I received this great email and I know that this question comes across a lot… Please feel free to call me and ask me questions… Also keep in mind and go back to the handyman blog before this one - they both can be used together.

Hello Jeremiah. Hope you are doing well. I am hoping you can shed some light on some questions I have regarding loans for investment properties.How does one qualify for a second mortgage on an investment property? I hear that lenders rather have a property that is already rented to ensure cash flow or they require the real estate agent to write that the property has potential cash flow and that will be enough. Is this true? Can you just tell me what the general rule of thumb is to be a candidate for investment property loans?

Also, how does one go about purchasing properties under an incorporation? How is this better/worse or different than purchasing under your own name? Do you have a less or better chance of getting money lent to you?

I thank you for your anticipated insight. It is evident that I aspire to invest in real estate, but I am concerned about getting the financing to do it. Any information that you may have that may help that I didn’t ask above would be greatly appreciated. Thanks for your time.

Cecilia

 And here is my response:

Hi Cecilia -
 

A lot of good questions… I will try and pick each one apart for you…
 

If you went to purchase a property - there does not have to be tenants.  Part of an investment purchase appraisal is to tell me the lender how much money that the rent will be in the area the home is in.  They will take other comparables just like they do for appraising for the value.

Rule of Thumb: When I qualify you for the loan I am going to use 75% of the proposed rental income the appraiser comes up with as income to be applied to your bottom line income.  For Example: buying a single family home that brings in $1000 rent.  I will use $750 more to your already documented income to qualify for the home.  Making it so people who don’t they qualify can.

Purchasing under a corporation is really not an option.  It can be done but the amount of down payment is much greater then a regular mortgage.  Mortgages on residential homes need to be personally guaranteed; meaning that it is in your name and not under a corporation.  The best thing is to speak to your CPA or financial advisor when drawing up a new company and how you can put the weight of the liability solely on the corporation.  For example: writing the lease agreements in your company’s name would make the lease agreement between the tenant’s and the company - not the tenant’s and you personally. 

I have done a few of these personally feel free to call me and ask any more questions you may have.

Thank you,
Jeremiah Phillips
856-663-7800 Ext. 566
888-331-6300 Ext. 566 Toll Free
866-266-1966 EFax
609-760-9234 Cell
jphillips@firstmutualcorp.com