hi .i am in the process of trying to set up an s corporation where i am going to try to get loans to buy cheap homes under 150000 $ and rent them out .

i currently bought a couple under my own personal credit which is perfect and i rent them out monthly and i have gootten some appreciation as well in the homes .

however i need some advice as to what i need to do to be able to get a loan for those homes i will be buying and where i can go and what are the conditions .

thanks :

Aboudi:

Getting a loan to buy rental properties using an S-Corp is no different than when you get a loan with yourself as the borrower.

All of my employers ”Three different community commercial banks”, have followed the same kind of procedures. Essentially this can be summarized as follows:

1- The source of repayment is going to be rental income.

2- Your loan-to-value is not more than 80%.

3- Your debt service coverage is at least 1.20X

The easiest answer to your question is another question: Will the lender that you used to purchase the other properties will be interested in financing the new ones?

The S-Corp. will shield you from some liability, but the lender will still require your guarantee. Therefore, your credit history and financial condition will come into play.

Hope this helps.

THANK YOU THAT HELPS QUITE A BIT .
BUT WHEN YOU SAY THEY LOOK INTO CREDIT IS THAT MY PERSONAL CREDIT ?
IF IT IS THAT IS GREAT SINCE MY CREDIT IS EXCELLENT .
IF IT IS NOT MY CREDIT THAT THEY LOOK INTO WHAT CREDIT DO THEY LOOK AT ?

AS FOR LOAN SERVICING AT 1.2X HOW DO GET THE EXACT CALCULATION?
IS IT CUT INTO STONE OR IS IT QUALITATIVE LIKE YOU CAN CLAIM EXPENSES IN MANY DIFFERENT WAYS?

THANK YOU IMMENSELY FOR YOUR HELP

ABOUDI

The credit that they will look at is your personal credit, but remember that relying on the personal guarantor is not the primary source of repayment. The most important thing that they will look at is the cash-flow of the property. That is, Debt Service Coverage has to be over 1.20X

The personal credit comes into play mostly if it is bad {credit score under 600}. In this case, a bad credit score can be a deal killer.

For an idea on how debt service coverage is calculated fo here http://www.loanuniverse.com/sensitivity.html and check out the spreadsheet. It is made for a multi-family property, but it would work the same for a single-family home used for rental property.

thank you for your help.

now if the corporation is newly established with no prior history how will they go on giving a loan ?
what documents will we need ?
will they require to se our capital and how much capital will we need relative to the loan ?

thanks again

Actually sometimes a loan will be approved without even knowing the name of the “to be formed corporation”. These loans will be underwritten with the borrower listed as "TBD" or "To Be Determined". Of course, the lender will put a clause in the commitment letter to make sure that the final organization and ownership is acceptable, but it is not out of the ordinary when dealing with companies created solely for holding real estate.

The capital of the corporation does not really come into play unless the company has a big negative net worth. Remember that this transaction is very deal specific. This means that the attention of the lender will be in:

The cash flow from rental income
The debt service coverage
The loan-to-value
Your experience handling similar properties

now if i have personal rental property can i transfer it to the corporation and if so what is the procedure to do that ?


and as far as forming the corporation do we need sizeable capital ?
how much as a percent do we ned ?

thank you much

now if i have personal rental property can i transfer it to the corporation and if so what is the procedure to do that ?
When you create a corporation you are esentially creating another legal entity. You can contribute assets to the company. However when you contribute "real property". You would have to title the property in the name of a corporation. This would require recording the change with the county. This would incurr some fees. In addition, the transfer would almost surely request full payment to allow the change. {if you got a loan on the property}

and as far as forming the corporation do we need sizeable capital ?
how much as a percent do we ned ?

You can start a corporation with no money at all. You will need a downpayment large enough to meet the loan-to-value requirements. The loan is transaction specific.