Real Estate Investing Podcast

Loan Options for Investment Property
Posted Tuesday, September 6th, 2022 by Richard Roy

Loan Options for Investment Property: In this episode Memphis investment loan officer, Tina Talarico, covers the types of loans available for real estate investors.

[00:00:19] Brett Bernard: All right, thank you today for joining behind the curve. My name is Brett Bernard with APM real estate and joining me today as Tina Tallarico with. Capital city mortgage. I wanna get that. I always wanna switch those two words. She is a lending expert who’s here today to try to shed some light on all the different types of lending products, and what’s available to investors out there. I get a ton of questions about loan resources, types of loans, ARM, we just discussed bridge, which we’re gonna get into. So hopefully this segment will kind of give you a little more idea of what’s available to you as an investor. Again, my name is Bre with AP real estate and Tina Tallarico with capital city mortgages with us today, and today we wanna talk about something that we all agreed needed to be. We needed to be more specific and dive into a little deeper, and that was called a bridge loan. Now, my idea of a bridge loan was that you’re selling a property and you’re trying to buy a new property, but you haven’t closed on the one you’re selling, so they bridge it over and let you go ahead and close until your previous property sells. I was told that I’m an idiot and that is not true. So Tina, explain to us the bridge loan.

[00:01:26] Tina Talarico: That is. True on the residential side. That’s exactly what it is.

[00:01:30] Brett Bernard: Okay. So I’m not an idiot.

[00:01:30] Tina Talarico: Commercial lending, is just a short term loan one or two years. It’s a fast close and I mean fast, I mean, two weeks on average, three at the most, a little documentation, because it’s a short term loan and somebody that wants to close on an apartment community, something like that. It’s a fast way to purchase the property.

What would be a good scenario for a bridge loan? Instead of just doing an ARM or a 15 year, why would you do a bridge loan?

[00:01:51] Brett Bernard: So let me ask you this: what would be a good scenario for a bridge loan? Instead of just doing an ARM or a 15 year, why would you do a bridge loan? What would be the point? What’s the purpose?

[00:02:01] Tina Talarico: Typically when you’re buying something, of that nature, which would be an apartment community. Let’s just say it’s two and a half million or 3 million and just a ballpark range. It takes, four, five, sometimes 6-months to close those, honestly it does, and a bridge loan, typically in all cases is gonna be a fast close. You’re gonna close it in less than 30 days, typically two to three weeks and less documentation. So a lot of the investors that I’ve worked with on those bridge loans, that’s what they like the most is they’re used to having to, you know, it drags out for so many months before they can close and their paperworked to death. So a bridge loan, helps you skirt around that and avoid all that and uh, close quick. So they’ll purchase it and do a one or two year term. Either is available. There’s a multitude of properties. I mean, you can do a bridge loan on several different types. You can even do a rate term refinance, you can do a cash out. If you’re looking for some quick cash, they can’t be rehab properties, you know, that’s excluded. One to four unit properties, single family, multifamily, mixed use, all have to be non-owner occupied, however, and there are other, uh, commercial type buildings that you can use a bridge loan on.

[00:03:23] Brett Bernard: I understand a bridge loan now. If I wanna buy an apartment building, instead of waiting six months to get and be in paperwork to death, I can just do a bridge loan and close it. But at the end of that two year period, I’ve gotta do something with that loan, correct? Would you go into a one? Say you do a one year, so six months into your one year bridge, you would start the process of more permanent financing and all the paperwork or do you move them automatically into a different type of work?

[00:03:45] Tina Talarico: That is true. If you use a traditional commercial lender that requires all of the documentation and they require you to, uh prove income and that sort of thing. It does drag out for a long period of time. However, with capital city, we don’t require tax returns for qualifying on any of our programs. So, uh income is not an issue; so it’s not a long drawn out process.

What options do I have to move a bridge loan into a different type of loan? Does the bridge loan automatically convert or do I have to go through the whole loan process to go with a term loan?

[00:04:10] Brett Bernard: So let’s say I come to you tomorrow. You gimme a bridge loan, August 15th, I close out my 10 unit apartment building and I’m on a two year term for bridge. What are my next steps? I’m gonna collect cash flow, maintain the building, manage it and do you know everything I need to do as a landlord but that two year term’s gonna come up where it expires. At that point. What options do I have to move that into a different type of loan? Is it something that the same company that wrote the bridge can automatically convert or do I have to go through the whole loan process to go with a a term loan?

[00:04:44] Tina Talarico: Yes. You can go through the same company to refinance it and, in many cases, the investors that purchase those apartment communities, if they find something that’s a real good buy, they’ll turn around and sell ’em because the bridge loans, they don’t have any prepayment penalties on ’em and, they’ll hold ’em for a year or two, get some cash flow off of them, and turn around and sell ’em to somebody else. Or they’ll refinance ’em into a longer term loan and continue to collect that cash flow.

[00:05:11] Brett Bernard: Okay. So the bridge loan is a good option for closing fast, getting your cash flow going, but the bridge loan also expires and you’re gonna eventually have to convert to a more. Now, I’m gonna play devil’s advocate here. Let’s say I did a bridge loan, bought an apartment building six months ago, and six months from now my term’s coming up. I’ve gotta go to conventional financing where my bridge loan was at that time was what? 5% and now it’s gonna be at 7%.

[00:05:35] Tina Talarico: Right.

When converting a bridge loan to a fixed rate loan, how can I avoid losing cash flow through a higher interest rate? Is there an option to put more cash down, get a lower interest rate, and keep my cash flow in good position?

[00:05:36] Tina Talarico: So if that becomes the issue, what would be an option for an investor to try to not eliminate a good chunk of his cash flow just through a higher interest rate when he refis? Is there an option to where I could put some more cash down? I could pay down some of the principle and try to get a lower interest rate to keep my cash flow in good position?

[00:05:57] Tina Talarico: You could certainly buy the rate down ,or you could do an ARM loan. The rates are typically less on ARM loans and take out maybe a 7 or 10 year that gives you more time if you’re not holding it long term.

[00:06:10] Brett Bernard: Okay. Let’s talk about other products that might be out there. I mean, cuz you’ve, you’ve brought up some kind of off the beaten path products that y’all offer the ARM being one. We discussed that last segment and, turns out after discussing it with you ARM loans look to be a good option for an investor. Horrible option for a homeowner, but a great option for an investor. Is bridge loans, something you would do strictly for apartments and multifamily, it’s not something you’d put together just for a guy to buy his first rental property?

[00:06:37] Tina Talarico: We do offer ’em.

[00:06:38] Brett Bernard: Really?

[00:06:38] Tina Talarico: On just a single family. Absolutely. We offer ’em on a single family, one to four units, apartment buildings, as I said before, mixed use properties, various types of properties. You could even do a bridge loan on a office building, on a shopping center and, you know what kind of red tape you go through on a shopping center or an office building. To try to get closed and I guarantee it’s gonna take you five or six months.

[00:07:02] Brett Bernard: Sure, sure.

[00:07:02] Tina Talarico: To get that to, uh closing. So a bridge loan is a quick way to go in and, uh, get it done quick with a whole lot less paperwork.

We discussed ARM loans, bridge loans, but what other investment loan products come to mind?

[00:07:11] Brett Bernard: It certainly sounds like it. So what other, off the beaten path products come to mind for you? I mean, y’all have some good ones. Basically lending can be designed anyway, any creative person comes up with but, in the standard type of offerings, you’ve got bridge, you’ve got ARM. What other type of special loans out there that a investor can take advantage of?

[00:07:31] Tina Talarico: For instance, I mentioned the bank statement loans.

[00:07:34] Brett Bernard: Mm-hmm

[00:07:34] Tina Talarico: if you want to qualify, let’s just say you write off all of your income on your tax returns, but you don’t wanna go DSCR or no, doc. For instance, a no doc is a lower loan to value. We will use a 12 months of your bank statements and in many cases you don’t even have to provide those because we use an automated service to retrieve ’em from the bank, and basically you can use, 12 months of deposits as income.

[00:08:02] Brett Bernard: And that’s it?

[00:08:02] Tina Talarico: Mm-hmm. Some programs we go 24 months, we have 12 or 24 month bank statement programs.

[00:08:08] Brett Bernard: Now the bank statement program, what’s the credit criteria for that? The maximum like the minimum?

[00:08:13] Tina Talarico: Oh the bank statement program is a 75% cap on the loan- to- value. You have to have a minimum of a 700 score for that.

[00:08:20] Brett Bernard: So a minimum 700, 25% down, basically.

[00:08:22] Tina Talarico: Mm-hmm.

[00:08:23] Brett Bernard: Well, let me ask you this question because I try not to be an expert in lending, cuz I don’t wanna put myself in hot water when I talk about it with other investors, but let’s say I’ve got a house that I miraculously get it for $80,000, it’s appraised at a $100k, $105k all day long. How does that change the down payment? Are you still requiring 20% on the 80,000 they’re borrowing?

[00:08:43] Tina Talarico: The LTV is based on the purchase price. Now you can turn around and refinance it later and get into that equity, but not at the time of purchase.

[00:08:52] Brett Bernard: Okay. So let’s discuss the no doc loan.

What are no doc loans for real estate investors?

[00:08:54] Tina Talarico: The no doc basically is like a light doc type loan, and as far as the property types on that property types are pretty much the same. The no doc loans, it’s basically no documentation.

[00:09:06] Brett Bernard: So when you say no documentation, I mean, obviously there’s an application that has to be submitted and you’re putting in your social security number and you’re running credit, but almost like the horrible feared stated income loans that everybody made so much money on back in their early 2000’s. Is that what it’s like?

[00:09:20] Tina Talarico: It is. I mean it’s no different than the DSCR. You’re still not proving your income from your tax returns or your job, cuz a lot of these investors I work with, believe it or not, they’re not self-employed people, they don’t own business.

[00:09:34] Brett Bernard: Right.

[00:09:34] Tina Talarico: They work at FedEx. They have regular jobs, W2 paid jobs, and so just anybody can purchase investment property and those people that purchase the investment properties, you know, just your, your normal everyday person, that’s not familiar with investment properties. They’ll typically start out with one and, uh, they always ask me, you know, well, you think I oughta buy multiple and I always encourage ’em just to start out with one, because they may not be good at it.

[00:10:04] Brett Bernard: It’s not difficult to buy rental property. What’s difficult is to be a good landlord. If you’re not using a management company, I go through a lot of properties that are just so poorly maintained, there’s so much deferred maintenance, the houses are just a wreck. So ,to be a good landlord, you gotta take care of your asset. I mean, if you have, I don’t know, let’s say you’ve got a collection of fine wines in your wine cellar. You’re not just gonna throw ’em down there and just not check on ’em for the next 30 years. You’re gonna go down there and turn ’em and wipe the bottles down, keep a dust, make sure the humidity is right. Same thing with a rental property. If you just don’t take care of it, you’re just killing your asset; you’re you’re losing value. I had a guy that sold a 12 house package. One of my investors bought it. He wanted a significant amount of money based on comps. So we wrote the guy an offer, got accepted, bound the contract. We did the inspections. Deferred maintenance was so bad and there was such poor condition that we ended up going almost $180,000 off the package price, which was significant based on the total purchase price. And even then, because their current condition, the properties would not appraise for what the price was, and the guy was so mad and I said, look, you’ve spent the last 10, 12 years collecting free cash flow and not putting a dime back into them. So guess what you made your profit and you put it in your bank account and bought the boat and bought the house or whatever you bought with it, but you put nothing back into your asset and it is slowly depreciated, and a lot of investors don’t realize that. If you don’t take care of your asset, it’s gonna depreciate in value because that deferred maintenance becomes a negative against the value of that property. So take care of your property. That’s all you gotta do. It’s a simple thing. Go out there every few years, fix some rotten wood, put some pain up. It doesn’t have to be extensive. So. Okay, well, we’re gonna rev up this segment and, again, my name is Brett Bernard EPM Real Estate 901-692-7401 or find us online at epmrealestate.com. If you go to that website, go to the second picture, which is the best looking guy in the group. That’s me, my cell number’s on there. There’s a little bio about me. I am a Memphis investment or real estate expert, and I’m sticking to that. So shut up, Richard. And today with me is Tina Tallarico she’s with Capital City Mortgage, and she is a certified lending expert in my book, and she can help you decide what product works for you. If you wanna get an investment game, give me a call or give Tina a call at:

[00:12:25] Tina Talarico: 901-826-7218.

[00:12:28] Brett Bernard: Yes. So if you’re thinking about investing in real estate, keep in mind 7% interest rates are still half of what they were, what 8 12 years ago, 13 years ago, that’s 14 was. So interest rates are not gonna kill you. Your asset’s is still gonna perform. You’re gonna produce cash flow. You’re definitely gonna produce wealth, because value of the property’s gonna increase. So if you’re interested in talking about it and if we can get you lined up and decide you’re buying, I’ll send you to Tina and she can get your loan set up for you and give you your options. Have a great day. Thanks for listening.

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