what is "hitting the wall"? - Posted by JH

Posted by Beverly on January 03, 2004 at 13:31:32:

Or you can go the route of “alternative financing,” using a “stated” loan or no doc or low doc (“documentation”). There’s a loan for just about every situation.

what is “hitting the wall”? - Posted by JH

Posted by JH on January 02, 2004 at 12:29:28:

Saw this phrase used in another post.

It was used with respect to the difficulty implied in obtaining more and more financing after having done more and more deals (if I read it right, there seems to be an issue in getting lenders to write more and more loans as you acquire more and more property)

Could someone elaborate?

Is there some sort of imposed limit on the number of loans which one person / LLC, etc. can have outstanding at any point in time?

From the view of a novice, if FICOs are high (700+) and adequate down payment(s) are available (say 10 to 15%) on properties with 4 units or less AND the payment histories are current - what is the issue?

Why wouldn’t the banks fall over themselves in an attempt to write more loans to those with a proven track record?

Further, when would limitations come into effect, if any - with respect to properties containing 5 or more apartments?

If these limitations do exist, how does one accumulate wealth?

Thanks - my apologies if this seems to obvious to others…

Re: what is “hitting the wall”? - Posted by Ed Moore

Posted by Ed Moore on January 03, 2004 at 19:44:15:

There’s a limit many institutional lenders impose on how many mortgages a person can have showing up on their credit. When you hit that limit, it’s no deal regardless of your profile. It has to do with the risk of a borrower being overleveraged. Some lenders use a dollar amount, others use a property limit.

Losing the power of financing. - Posted by Keith Thomas

Posted by Keith Thomas on January 02, 2004 at 18:18:13:

“Hitting the Wall” means you run into trouble getting financing for your deals. And if you can’t get financing your going to have problems doing deals.
There are many reasons people begin to lose their ability to get lenders to finance them, usually from overleveraging themselves or pyramiding their credit. The problem I see with most investors is they are buying and holding properties without enough cash flow for the lenders to feel comfortable in giving them another loan. Most lenders only use 75% of rental income as a “real” number when underwriting loans. So your rental properties better really be cashflowing if you plan on holding them.
Just my 2 cents.
Good Luck


Re: what is “hitting the wall”? - Posted by wes

Posted by wes on January 02, 2004 at 13:44:22:

It is all about how much risk an individual lender wants to accept.

It may look simple to you but there are issues of which you may not be aware.
The biggest and most obvious is that lenders do not want to go through the headache of forclosing on a property. Most smart REI use leverage in some form. That can also be a house of cards and most lenders have made a decision as to how much of your house of cards they want to be liable for in the event yours collapses.

Second and maybe equally important. When a lender takes back property, it is a non-performing asset on their books. As long as it is in their possession, the lender has to hold funds in reserve to cover the loss of this non-performing asset. This amount in reserve is not available for the lender to lend out, thus no income.

Needless to say, lenders do not like non-performing assets. Therefore they decide on the amount of risk they choose to accept.

Although basic, hope this gives you at least a partial answer to your question…

Re: what is “hitting the wall”? - Posted by JB

Posted by JB on January 03, 2004 at 11:20:38:

WAMU - Washington Mutual does not have a limit on a number of investement properties one person can own. Provided of course, a new loan qualifies by guidelines (28/36) ratio. All your housepayments and other debt combined cannot exceed 36% of your gross monthly income.

Re: what is “hitting the wall”? - Posted by Wes

Posted by Wes on January 03, 2004 at 17:47:49:

JB, you are correct that WAMU has no limit on the number of properties an individual borrower can have. However, I believe you will find they do have a dollar limit of $2,500,000 per borrower.