All would-be investors would inevitably have to address the elephant in the room somehow: where do you get the money to purchase an investment property? Answering this question is Caeli Ridge, the CEO of Ridge Lending Group and an expert on getting mortgages for investment properties. Joining Monick Halm in this episode, Caeli carefully explains the mechanics of securing mortgage loans to finance your real estate investments. As an investment lender and real estate investor, Caeli has an incredible understanding of both worlds and how they come together in the lending process. Listen as she explains how conventional loans work and how you can avail of them.
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Mortgages For Investment Properties – Interview With Caeli Ridge
I’m excited because we have not only somebody who is a successful real estate investor, but she’s also in the mortgage industry. One of the biggest questions that investors have is, “Where am I going to get the money to purchase my investment property?” Our guest, Caeli Ridge, is the expert on that. She’s spent years as a nationwide investment lender. She’s a real estate investor having held 42 properties across the United States. She’s the Owner and CEO of Ridge Lending Group. She works with thousands of investors and has helped more families realize their dreams of financial independence through real estate than any other mortgage lender in the country. RLG is the preferred lender for dozens of investment networks nationwide, making her a true leader in real estate lending. She possesses extensive knowledge and experience in all aspects of real estate finance. I am thrilled to have her here. Welcome, Caeli.
Thank you so much, Monick. I am happy to be here with you and your readers. I can’t wait to share whatever information I can with everybody. I have to start by saying I am in love with the title of the show. Could it be any more appropriate? Real Estate Investor Goddesses, I love it.
You’re definitely a real estate investing goddess. I met Caeli at a Women Real Estate Network event. I was blown away by her. I’m thrilled to have her on the show. I’m going to ask you questions about lending. I want to start with your real estate investing. How did you get started in real estate investing?
It’s maybe a funny story. I was a pre-med student at the time and I had gone back to school a little bit later in life. My father was in the industry already. He had started purchasing real estate for himself, seeing some of the writing on the wall. This was in the late ‘90s, I would say. I decided that being a starving student at 25, 26 was not working out for me. I went to my dad and said, “Dad, give me a shot and I won’t let you down.” The rest is history. Together, we took the industry by storm. Most of your readers or probably some of them anyway, and I’m sure you’ll relate to this, Monick, it was good timing in the early to mid-2000s where you couldn’t make a wrong move. We did well. That’s my early starting story.
You were mostly doing single-family residential. Is that what you’ve been investing in?
Yeah. For me, personally, my focus has been residential. The single to four units, I would say of all the properties we held, the majority was single-family. We did have some 2 to 4 units as well though.
How did you get started in lending?
Maybe I should start by saying Ridge Lending is a second-generation company that focuses on this investor space. It was 2 for 1. My father, Bill, started the company and was doing financing in general for homeowners and found that the niche for non-owner occupied was unique and didn’t have as much competition. He was seeing what those investors were doing and what their returns were like. He jumped both feet in and it spiraled from there.
It’s true that most lenders don’t know much about the non-owner occupied space and it can be hard to get loans in that way. How are you different from these other lending groups with your focus on investors?An educated investor is not likely to be a poor one. Click To Tweet
The comment was that the non-owner occupied type of lending and underwriting is unique and that couldn’t be more true. I’ll start with a fun statistic. I still haven’t gone back and gotten the 2016, let alone 2017 year yet. It might be fun for your readers to learn that in 2015, of all of the mortgage-backed securities that were resold on the secondary market, the ones that Fannie and Freddie bought, less than 3% of those mortgages were underwritten and secured by investment properties. To call it unique and specialized is maybe even an understatement. Anybody that has got a mortgage after the crash probably knows that the amount of effort that goes into this crazy imperfect process is intense, but then you throw non-owner occupied on top of it and it’s exponentially tougher.
What separates us is the uniqueness and that this is what our focal point is, also that we’re licensed nationwide. I hear that commonly where they’ve got a great relationship with their lender or broker or whatever it might be, but they’re only subject to that specific state and they don’t go outside of that state and people want to diversify. More than anything, the fact that I happen to be that real estate investor as well and have that dual understanding and knowledge base, it’s a unique perspective. I’ve been able to leverage some of that in meaningful ways, I hope, to help educate my investor clients. If there’s one value-add or our claim to fame, most people would say that Ridge Lending is known for its education of its investors and great customer service, rates, terms and all that stuff. Education sets us apart.
An educated investor is not likely to be important back then. What kind of properties do you help investors purchase?
Because our focus is here in the investor non-owner occupied space, we have the opportunity and the ability to do almost anything when we’re talking about housing from residential, single-family, up to four units and then commercial properties, to five units and above up to 100-unit apartment complexes. We can look at strip malls and retail space stuff. To be honest though, that’s not going to be competitive in our wheelhouse. Anything housing-wise, we’re competitive. Our focus though, I would say maybe 80/20, is the residential four units and below.
Since the housing crash, there has been a change. What is it like now?
I would break this up into a couple of pieces in terms of availability of credit, underwriting guidelines and then maybe interest rate. When I do these shows or I’ll speak to a group, education-wise, the interest rate is always a focal point. I’ll break it up into those three pieces, starting with product availability. I’ve found that as enough time goes by, the options and opportunities and availability of mortgage or lending credit continues to increase. In some ways, I’m starting to notice that people have rather short memories. It wasn’t all that long ago that the world was ending and people were losing homes. It was a gnarly time.
The product availability is expanding. I’m starting to see products out there that I wouldn’t say they’re irresponsible in a way that many would have described 100% loan-to-value stated income and stated asset loan for an investor. We didn’t do those anyway. It’s not that prevalent. That’s not where we’ve come. I am starting to see more secondary market investors that are doing non-owner occupied loans for a debt service ratio underwrite, which means that it’s less about the qualification of the individual and it’s about the debt service ratio of the property itself. There’s not a lot of income calculation there. The LTVs are still 20% down. It’s loosening of credit for sure. Opportunities are starting to present themselves.
The underwrites, even from a Fannie and Freddie perspective, are starting to get a little bit, loose is not the right word to describe Fannie and Freddie because it’s restrictive. The conventional loans, it’s the highest leverage at the lowest interest rate that you’d find on the planet. Given that golden rule, you have to expect some restrictions and scrutiny in the underwriting. I find that there is some easing a little bit in that. It still seems to be two steps forward, maybe three steps back in regulation and in some of the other things. We’re seeing some additional changes. I certainly am not going to get into any diatribe about my political affiliation. With the commander-in-chief that we have, I’m seeing that there may be some additional loosening of credit guidelines with regard to the CFPB and some of the changes. Overall, it’s positive for most individuals what we’re seeing in the environment for availability, underwriting guidelines.
I’ll segue into interest rates. Here’s where we may go downhill a little bit. Keeping it in perspective, we’re still at the lowest place. Although the Feds did raise rates in the middle of December of 2017, it was expected. We didn’t see any huge increase after that. The trickle effect has started to show itself. In fact, we had a rate increase that was material enough that showed a full eight to a quarter of a point in the long-term mortgage rates for investors. That’s probably been the most substantial increase I’ve seen. Rates are on the rise, but most people are prepared for that. Let’s not forget that interest rates and rental income rates, the rents that we’re collecting, they are closely tied. Even if they don’t change simultaneously, there’s a 6 to 8-month lag. We investors always know that when rates go up, rents are going to go up too. There’s some protection in that.
As an investor, most of the mortgages I’ve been getting have been in the commercial space, the larger 50-plus unit buildings. It is nice to know that there’s more availability and it’s easier because I was buying single-family homes in 2009 to 2015 and it was tough. We couldn’t get a mortgage. We had to either pay all cash or go to hard money. It’s nice that there are more conventional products that are available.
Before we go on, let me clarify. I don’t want to set the wrong expectation for your investors. We’re still going to require DNA samples and some vials of blood. Let’s be clear, we can get the loans.
It can be challenging. Who is the ideal borrower? Who’s the borrower that has the easiest time?
Let’s give a baseline. We’ll talk residential and conventional. I would say that we’d probably want to see a minimum credit score of 650. That’s not to say that you couldn’t get approved with below, maybe as low as 640. With the low credit scores, expect to be able to show some compensating factors which would be strong assets maybe or a low debt-to-income ratio. For the asset piece of qualification, you’re going to want to be able to show liquid funds equal to the amount of your down payment. There are some rules and regs to quantifying that. Also, the reserve requirement for the asset. Those don’t have to be liquid. They can be liquid or non-liquid. There’s a reserve component there as long as they have the availability of that assets to show, great.
The debt-to-income ratio is a little bit more complicated. I’ll try and keep it simple. That’s the other component that’s most heavily weighted in qualifying an individual. The threshold for DTI or Debt-To-Income is 50%. This is for a straight wage earner. It gets a lot more complicated for the self-employed and if you’ve got K-1s and S corp. For the straight wage earner, the simple formula is 50% off the income that they can show. That 50% is almost exclusive to the credit report, the monthly payments shown on the credit report. There are a few exceptions to that. Things like your living expenses, utilities, cell phone bills, food, gas, etc., none of that is quantified in the debt-to-income ratio. As an example, if you made $10,000 a month, you could not have more than $5,000 a month of monthly expenses showing on your credit report and still qualify to keep that 50% threshold.
Would they consider any of the income a property would deliver?
Yes. The nice thing about conventional financing, one of the only generous things about Fannie and Freddie guidelines is that in the acquisition year, the year in which the property was purchased before, it will fall on the Schedule E, which is where rental properties will go on your federal tax return. Before it hits the Schedule E, the acquisition, your formula is almost always going to be to the individual’s benefit. It’s simple. We will allow 75% of the gross rents and then we will subtract from that number the total monthly mortgage payment or what we call the PITI, Principal Interest Taxes and Insurance.
As a real easy round number example, if your gross rents were $1,000 a month and your PITI, your mortgage payment was $500 a month, in underwriting that scenario, we would give you 75% of $1,000, $750. We would subtract the $500 PITI, leaving us with a $250 positive. That $250 positive now goes into the income column for that individual. To answer your question, yes. We get to use the rental income to offset the debt. I can tell you since the crash, that formula will only ever serve to produce a positive number. Whether $1 positive or $250 to the example will depend on the property in the market. It should be to the individual’s benefit.
That’s helpful to know for people who are wondering, “Is this a route that I could do?” This doesn’t sound crazy. You definitely need to be able to prove it. Let me back away a little bit from the lending and ask more about your personal experience. I’d love to ask this question to the guests because I find that we learn much more from our mistakes than we do when things are smooth sailing and always going perfectly. What was your biggest mistake in your real estate investing career and what did you learn from it?
I would say lack of diversification is probably where I got myself in the most trouble. Looking back, my most aggressive acquisition phase was in the pre-crash. That particular real estate cycle was all appreciation. Of all the properties that we held, none of them cashflowed. We were diverse in the markets, but not in the play of real estate. Even if they were very modest cashflow, I would have had some additional holdings that could have helped when things went crazy. Diversification would have been the one biggest thing I learned.
Where were you invested? Were you mostly in California?Be the dumbest woman in any room. Don’t be afraid to ask stupid questions. Click To Tweet
I was all over the US. Texas, Arizona, Florida, Mississippi, Virginia, North Carolina, some properties in Eastern Oregon where my home base is, Washington and Nevada. We were sprinkled out all over the US.
You were playing a pure equity game then. You weren’t trying to get cashflow as much as you were doing the equity.
To varying degrees, some of the negatives were $25 a month. Some were several thousand that were shorter holds that we would turn around and do what was called back in the day a double escrow. We did well, until we didn’t.
You’re focused a little more on cashflow.
Given that commentary, I would still clearly recommend to investors, newer or seasoned, it’s wise to keep that balance and diversification. I don’t think one of the others is the way to look at it. As long as the property is cashflow, there should be some varying degrees of where you want to put your eggs in markets that have some potential appreciation play in the long-term if it still cashflows.
The flip side on that question then is, what are you most proud of?
Out of sheer dumb luck, I’d like to say it was by design but probably default that I weathered that storm and we managed to keep it together and live to tell the story. We made it through. Rough doesn’t cover it. It was brutal, but we got through it.
Weathering the storm and not giving up, that’s definitely something to be proud of. To what do you attribute your success?
Relentless focus, that dumb, bull-headed, “I’m not letting this get the better of me. This is not bigger than me.” Maybe it was something, that fire in my belly that I was born with. Relentless focus and not giving up, that was one of my dad’s things. He’s an ex-fighter pilot. He used to fly F-4s. One of the things I remember him saying as a kid and it was constant, “You never are the first to leave the dog fight. You’ll get shot down first.” Maybe not in those exact words, but that was the sentiment. Maybe that’s where it came from. I refuse to give up. I had so much blood, sweat and tears into it. I was not going to let it beat me.
What advice would you give a woman who’s starting out in real estate investing? What would you tell her?
I would tell her to surround herself with the appropriate support systems. Be the dumbest woman in any room. Leverage and learn and don’t be afraid to ask stupid questions. If this is something that she’s serious about, cold call. Get on the phone to people that you know have been successful in this and ask for ten minutes of their time and ask those questions, “What should I know? What can you tell me that might help prepare me for success down this road?” The support groups, your show, all of the education out there and the women. Maybe you can speak to this too, Monick. I’m sure your readers probably have the same stories. There’s something about the female connection and the support that you can find there that you don’t get or you don’t feel like you get, even if it’s an inaccurate assumption. Powerful women together, there’s nothing more powerful. Go out there and leverage those relationships.
Thank you for that advice. I want to do your trinity, which is a brag, gratitude and desire. Before we get into that, what is the best way for people to reach you or Ridge Lending Group?
Our website, www.RidgeLendingGroup.com, you can check us out there. There’s an intake form for people that want to get started with a prequalification or if they want to be contacted. Both options are available. Our toll-free number is (855) 747-4343. (855) 747-RIDGE is an easy way to remember. If someone wants to email, I’m on the distribution personally. They can reach us at [email protected] as well.
What you do is unique and valuable for investors. Anybody who needs that could use your services, contact Caeli. It is our famed trinity time. What are you celebrating? What’s your brag?
I would say the one thing I’m working on that I’m proud of or excited about is that I’m trying to put together a way that I can take my family and live abroad for a year. I want to take my kids and my husband. We’re looking at different areas in Italy to spend twelve months immersing ourselves in the culture and the language. There’s a lot of logistics and semantics. That’s my exciting brag.
I have that same desire. What are you grateful for?
My children’s health is the one thing that continues to come to mind. That would be the number one “grateful for” thing.
Lastly, what’s one desire?
My desire is to continue to find joy in the simple things in life. A lot of what got me through the rough time after the crash despite all of the insanity, the loss and the stress is I was able to find laughter every day, somehow in the midst of all of that. I’ve kept that close. I don’t know if that’s a desire, but I would say continuing to find joy in the simple things.
So shall it be or so much better than you can imagine. It’s a beautiful trinity. Thank you so much for being on the show. Thank you for the informative talk. It was great. You guys can reach her at RidgeLendingGroup.com or (855) 747-RIDGE. You can reach me at RealEstateInvestorGoddesses.com. You can get my free eBook, The Real Estate Success Blueprint: 7 Crucial Steps Every Woman Must Take to Be a Successful Real Estate Investor. You can get links to join our private community there. Thanks to all of you guys for reading. Catch us next episode for another great real estate investor goddess interview.
About Caeli Ridge
Full-Service Mortgage Banker/Broker. As a real estate investor working in the lending industry, the last 20+ years has earned me the experience and knowledge base necessary in helping my clients navigate the often volatile waters of the loan process.
Through our dedicated focus toward education and one on one personal attention we continually strive to be #1 in our field, while providing the most competitive terms the market place has to offer.
Specialties: Specializing nationwide in both Non-Owner Occupied and Owner Occupied Residential homes.
Ridge Lending Group A DBA of Geneva Financial LLC NMLS 42056
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