How I bought ten homes in 2.5 years
Hi everyone, I’m still relatively new to Bigger Pockets, and I had a recent colleague request ask that I post this to help others out. The question is, how did I go about purchasing ten houses in 2.5 years. I wish there were a magic formula I could give everyone, but as many of you know, it’s not easy once you hit that four house limit with Fannie and Freddie. Our first four houses (including personal residence) were a breeze. We were able to get great loans with great interest rates fixed for 30 years. But, as soon as we purchased number four, no one wanted to work with us anymore.
I had used the same real estate agent for a few of the first four deals. When I told her about our dilemma, she pointed me in the direction of a local community bank that her other investors were working with. By the way, real estate investing is all about relationships and networking. My real estate agent knew exactly what to do. Now, the pros and cons of community banks. First, the pros: They’ll lend money on just about any amount under 50,000, whereas the bigger banks won’t touch anything under 50,000. The community bank will also consider a large portion of the rents received as income immediately, without having the tenant in the house for a year or more. The community bank that I work with keeps telling me, “buy more, buy more.” They need to make loans, and I need more inventory. Those are the upsides.
The downside to working with community banks: They will also require a hefty down payment of 20% to 30%. Mine requires 20% (but remember, if you’re buying a 30,000 or 40,000 home, 20% isn’t too bad with those amounts). The terms are generally much shorter with a community bank as well. The bank I work with will only do 15 year loans, and the rate started at 6.25, but recently has dropped to 5.75. Most community banks will not escrow either. So, at the end of the year I’ve got to go around to several county tax offices making multiple payments.
For me it just came down to I needed and still need more inventory, especially in Atlanta where prices are at rock bottom. So, I’ve decided to keep working with my community bank, but I have a bit of an exit strategy. I’m in the process of refinancing a few of them with Guild Mortgage. They are a nationwide direct lender, and they’re not overly concerned with how many homes I have. Their more concerned with our credit score. By the way, they’re also doing cash out refi’s on a couple of my properties. I learned about them through another real estate podcast. ***education is paramount***
I know the 20% is hard to come by for many, but I did whatever I had to do, to keep buying houses. That included taking a loan against my wife’s 401k (which is really good because it doesn’t show up on your credit report) and I took advantage of multiple credit card lines. If I needed cash for the 20% down, I would simply tap a credit card line just before the closing date. The bank never asked to see proof of funds, so I wouldn’t pull the money until the closing was close, just to keep the credit report clear. Now, the big key here and this is super important, pay off that credit card ASAP. Don’t fall into the trap of being saddled with bad debt. I would always pay back the ten or twelve thousand dollars before pursuing another house.
The key is, find money wherever you can, and don’t stop investing. Don’t listen to bankers or mortgage brokers when they say, “You can’t do that.” I’ve been turned down by pretty much every major bank you can think of. I’ve sat in more bankers offices with my hand out, only to be turned away. But, don’t let that stop you. When it comes to money, there are multiple ways to make money happen. (Thank you Robert Kiyosaki) Whether it’s through a bank, hard money, or private money lenders, see what’s right for you.
One other tool that I employed was using multiple community banks. I’ve got a property that has a ton of equity in it. I was able to pull out 30,000 from that property in the form of an equity line. Never stop thinking of ways to raise money, use what you have, and knock on as many doors as you can. Don’t forget about those relatives also. That’s pretty much the long and short of it, I hope this helps others who may have run into a wall. When someone says “You can’t do that” I become more persistent. Good luck.