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Building a rental portfolio

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Joe Salimao

Real Estate Investor from Blackwood, New Jersey

Apr 11 '09, 01:18 AM


Hi guys,
Here is my question.
How does one build a rental portfolio of say 30+ properties without tieing up your own money in the process? This is my goal but I see that it may be extremely difficult to get in and out of a property at <70% LTV. The reason I use 70% because this is the current max of a refi set by Franny/Freddie.
If I don't do this I don't see how I could get out without leaving my money in the property. If I left mnoney in say 10 properties I would be out of cash completely.
Maybe I can find mortgage companies that refi at a higher rate but this will of course affect cash flow. I can also look for subject-to deals.
I hear a lot of people say landlords only need a property at 80% LTV minus repairs but I am assuming they are leaving money in the deal.
What do you experienced investors who have a large number of properties do? Do you just have a large amount of cash to tie up?
Thanks for being patients.


Edited Jun 26 2010, 07:53


Michael Rossi

Real Estate Investor from Ohio

Apr 11 '09, 10:41 AM


Joe,

You can buy properties via owner financing, lease option, land contract, sub-2, and even bank loans without using your own money (although 100% bank loans are certainly tougher than they were in the past). In addition, you can buy at a HUGE discount and refi to get money to use on future properties.

You need to buy at a HUGE discount to be successful with rentals. Buying at 80% of the market value less repairs is normally not going to get the job done.

Good Luck,

Mike


Edited Jun 26 2010, 07:54


Joe Salimao

Real Estate Investor from Blackwood, New Jersey

Apr 16 '09, 12:48 AM


Anybody else have any ideas on this?


Edited Jun 26 2010, 07:56


Mike Reams

Real Estate Investor from Amarillo, Texas

Apr 16 '09, 05:59 AM


MikeOH covered most all of the options. The way I personally accomplish this is to purchase a property at 70% LTV minus repairs and closing. 80% will work but you have no room for mistakes, so you better make sure your are dead on with your calculations. Use a hard money lender. Complete the repairs under budget and refi at 80% of value. This puts roughly 10% back into my pocket. Purchase the next property the same way and pocket the profits. True you are out the cash at the beginning of each project, but you will get it back and it is also an incentive to get it rehabbed and rented quickly.
Hope this helps.


Edited Jun 26 2010, 07:57


J Scott Moderator Donor

Real Estate Investor from Ellicott City, Maryland

Apr 16 '09, 12:55 PM


Maybe others know of banks that will do it, but I've yet to find a bank in this market that will do a cash-out refinance without seasoning of any more than 80% of the purchase price. The seasoning is generally at least 6 months.

This means that you'll have to wait at least 6 months to get all your cash out of any property, at which point the banks will generally consider 80% of the appraised value for the refi.


Edited Jun 26 2010, 07:57


Medium_lishproplogoJ Scott, Lish Properties, LLC
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Jon Holdman Moderator

SFR Investor from Wheat Ridge, Colorado

Apr 16 '09, 01:44 PM


Even with the seasoning, 80% may be a challenge. 75% should be do-able on properties 1-4, 70% after that. That's the new Fannie Mae loan guidelines. I'd be curious if you've found a bank that would go up to 80% cash out.

The hard money/refi route works if you can find good enough deals. Pricey, because of the hard money interest, but its a way to acquire more property with less cash. Further, realize you're really paying the difference between the hard money rate and the permanent loan rate. So, its bad, but not quite as bad as it seems.


Edited Jun 26 2010, 07:57


Jon Holdman, Flying Phoenix LLC


John Klahn Donor

Real Estate Investor from Denver, Colorado

Apr 24 '09, 05:38 AM


I have built a rental portfolio of 10 properties using hard money lenders to finance the initial purchase and rehab of the project. I then would refinance the rented property with a 70% conventional loan. As Mike mentioned, you need to be very selective of the property that you buy so that you will be able to get a 70% loan. I suggest looking at the fixed up comps in the neighborhood before buying.

The one hurdle that I have is adding the 11th - 30th properties to my portfolio. Even with the portfolio lenders that I've found, they won't finance any property over your 10th investment property.

Does anyone have any suggestions as to how we can add more rentals?

Thanks,
John


Edited Jun 26 2010, 08:02


Eliott G.

Real Estate Investor from

Apr 24 '09, 09:02 AM


Just a question regarding 10+ properties...

If I have say 6 properties under my LLC, call it LLC #1

and then I start buying under a new LLC call it LLC #2 and I get 4 properties under LLC #2

If I get to a total of 10 total properties(6+4) under both LLCs, is this going to be a problem like John listed above?


Edited Jun 26 2010, 08:02


Michael Rossi

Real Estate Investor from Ohio

Apr 24 '09, 11:02 AM


No, you won't have a problem. When you are operating a real business in a business entity, you will normally get commercial loans. There is no limit to the number of commercial loans you can have.

In addition, John doesn't really have a problem either. The 10 loan limit is normally on the number of loans, not the number of properties. So, he could simply refi his first ten properties into a blanket loan and then he'll have 9 more loans to go.

Mike


Edited Jun 26 2010, 08:02


Fran Fagen

Real Estate Investor from Newport beach, California

Apr 24 '09, 11:10 AM


Originally posted by MikeOH:
No, you won't have a problem. When you are operating a real business in a business entity, you will normally get commercial loans. There is no limit to the number of commercial loans you can have.

In addition, John doesn't really have a problem either. The 10 loan limit is normally on the number of loans, not the number of properties. So, he could simply refi his first ten properties into a blanket loan and then he'll have 9 more loans to go.

Mike



Edited Jun 26 2010, 08:02


Fran Fagen

Real Estate Investor from Newport beach, California

Apr 24 '09, 11:14 AM


my problem is that I am trying to refinance my rental property to get cash out, but I am finding it impossible. I have more than 30% equity, and it is rented out with a small cash flow. but I have debt I need to pay off. I've had the property more than a year, in my LLC. but I have it in my own name/LLC, and don't want to use my husband's income-- he wants me to keep my rental separate. I don't have separate income to show. also, it is on a 2 year note with a small local bank in GA, and I'm worried about interest rates going up, and the necessity of getting a long term loan. should I just give up looking for something that doesn't exist?


Edited Jun 26 2010, 08:02


John Klahn Donor

Real Estate Investor from Denver, Colorado

Apr 28 '09, 02:44 AM


The blanket loan that MikeOH refers to is a commercial loan and requires a commercial appraisal. I've looked into this type of loan and it just doesn't make sense to take my 10 financed rentals that have great long term loans and put them under a blanket loan with a 5 year balloon. The solution, while feasible, is not a good alternative. I will continue to look for other ways to add my 11th-30th properties. MikeOH mentioned owner financing and sub-2. I am keeping an eye out for these all the time.

Thanks,
John


Edited Jun 26 2010, 08:04


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