Financing for Foreigners and the Self-Employed

How do you get financing for investment real estate if you’re a self-employed or a foreigner (non-resident or non-U.S. citizen)? It’s not hard as there may be many options available to you.

We talk to a lot of investors who are self-employed or live abroad who want to purchase investment property with financing. Well, the good news is there are a number of financing options and we work with a number of lenders who can provide you financing on virtually any of our turnkey investment properties.

On today’s episode we speak with just one of portfolio lenders who has helped a number of our clients purchase properties here in the United States. Listen up as we discuss the commonly asked questions and terms available today.

If you missed last week’s episode, be sure to listen to The Importance of Reputation.

Enjoy the show!

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Today, I wanted to talk about the subject of financing, but financing specifically for foreigners and the self-employed. These are two types of people that we find to be a little bit on the challenging side to get financed because they don’t fit into the conventional box or the box of financing that comes down through the government sponsored entities of Fannie Mae and Freddie Mac. Obviously, that’s where you get your best rate. I wanted to bring on Matt Lineberger, one of the individuals that we work closely with. They are one of our preferred lenders. Matt is the Vice President of Business Development for Lima One Capital. What they are is a specially private lender for financing investment properties. They are especially useful to foreign investors, basically our clients around the world, and to those who are self-employed. With that, Matt, welcome to the show.

Thank you, Marco. I appreciate you having me on.

It’s great having you on. I think this is a very important topic and one that will be of great interest to people around the United States who are self-employed, especially to our past, current and future clients around the world that are living in other countries; they’re not residents of the United States, they don’t necessarily have US based credit. Then they ask the question, “I want to invest in the United States. The opportunities are great, the affordability is great, but I can’t get financing.” They don’t have any options. They’re either all cash or they have to find their own private money or they have to work with a lender like yourself.

That’s correct. As a matter of fact, I’d say 20% to 25% of our clientele are actually foreign investors. We identified that there is a niche and a need there and trying to fill that gap where the conventional lenders have left off.

Let’s start off by you telling us a little bit about yourself and a little bit about Lima One.

I have been in real estate in some form or fashion about thirteen years now. I absolutely love it. I’ve been an investor, a lender, a contractor, you name it. I like to think I’ve been involved in just about everything. I’m sure there’s a whole lot more to come. I can somewhat identify with some of the borrowers and some of the challenges of the real estate industry. From a standpoint of Lima One Capital, it has just been a great past couple of years for the company. As you were saying, we are private money lenders, we are not a traditional bank. We don’t go to the conventional route. We can offer investment loans only. There is no owner occupied program that we offer. We can finance foreign investors, we can finance you as citizens and we can finance rehabbed properties all the way to long-term rental properties on a 30-year term.

What is the greatest challenge that you guys find with foreigners and the self-employed? This is a loaded question in a sense because we clearly know the answer to these questions. Foreigners obviously don’t have US credit, so that’s one problem. Just expand on the problems and the challenges you see with foreigners and the self-employed trying to get financing here in the US.

PREI 46 | Financing — Financing: The biggest challenge is there just really aren’t that many options.

The biggest challenge is there just really aren’t that many options. It’s one of those where a lot of your traditional avenues for financing in the real estate sector really just don’t have the appetite and these haven’t opened other doors as much as I think they probably should for a lot of the categories that you’re talking about there, such as foreign investors. They tend to want to underwrite the debt-to-income. They want to see certain ratios whereas private money lenders, such as myself and other companies across the country, are saying, “Go out and find us a good cashflowing property and we’re going to do the majority of our underwriting on that property itself.” It does have to be cashflowing and yes, we do have to see documents from the borrower, we do have underwriting on the borrower without question, but it’s nowhere near the stringent guidelines with a lot of the different formulas that you would see from banks and your traditional entities.

Would you call these lacks guidelines or they’re just different?

I don’t want to give you the wrong impression. We certainly want to give good loans that are going to perform. There isn’t a question about that. We do look at this stuff and make a determination, but we’re just looking at different factors. We set a certain guideline that we want to see from the borrower. It is very different from the bank, very different. We decided that we want to put more emphasis on the property itself. As long as the property meets that criteria, we’re good to go. I do think it’s not necessarily lax, it would just be very different.

We have a lot of self-employed people listening to this show, it’s just one part of our audience. How can you help the self-employed if they’re sitting there asking themselves, “I’m self-employed. I make income. I pay myself well. I expense a lot of items through my company so at the end of the day, I don’t show a lot on my personal tax return.” They don’t qualify for conventional financing. That guy or gal, what is it that they need to know or need to see in order to be able to get financing with you guys?

First of all, we wouldn’t be in business if we couldn’t cater to the full-time real estate investor or the self-employed who was in that situation. We understand exactly what you guys are doing with your businesses, which is why we do put the emphasis on that property. I just can’t stress that enough. We ask to see a tax return. We don’t have a formula to put that number in. We’re going to have the assets there, you would have to show us assets. If you are self-employed here in the US, we are going to ask to see a credit score. Our minimum is 630 so there is a little bit of give and take there versus traditional banks. If you can show us some assets, cash on hand, if you will. We’re not looking for you to have that W2 type job and steady monthly payments. Us, as well as other private money lenders in the sector can offer that to these guys.

As I recall, it would be your last three months of bank statements, your last year’s tax return and if you are putting your property into an LLC, which they don’t have a choice, but they need to see that you guys need to see the documents for the LLC or the other entity.

That’s actually correct. We get to see the LLC documents or whatever business entity they choose to close in, however they want to structure, that’s fine. We ask for 60 days worth of bank statements and then the last year’s tax return. That’s it.

Let’s take that same question and apply it to foreign nationals, in other words, foreign investors. These are people who are not US citizens and in most cases, they’re not US residents. How can you help the foreigner?

With foreign investors, we do not ask tax returns clearly. With credit score obviously, that’s really not an option either. What we are looking at there with foreigners is going to be bank statements, cash on hand as well as. We actually cap foreign investors at 70% loan-to-value versus US citizens at 75% loan-to-value.

That loan-to-value, is that based on the appraisal? I would assume so.

Appraisal or purchase price, that’s correct. Whichever is lower.

It sounds like it’s actually easier to qualify as a foreign national than it is as a self-employed person.

The funny part is that it’s actually correct. Our guidelines are definitely a little less stringent on the foreign investors, but that’s also why loan-to-value is capped. We actually offer a better rate for foreign investors if they will take a lower loan-to-value. That’s us saying, “We’re not having to see as much documentation, but at the same time, if we have less exposure in the property, we will feel more comfortable and we will give you a better rate in order for doing that as well.”

For those listening, to give you a frame of reference, conventional financing, which is the cheapest money that any US resident or citizen can borrow, the maximum loan-to-value is 80%, which means that we are coming in with a 20% down payment and then we are financing up to a maximum of 80% of that property, which is fantastic. It’s hard to find this type of financing for real estate anywhere else in the world. If I’m not mistaken, I think there’s only one other country that will do up to 80% on a 30-year fixed rate basis. If you as a self-employed individual or a foreigner are able to get financing at up to 75%, or in this case with foreigners, 70% loan-to-value, that’s pretty exceptional. It’s very hard to find something competitive or even better than that. I’ve looked around, we work with a small number of private money specialty lenders like Lima One. They’re all in the same category and ballpark in terms of numbers, but Lima One is very, very competitive. We actually do send a lot of business their way because of that.

Let’s talk about the terms. Let’s break down the down payment requirements, which we obviously have touched upon. Let’s talk about the rates, the range. I know that’s a matrix. There’s a spread there. Maybe, Matt, touch upon the closing costs, talk about the amortization period. Here’s one of my favorite ones, it’s the minimum loan amounts. I think this will knock the socks off a lot of people.

That’s actually one of our biggest selling points, the minimum loan amount. It is at $45,000. I believe that is the lowest in the industry. There have been some companies here recently drop it from $300,000 to $100,000 to $75,000, all trying to compete with us in the space. That does give you some leeway. We can do large portfolio loans, but we’re saying, a lot of these rental properties, you’re getting your best return with these smaller sizes, price points, if you will. Yeah, we can go all the way down to $45,000 on the minimum loan amount. Closing cost, I’m going to specify this with origination fee. There is a cost of doing business with this. Origination fee is at 2%, with a minimum of $3,500. That of course are going to be closing cost that we don’t set, that would come from your closing attorney or your title company, whatever it might be. The other really, really nice part or aspect of this loan is that it is a 30-year fully amortized loan. That allows for a lot of cashflow and really makes sense. It is a true 30-year term too. There’s that five or ten-year callback or balloon note, if you will. You are literally fixed in right full 30 years. That is just a tremendous factor of this loan to me personally.

It is. I’m a big fan of the fixed rate mortgages, ideally, the 30-year. For some people, the fifteen-year fixed. To get a full 30-year amortization, a 30-year term, where you’re locked in to one rate for the entire life of that loan, which you can prepay or accelerate and pay it off earlier, but knowing that your rate and payment is going to be the same in a year, five years, ten years is a very predictable way to forecast out your cashflow and your bottom line numbers for years to come. If rates go up, which is likely in five to ten years, you know you’re going to have a competitive or lower interest rate compared to what it might be in ten years down the road. I think that’s a huge selling factor, is the fact that it’s not a balloon and it’s not a three-year or five-year arm payment. Touch on the rates. Let’s talk about that.

Rates, like I was saying, it’s actually a little bit different with private money and with us. We actually lock at rates pretty much quarterly. It’s not on a day-to-day basis like you might consider it to be in a conventional term. Rates are going to vary anywhere from 7% to 8%. On that 30-year term, fixed, again it’s going to be based on loan-to-value. At 70% loan-to-value, we’re going to close it to 8%. At 60% loan-to-value, you’re looking at right around 70% to 7.4% and then 65% right at 7.5%. It’s just on a sliding scale. That’s going to be for foreign investors.

For US citizens, I can actually go for as low as 6.5% and goes to about 8.5% as well. A lot of that is going to be based on credit score as well. With the foreign investors, it’s really just a sliding scale on loan-to-value, and then for the US citizen, we are going to take credit into consideration first that will put you in a certain level and then from there, it will be a sliding scale loan-to-value as well.

Let’s just quickly compare that to someone getting conventional financing here at 5%. A lot of the properties that our clients purchased through our company and through our network are in the $100,000 to $110,000 price range. Those are often three-bedroom homes in A-, B+ type neighborhoods. If you’re financing is $80,000, let’s just say that’s the loan amount, the mortgage payment difference with an $80,000 loan at 5% interest compare to that same $80,000 at 7.5% interest with you guys is $130 monthly payment difference. It’s $130 more per month because of that 2.5% interest increase. For some people, that might sound like a lot, but for most people, they’ll realize, “That wasn’t as big of a different as I originally thought.” When you think about it, your cashflows on properties like that are probably in the range of $300 and $350 a month net cashflow. That’s after vacancy, that’s after maintenance and repairs, that’s net, net, net.

If you’re making $130 less per month on a $300 to $350 per month cashflow, that’s not a bad trade off considering that your other scenario was to purchase that $100,000 property all cash and not have the same cash-on-cash return, the higher cash-on-cash return and leverage that you can. You can get 7.5% financing through you guys, leverage your investment capital to buy more property, in other words have a larger portfolio. Yes, granted you’re going to have lower cashflow on a per property basis, but you’re leveraging your cashflow into more properties. Therefore, you will actually have a larger monthly cashflow at the end of the day by leveraging your investment capital at this higher rate. It’s a small trade off. With interest rates or anything else for that matter, there’s always going to be that give and take. I think for foreigners and for those who don’t qualify for the conventional financing, you’re options are limited. This is a very good option to get into real estate or build your portfolio even further.

Honestly, I couldn’t have said it better myself. That is the conversation that I have with a lot of our borrowers. You just got to sit down and run the numbers and say, “What are my goals here?” We’re giving you the option to leverage. Yes, it’s a little bit higher than what you did with the banks, but we’re giving the ability to leverage. We just sit down, run the numbers and a lot of investors have come to the same conclusion that you have. That’s why we’re doing quite a bit of business.

One thing you didn’t mention, Lima One requires borrowers to have an entity. I’m not sure if that’s only an LLC. Maybe you can expand on this, but just explain to us what is required to qualify.

We will allow any businesses of the vast majority, probably 99% of what we see, is an LLC. Yes, we actually do require that. It does have to be a business-to-business loan. The LLC or business entity does not have to have any seasoning. As a matter of fact, we have guys who set it up after they apply. That’s completely fine with us. We just have to make a business-to-business loan to that LLC or whatever entity that you choose. You can structure it anyway that you want as well. If you have partners or if you have family members, whatever it might be, that are in the mix, they can be involved in that LLC as well.

Does it have to be a US based entity or can it be, let’s say, like a Canadian equivalent of a limited liability company?

We do need it to be a US entity.

Some foreigners will ask us or believe that a US entity entitles them to conventional financing. Just to clear this one up, just because you have an LLC, a limited liability company set up here in the United States, that doesn’t mean that you now have the ability to qualify for conventional financing. It is still an entity and it’s still, regardless of whether it’s you or the entity, you still would need to qualify under those conventional financing terms and requirements. No, it does not allow you to get conventional financing. We get a lot of people asking us that question.

I asked one of our clients who happens to be one of your clients too to send me a couple of questions to ask you. Because they’ve been through the process, they have the experience of dealing with you, they’ve purchased some property and they’re looking to purchase more. One of the questions he had was, “Is it possible for an investor to lower their rates? If so, what can they do to ensure that it is done?” He is just looking for ways to lower the rate since he doesn’t have US credit.

We don’t offer any buydown or anything at that nature. So much of it is based on the loan-to-value. That is the best way. If you wanted to put up more cash or even if we offer a cash-out refi, whatever it might be, you can take a lower LTV and get a lower rate that would increase your monthly cashflow. That’s just a decision you would have to make from a standpoint of do I want, as far as cash on hand versus a monthly cashflow basis. That’s going to be up to the individual borrower, but that would be the only way that we could lower it for foreign investors.

You increase your down payment a little bit, 5%, 10% and that drops your rate?

That’s exactly right.

What about allowable costs that are paid by the seller? Whether those are concessions or closing cost, credits, is that allowed? If so, how much?

It is allowed. We actually don’t have an official number or a percentage. At the same time, we leave that up. That’s somewhat of an underwriter’s discretion, if you will. When I say that a bunch of stuff can be thrown in there, but at the same time, we don’t have an official policy on that, we don’t want to see too much. The whole idea here is that the borrower can qualify based on his or her merits. Yes, we do allow it up to a certain extent. Like I said, there is no official number, that’s really just more of an underwriter discretion.

What about seller carryback? In other words, the seller carrying a second mortgage on top of the first. In other words, they have a second lien position, they allow you to go into first. Is that allowed? Do you guys do that?

It is not. We do not allow secondary financing of any type.

At least none that you know of?

You said it right.

What about refinancing guidelines? We’ve been talking about new purchase money acquiring new property, but what if someone has a portfolio or they already have a property, they have equity in it, maybe they want to refinance it to get better terms or refinance it to pull some equity out to leverage that into other property, how does that work with you guys?

Honestly, the program is the exact same. We offer cash-out refis, we offer straight REFIS, absolutely and literally it is the exact same. The only difference there would be if you have rehabbed the property, you can get a new appraised value on that or if you’ve owned for a couple of years, whatever it might be, we can take it into appraised value and go off with the loan-to-value based on that newly appraised value. If you had any appreciation or if you increased the value at all, you’re going to be a little bit better off from the loan-to-value standpoint potentially. But the loan program is the exact same.

Matt, is there anything that I did not ask you that I should’ve asked you or anything else you want our listeners to know about?

I think we covered just about everything there.

Please tell our listeners how they can find you guys and what other contact information you want to provide.

Our website is www.LimaOneCapital.com. Best way to reach me personally, I’d be more than happy to answer any questions you guys have, is matt@LimaOneCapital.com. My phone number is 770-851-3408.

I’m going to throw you a curve here. I’m going to ask you one more question just because it came to mind. How did the name Lima One come up?

The owner of the company is a former Marine. That was his call sign when he was in Iraq.

Matt, I appreciate your time. Thank you for the information, answering the questions. I’m sure we’ll get some calls and I’m sure you’ll get some calls. We have had great experience working with you guys. We’ll just keep throwing the business your way.

Thanks again, Marco.

Matt, thank you.

To all of you foreign national investors and self-employed people listening to this podcast episode, I hope this was helpful for you. I hope you didn’t think that there were no financing options available to you because obviously there are. Lima One is one of several companies that we work with. They all have their pros and cons. It’s not a one size fits all, but they are one of the main providers that we work with. Give our investment counselors a call to find out more. We can certainly put you in touch with them or align the right investment properties for you that will fit within the mold of their terms and conditions.

Other than that, I’m glad you joined us today. Download our free report, The Ultimate Guide to Passive Real Estate Investing. If you have any questions for me, be sure to post that at PassiveRealEstateInvesting.com, just click Ask Marco. I’ve been getting a number of questions lately. I appreciate you sending those in. I enjoy answering them and I do reply to every single one. If you have a question, please go ahead and contact me through the Passive Real Estate Investing website.

Subscribe, if you haven’t done so. If you are thinking about expanding your portfolio, give our investment counselors a call for a free strategy session. We’ll spend some time with you on the phone to help you get on the right track and point you in the right direction to build whatever you want to build through real estate.

Again, thanks for listening. See you next week on our next episode.