is your current rents " ".
d. What is the current market value " ".
He/she is attempting to indentify cash flow and equity to use towards qualification (75% of rental income can be used; retained equity can be used as a compensating factor).
If you don’t know why a lender wants something, ask. If he doesn’t tell you, work with someone that will consult and educate you properly.