Funding - Posted by Brian Daiber

Posted by JPiper on January 16, 2001 at 18:37:55:

One thing for sure…to fully understand your situation would take a 1003 and a credit report. You could do that with Ed, and frankly, it would probably be worth your while. I would recommend it.

But let’s look at this another way first. HOLDING properties versus SELLING them is always the age-old question…a conundrum as Bill Gatten would say.

It might make PERFECT sense to hold that property, enjoy the cashflow, and not pay tax on your equity. BUT, you’re now out of business in a sense. You’re against the wall for some reason. The lenders have cut you off. So eventhough it may make PERFECT sense, it may not be the BEST SOLUTION for you.

Here’s a situation I’m currently in now. I hold a property that is probably worth something around $50K retail. I hold it free and clear. I can rent the property for $525. Without expenses, it takes me about 8 years to gross $50K.

Or I can sell the property. With the proceeds my guess is I can buy 2 properties, fix them, and sell them for let’s say $100K…pre-tax.

Which is better? You have to love the thought of owning a property the rest of your life…chunking out that cashflow every month. But not without expenses, and many other difficulties. OR, you can turn the properties, reinvest in other properties which builds your equity that much faster…but not without taxes.

Having had this argument many times with myself…long into the night…I’ve decided that both methods make PERFECT SENSE. The question is, which method works BEST for you given your personal circumstances at the time. Each method has it’s advantages…AND disadvantages. No method is PERFECT, they just make PERFECT SENSE.

The problem here is that you’ve hit the financial wall so to speak. So that the method that makes PERFECT SENSE to you, make not make sense given your circumstances.

One way or the other…something needs to change now. If you keep the property you’re done for now. If you want to keep doing deals, you’ll need to learn some new tricks. There are plenty around…maybe you need to learn how to do sandwich leases as an example to build your income, or some other creative technique.

But if you want to continue dealing with lenders, you’re out of business for now. UNLESS, it would make sense to you to SELL one of those properties to realize the equity, and simultaneously eliminate some debt.

Having said all this, my suggestion to you would be to contact Ed. He’s the financing expert. You might be able to do some stated income type loans. Or he may be able to inform you how to restructure yourself. He’s in a position to look at your complete picture.

My main point here is that you’re never truly in a box, which is where you seem to think you are right now. All you have to do is change what you’re doing.


Funding - Posted by Brian Daiber

Posted by Brian Daiber on January 16, 2001 at 14:52:06:

Dear Ed,

Hi, I am a 24 year old Real Estate Investor. I live in Northwest, OH and have been investing for going on three years now. I have bought six properties and currently have three rental properties. This is my main source of income. The properties all have excellent cash flow, and are in very good condition after my rehab. I have tried several different techniques at many banks and have been shot down several times.
The three properties in which I own have have quite a bit of equity in them. They usually throw up a red flag when it comes to LTV and limited sources of income.
My investment portfolio so far looks outstanding. I have made several good investments with great returns. This doesn’t seem to interest any banks or brokers.
I have purchased all of my homes through the same bank in which I have banked for several years. They are very conservative and I am the only full-time real estate investor they currently deal with. This has been a real struggle because there rates are usually (2 points) higher than most, and they only offer a 20 year term. They hold all there own paper.
They informed me before that they were cutting me off so to speak, because I had borrowed over $200,000 dollars. The last property I purchased through them I had to have a co-signer for the first time. I have been trying to avoid this because I really don’t want anybody else’s name on my properties.
Current Properties:
#1 6 bedroom College Hous (Cash Flow) (Great Property) ($30,000 Eq)
#2 Duplex (Cash Flow ^) ($30,000 Eq)
#3 Duplex (Cash Flow ^& Located Next to #2 ($42,000 Eq)
#4 Fixer upper (Starting Next Week) $40,000 Equity Expected
Finding the right properties hasn’t been the problem its finding the funding to purchase.

**Please give me any suggestions you might have and hopefully I gave you enough information to better understand my current situation.

Re: Funding - Posted by JPiper

Posted by JPiper on January 16, 2001 at 17:29:56:

I don’t think you gave enough information to give a complete picture, and the information is personal enough that you probably wouldn’t want to give it on the newsgroup.

So I will make a guess…my guess is that by the time the bank gets finished giving your rental income a haircut for expenses/vacancy…that your back-end ratios are challenged.

My suggestion would be to finish that rehab you’re starting, and then SELL it, don’t rent it. Turn the $40K equity into cash.

That frees you up for another loan from this bank. And you’ve got some cash in your pocket. Why not go do it again? And who knows…maybe the bank will be interested in increasing their limit at that point…or maybe you can use your success to attract another small bank.

One thing for sure…it’s HARD to ONLY rent houses.


Re: Funding - Posted by BDaiber

Posted by BDaiber on January 16, 2001 at 17:53:41:


Thanks for the response. I’ve been looking for a webpage like this for two years. This is really helpful knowing there are other investors out there willing to give some of the new guys advice. The idea of selling my next property sounds like a good idea, but my only reservations to that is the fact that it can easily be duplexed and have a nice cash flow and I’ll still have the equity. Your suggestion makes perfect since, but wouldn’t trying to refinance, and cash out be a better alternative. This way I will still have the property, cash flow, and $40,000 tax free?
If you would like to, email me and I’ll try and paint a better picture of my entire situation.