Are you one of those real estate investors whose portfolio is suddenly stuck on 10 properties, because you’ve exhausted the maximum number of 10 loans that Fannie Mae and Freddie Mac will underwrite for you?
Fret no more: More financing options are becoming available to you, as real estate investing expert Jason Hartman explains in a recent “Creating Wealth” podcast show.
Joining Hartman in the podcast is Shannon, a newer lending specialist to his Platinum Properties Investors Network, who details the newer financing options. Those options include an investor cash flow program, a program for foreign national loans and a bank statement loan program.
Also during the podcast, Hartman takes some time to present a number of questions he thinks people should be asking in the wake of the Oct. 1 mass shooting in Las Vegas that left 58 people dead at an outdoor concert near the Mandalay Bay Hotel. Hartman happened to be attending an event atop the hotel and was some 30 floors above the Mandalay Bay room from which the gunman opened fire.
First, the new lending opportunities that are available to you and other Platinum Properties investors with Shannon, the lending specialist from Seattle who recently joined the Hartman fold. Hartman describes her as “a well-qualified person with a lot of investor financing experience and some really unique programs.”
The Investor Cash Flow Program: Qualifying the Property Rather Than the Borrower
This program for buying investment properties “basically works by qualifying the property instead of the borrower,” Shannon explains.
There are a few guidelines for which you as the investor and borrower must qualify for this program, including that you own a primary residence and that you have a minimum credit score of 660 once your credit report is run. “But they look at the cash flow of the property and not the income of the borrower,” Shannon notes, so no qualifying income or tax returns are necessary for the loan.
“And anybody can use this loan as long as they own a primary residence.”
There is a 75 percent loan to value ratio, meaning you need 25 percent of the property value as a down payment, and “they just look at the property to make sure that the cash flow pays 10 percent,” Shannon reports.
Hartman asks what the 10 percent cash flow means if you’re using a $100,000 property as an example. “So, you put 25 percent or $25,000 down, you got some closing costs, and you have to have 10 percent cash flow—explain what that means,” he says.
“That means that the rental income on the property needs to have at least a cash flow of what your total expenses on the property would be, with the property payment and the taxes and insurance,” Shannon replies. For Hartman’s $100,000 example, she says, “you would want your total rent to be $1,000, and then your total payment to be no more than $900” to get a qualifying cash flow of 10 percent.”
The program could be particularly appealing to married couples with a non-working spouse. There’s a limit of five property purchases per person under the program, but since it’s based on cash flow rather than income, that means the spouse could buy five properties under her or his name, too. That would be a total of 10 more properties the couple could add to a portfolio already has tapped out of Fannie Mae and Freddie Mac backing.
There is an adjustable rate mortgage (ARM) of 7.1 percent on the cash-flow loans. Income can be a qualifying factor, too, “and it has rates that start in the sixes if you have income that we can use to qualify,” Shannon notes.
“We can do five loans with this program for each borrower, is the maximum we can go, but it’s a great program,” she adds. “Each investor has their own unique scenario, and so if anybody is remotely thinking that this would be an option for them, it would be a great way to buy more properties.”
“I think that’s fantastic,” Hartman says, “because the property can still make a lot of sense even when you don’t get those coveted Fannie Mae, Freddie Mac type of terms” and interest rates.”
Foreign National Loans Explained
These newly available programs for foreign national loans may target a smaller segment of the investing populace, Hartman notes, but he explains why they should be of interest to all investors.
“It shows there’s now a whole new segment of money flowing back into the real estate market when this kind of program exists,” he says.
“For a while, that was zip. There was nothing, post-Great Recession, but it’s coming back. This affects everybody because it pumps more money into the real estate market, and, of course, I don’t have to explain to any of our brilliant listeners the law of supply and demand and what that does to prices.” (Hartman laughs.)
“This, Jason, is really an amazing program for our foreign nationals,” Shannon says in the podcast.
“They can invest in real estate in the United States without a credit score, without any U.S. credit. What (the backing lenders) do is they look at the borrower’s reserves. They also look at credit references, so we have to have basic letters filled out from creditors they have overseas or from their home country, and that’s what we use to help them qualify.”
“There is a minimum loan amount with this program and that is $75,000, so we need a $100,000 purchase price … because the maximum loan to value is 75 percent, again, with this program.”
As for the letters required from a foreign national’s creditors, Shannon has a basic form for the borrower to give to those lenders to fill out for her. “It’s a very simple process,” she says.
“Some of the documents may need to be translated,” she adds. “They all have to be in English to be underwritten, but the borrower needs to own a home in their home country. So, this is for second homes and investment properties. But they will look at debt ratios up to 50 percent.”
Interest rates for the foreign national loan program run in the “high sevens.”
“Honestly, I’ve done a couple of these loans, and they are amazingly easy for the borrowers to qualify. The paperwork is not overwhelming. It’s a very easy process that I could help anybody navigate through if they were interested in buying a property in the United States.”
Bank Statement Loans, and Thoughts on Trump and Dodd-Frank
Shannon says bank statement loans also have returned as a funding option.
“A self-employed borrower may not always show all of their income that they receive on their income taxes,” she explains about this program, “so, we can use 12 to 24 months of their bank statements and sometimes business bank statements to help them qualify for a loan. And we’ll just look at the deposits they have.”
“An interesting thing you said is it’s not two or three months of bank statements, it’s 12 to 24 months, so you’re still doing good underwriting,” Hartman says. “That loan is unlikely to go bad and end up in foreclosure, isn’t it?”
“That is correct,” replies Shannon. “There is income coming in from these borrowers, and the underwriters are making sure of that—definitely doing their due diligence.”
Hartman asks Shannon whether Donald Trump in the White House, “our first real estate president,” might help boost the lending climate even more in the years ahead.
“Of course, I’m talking about our reality show host Donald Trump,” Hartman says, with a laugh.
“You know, his tax plan, if he gets any of that through, that is going to put so much more money into people’s hands, into the economy. I think it’s going to improve employment. Love him or hate him, but I think fiscally, Trump is going to be good.”
“The other part is this Dodd-Frank, this restrictive bill that has restricted real estate lending for so many years. Of course, one of the names on it is good ol’ Barney Frank, who doesn’t know anything about the real world or banking or anything, Crazy, the people we have running government sometimes.”
“Trump wants to repeal Dodd-Frank, he wants to soften Dodd-Frank. Maybe not specifically about Dodd-Frank, but do you see, and I think we’ve already seen that from the three different programs we’ve talked about, more money flowing into real estate financing?” Hartman asks Shannon
“Yes, and to your point, I really hope that Dodd-Frank gets rolled back to some extent,” Shannon replies. “It would open up doors for small businesses, for investors, for just the regular person that wants to buy a house, and make things a lot easier for them. So, yes, I do. I’m hopeful we can get some of that done in the next four years or so. The sooner, the better.”
Hartman says that in general, he sees “the pendulum swinging back” to a tighter lending environment in which banks are making smarter loans, as opposed to the early 2000s when there was fraud in the mortgage business and a high level of “stupid loans.”
“The sub-prime lenders were huge in 2003, 4, 5, until they couldn’t do any more and the loans started to go bad,” Shannon says.
“This time around, those loans don’t exist, and the borrowers do have cash that they’re putting on these properties, and they have credit to qualify and income to qualify. So, finally, we started seeing this past year, with the bank statement loans coming back.”
Hartman urges those listeners who want to hear more about Shannon’s alternative financing programs, foreign national loans—or traditional Fannie Mae or Freddie Mac loans, which she can arrange as well—to contact her through their Platinum counselor or through jasonhartman.com.
Hartman’s Lingering Thoughts on Las Vegas Shootings
Hartman notes in another podcast segment that “the theories are flying” in the wake of the Oct. 1 shootings in Las Vegas.
“I don’t know if any of you have become interested in this, as have I, since I was there, since I witnessed it, and I tell you, I don’t know if something like that ever goes away,” he says.
“It’s such a horrific thing to have witnessed that. It’s just crazy. Again, as most of you know, most of you have seen my video by now, either on Twitter, it was in our email newsletter, it’s on our YouTube channel as well. That video has probably been viewed over 100,000 times by now.”
“And you know I wasn’t even that close to it. I was just above at the Mandalay Bay hotel. I mean, how much of a coincidence is it that you walk out onto the balcony at The Foundation Room 25 floors above the alleged, and I say alleged, shooter, because there are a lot of questions about this event? And you do that at the exact time as the shooting starts pretty much.”
“That’s just absolutely crazy. I mean, that’s such an amazing coincidence, I can’t even believe it, It’s a terrible coincidence.”
As for the theories that abound, “call them conspiracy theories if you will,” Hartman says.
“’Conspiracy theory’: Usually that statement is used to marginalize people who are healthy skeptics who ask good questions, who question authority, which is the history of change in the world. It really is. I think those questions are healthy, and I want them out there, even if some of them are nutty.”
Hartman says he keeps asking himself these questions and that others should be, too:
—Where are the videos of the alleged shooter unloading this massive amount of guns and ammunition from his car? And his car was filled with explosives—what was he planning to do, drive his car into the crowd and blow it up?
—Where are the videos of the shooter walking through the lobby or in the elevators? “There are cameras everywhere in the Mandalay Bay and all of these casino hotels—we all know that,” Hartman says. “The fact that we have not seen any of those videos just blows my mind.”
—Why is it that the audio of the SWAT team that was released by police ends with them breaching the door? “The last thing you hear is ‘breach, breach, breach,’ and they explode the door. You don’t hear them … coming into the room and finding the alleged shooter dead. Where’s that audio, why haven’t we heard that? Did I miss it? if I missed it, please send me a link. I would love to hear it, because that’s the end of the audio, as far as I can tell.”
Hartman says he will remain skeptical of “the mainstream media story” about the shooting and asks his podcast listeners to do the same “until we see the videos.”
“Please, question everything,” Hartman urges listeners.
“Question authority, question the mainstream media. This is healthy. It is a good thing to do.”