Investment Mortgage Guy

To qualify, most banks are looking for a 70% loan to value ratio based upon the lower of the appraised value or cost to build a new construction apartment building in Minneapolis.  For example, if you have a project cost of $2,000,000, you will need to plunk down $600k to get your financing. Most of the time, that 600k in equity becomes invested in the deal. With our financing package, we will lend you the full $2,000,000 and ask you to put the $600k in a collateral account at the bank. You can’t access the funds until the construction loan is paid off however you can keep it on your balance sheet as an asset.  The construction loan will last 12 to 36 months depending the size of the project.

After the construction is up and running, we will work you to get your project approved for a high loan to value Fannie Mae or FHA take out loan.    We have relationships with various take out sources to ensure you get a competitive rate and term package. The goal of course is to get you a take-out loan as close as we can to the $2,000,000 so you can get as much of the $600k back as possible. By working hard to maximize rents and minimize expenses in the early period of your project, we can get you a higher loan amount. We also work with you to keep your balance sheet in order so that the Fannie and FHA sources are comfortable with you.  Once the construction loan is paid off, the $600k comes back to you or a portion may be used to fund the final payoff owed on the construction loan.

If you have a apartment project your trying to get funding for, please call Robert J Bonahoom at 651-485-3710.

Robert J Bonahoom

Nmls#209013

Fannie Mae offers very competitive financing on apartment buildings in the Minneapolis and St Paul area. Fannie offers 3year, 5year 7 year and 10 year balloons with 30 year amortizations at rates most local banks can’t compete with. Local banks are not normally set up to offer Fannie Mae  financing like they can in the residential market. You have to find a good mortgage broker or shop online directly to find lenders that can offer these products. When you do, here are some of the requirements:

1) At least 2 years experience owning another property like the one you want to purchase or refinance

2) A new worth equal to the loan amount

3) 9 months PITI reserves

4) Loan amounts of a million dollars or more

5) A 680 credit Score

Fannie will go to 80% on a refinance or purchase  and 75% on a cash-out refinance. In most cases, a replacement reserve fund will be required to be set up. This is a separateaccount you will have with your lender to take care of repairs and maintenance issues on the building. Normally, $250 per unit per year will be escrowed to be used at your disposal.  Closings can ussually happen within 60 days from when the letter of intent has been issued. Normal fees will look something like this:

Appraisal, Environmental and Legal fees – $12,000

1% Origination fee

Title will depend upon loan amount.

Normally there is a fee to get started of about $4500. This will go towards the appraisal, environmental and legals fees.

For a free no hassle evaluation to see if your eligible for Fannie, give me a call 651-485-3710

Robert J Bonahoom

NMLS#209013

 According to a recent report by Marcus and Milichap, the average cap rate on an apartment building in Minneapolis rose 80 basis points to the low 8 percent range during the last 12 months. The best class A apartment buildings in Minneapolis are in the 5 to 6 percent range and the some class C properties could be in the 10 percent plus range. The capitalization rate or “Cap Rate” as most of us call it is a simple calculation many investors will use to analyze a building very quickly. A cap rate is determined by taking a building’s net income and dividing by the building’s purchase price. The net income of a building is determined by taking the buildings net rents and subtracting operating expense. Please note, the debt expense of the building is not figured into this equation. Common operating expenses include taxes, insurance, utilities, repairs, marketing and management.

Below is the formula……

Cap Rate = Property’s net income divded by the current value

Okay, so that’s my explanation of cap rate, and as I said, it’s increasing. Let’s use this example, Building A has a cap rate of 7.5%

See below…

Purchase Price – 5,000,000  Net income – $375,000

 If we add the 80 basis points and make the cap rate 8.3% let’s see what happens…

Purchase Price – $5,000,000

Net Income – $415,000 That’s another $40,000 to service debt with or put in your pocket!

Now let’s look at what is going on with apartment building mortgages in Minneapolis…. Vacancy rates are below 3% almost everywhere in the Twin Cities and lenders are motivated to write loans again. Agency financing which is FHA, Fannie Mae and Freddie Mac) accounted for 52% of the loans originated the Minneapolis and St Paul Area. The average interest rate this year for these loans was 4.5%. This is down about 50 basis points from a year ago when the rates average in the low 5% range. Banks and Insurance companies are also in the hunt again and ready to step up to the plate and make deals happen. So let’s say a buyer bought this $5,000,000 building with 25% down. His loan would be for 3,750,000. At 5% the annual debt service would be $241,560. If we lower that rate to 4.5%, the annual debt service becomes $228,000. That’s a savings of $13,560 per year! Combined, the increase in cap rate and decrease in rates give an investor a possible increase in investment of $53,560 per year! I don’t know what that sounds like to you, but to me, it sounds pretty good! Current apartment building owners in Minneapolis can benefit from this by refinancing and improving their net income through lower vacancies and being more efficient with expenses. If you’ve been a apartment building owner for a while, this business sure has been it’s ups and downs, for now, let’s enjoy the upside!

Robert J Bonahoom

NMLS#209013

651-485-3710

Many investors are taking advantage of the incredibly low interests rates right now on their apartment building financing in Minneapolis. Having all your documentation together is key for an accurate quote. Here is a list of items to help you prepare:

1) Description of your building – Number is units, photo’s, age and mixture of units.

2) Current Rent Roll – (also list any subsidized units)

3) Year to date operating statement and previous two years operating statement.

4) Personal Financial Statement

5) Last two years tax returns and W-2′s

6) Resume

If you can include the above information, your lender should be able to get you an accurate quote. If you are interested in a free no hassle quote, please contact Robert J Bonahoom at 651-485-3710 or email at rbonahoom@houseloan.com NMLS #209013

Rates for apartment building loans are seeing record lows. With vacancy rates in Minneapolis and St Paul approaching zero, banks are eager to help landlords put new financing on their properties.

Here are some same rates on September 22nd

FHA – 4.25%

Fannie Mae 5 year fixed – 3.75%, 7 year fixed 4.25% and 10 year fixed 4.75%.

Portfolio loans starting at 4%

Whether you own a small 5 unit building or have 200 units, Robert Bonahoom and Angela Christianson have an outlet for you. Fast service and no bull.

For a free quote please send us the following:

1) Personal Financial Statement

2) Operating Statements YTD, 2010 and 2009

3) Current Rent Roll

Call us with questions at 651-485-3710 or email us at rbonahoom@houseloan.com

Robert J Bonahoom

Senior Loan Officer NMLS#209013

Stan is a local apartment building owner with a nice 10 unit building in St Paul. His mortgage was on a 5 year balloon and was approaching it’s term so he figured it was time to get with the banker to renew the loan for another 5 years. He figured this process would be fairly easy,  after all, he’s always made his payments on time and has a solid equity position on the building.  Stan approaches his banker who says “sure we can help you” . After 2 months of  getting the banker a ton of paperwork  than was more painful this his annual doctor visit, Stan patiently waited for the committee to approve his loan for another 5 years. Much to Stan’s dismay however, his banker calls after two months to tell him the bank would simply like to be paid off and doesn’t want to “entertain” another 5 year extension. Apparently Stan’s bank has lost it’s appeitie for these types of loans. Stan scratches his head and says what type of loans do you guys want? I’ve made every payment on time.   Now in a panic, he wonders what do to… Does he risk losing the building? Are banks not lending anymore even to good customers?

If you have found yourself in a situation similar to Stan, please look no further. We can help. My partner, Angela Christianson and myself have devoted countless hours to building relationships with Fannie, FHA, insurance companies and large and small banks to step in where your lender has fallen short. We have solid lending solutions for apartment buildings large and small. Our normal process is to get you a quote within 24 hours of submitting the operating statements to us and a full underwriting commitment can be done on most loans in 7 days. Through our relationships, we know who is lending and who isn’t. Many times banks goals and lending desires change. Angela  and I stay on top of this market to see who is doing what so you don’t have to.   If you have an apartment building large or small in the Twin Cities were urge you to give us a call. Please call Robert J Bonahom at 651-485-3710 or email at rbonahoom@houseloan.com.

Robert J Bonahoom

Senior Loan Officer Cornerstone Mortgage NMLS#209013

I read an article recently starting that 30% of the homes listed today are in need of some type of minor or major repair.  Listings are down dramatically in the Twin Cities with total inventory hovering around $24,000.  (We were above $40,000 in 2006). This is offically a seller’s market. Buyers in this kind of climate need a competive advantage. At Cornerstone Mortgage, we have a tool in the tool belt not often used by buyers and realtors to get the deals that need renovation. Where most buyers and investors think they need cash, Cornerstone Mortgage offers great rehab financing for both owner occupied buyers and real estate investors. For the owner occupied buyer, Cornerstone likes to utilize the FHA 203k loan. This loan requires only 3.5% down payment and allows a buyer to finance removations with a total project cost up to $365,000. Projects as low as $5000 on up will be considered. Rates for this 30 year fixed product are currently around 4.5%. There are a few lenders in the market that offer this program but I believe Cornerstone is one of the best at it.  We close most of these loans in 60 days or less. We also underwrite and fund the loans and draws in-house so the delays are minimized.

For the real estate investor, we have a 6 month rehab contruction loan where the investor can  finance 100% of the purchase and rehab cost of an investment property. The investor has to open up a CD account at the bank for 20% of the loan amount to be used as security. Once the property is fully renovated, most investors refinance the property with Fannie Mae or sell the home immedately for a profit. The 20% CD account is then forwarded back to the investor. If the investment property appraises well, investors can buy a property with very little cash out of their pocket….. yes you heard me right!   This program works great for the investor with 50k to invest. Instead of buying only one property and being tapped out of money.\ We can ussually get them three properties as long as they qualify. For more information on these products contact Robert J Bonahoom at Cornerstone Mortgage 651-485-3710.  NMLS#209013

Do you have an apartment building but are concerned about your mortgage? Is your note ballooning some time in the near future? Fannie Mae offers some great long-term solutions for apartment building owners.

Here are the basic terms:

* 80% Loan to Value

* 10 year fixed rates

* 30 year amortization

* 1.25% DCR Coverage

Fannie Mae does lend money to people owning apartment buildings. In this market, they tend to be more liquid and flexible than the local banks. Call us for a quote on your building 651-485-3710.

Robert J Bonahoom

NMLS# 209013

This article below from Michael Cohn from Accounting Today  states that the IRS is going on the offense against the real estate investor. Make sure you are using a reputable accounting firm to prepare your taxes. We highly recommend Greg Nelson with Olsen-Theilen at 952-829-3402. You can find his info on the www.mnrealestateshow.com website.

….From: Accounting Today for the Web CPA, March 9, 2011 By: Michael Cohn

The Internal Revenue Service has agreed with recommendations in a newly released government report urging the agency to increase its examinations of individual tax returns that report losses from rental real estate activity. The report, by the Treasury Inspector General for Tax Administration, was conducted because a Government Accountability Office report in August 2008 found that at least 53 percent of individual taxpayers with rental real estate activity for tax year 2001 misreported their rental real estate activity, resulting in an estimated $12.4 billion of net misreported income. The objectives of TIGTA’s review were to evaluate the IRS’s scrutiny of individual tax returns with rental real estate activity and to recommend changes to help identify, select and examine tax returns with rental real estate activity. TIGTA found that during fiscal years 2008 and 2009, the IRS’s rental real estate Compliance Initiative Program examined only a small percentage of the 318,339 examinations conducted by revenue agents and tax compliance officers. TIGTA projected that if the IRS were to increase the percentage of rental real estate CIP tax returns it examined, it could increase potential tax assessments by $27.3 million over a five-year period. “Given the magnitude of underreporting in our voluntary system of tax compliance, even small improvements in the IRS’s examination of tax returns with rental real estate activity could increase taxpayer compliance and generate substantial additional revenue to the federal government, helping reduce the tax gap,” said TIGTA Inspector General J. Russell George in a statement. IRS management agreed with all of TIGTA’s recommendations, disagreeing only with the report’s proposed monetary outcome measures. In its report, TIGTA recommended that IRS officials conduct an analysis to determine the population of tax returns with rental real estate activity that meets the criteria for inclusion in the CIPs. The IRS should also revise the instructions for Form 8582 to require all taxpayers with prior-year unallowed passive activity losses to submit the form with their tax return. The report also recommended that the IRS ensure that the information taxpayers provide to report the net amount of income earned or losses incurred from being a real estate professional is transcribed. IRS management agreed with all three recommendations. The IRS, in connection with the development of compliance strategies, plans to consider whether additional CIP examinations are appropriate. In addition, the IRS plans to revise the 2011 instructions for Form 8582 and transcribe the information taxpayers provide to report the net amount of income earned, or losses incurred, from being a real estate professional. “We will ensure the information taxpayers provide to report the net amount of income earned, or losses incurred, from being a real estate professional is transcribed,” wrote Christopher Wagner, the commissioner of the IRS’s Small Business/Self-Employed Division. “These changes will assist in selection of the most high-risk returns for audit.” However, the IRS disagreed with the proposed monetary outcome measures. “Since the dollars per hour figures were calculated based on actual examinations that were ranked and selected for examination based on their potential yield, the characteristics of these cases are not necessarily an accurate representation of the entire remaining population,” Wagner wrote. “Therefore, because the results of the cases examined do not necessarily represent results from cases not selected, projecting differences in revenues across unexamined cases does not produce accurate revenue estimations.” TIGTA said it computed the outcomes conservatively using historical data from the examination program. TIGTA officials maintained that the potential $27.3 million of increased revenue over a five-year period is reasonable considering the assumptions used to calculate the estimate.

Robert J Bonahoom

651-485-3710

NLMS#209013

With the rapid number of foreclosed homes being listed on the market it is very important to know how to purchase a bank owned home.  The process is different for buying a HUD owned home.  Please join HUD home expert Zach Skattum from 6:30 to 8:00 on April 6^th 2011 at Cornerstone to learn how to buy a HUD home.  This class will cover the basic ins and outs of purchasing a HUD home and your financing options when purchasing.  HUD homes are becoming more and more common in our market place and if you are purchasing a home for personal or as an investment this is a must attend seminar

The seminar will be held at 436 Gateway Blvd, Burnsville, MN 55337.  To register, call me at 651-485-3710.