Anyone getting financing on

Question

As a followup to another thread that was posted on getting bank financing on inexpensive SFRs (sporting caps of 24-36% and up).

Has anyone, anywhere, been able to get local bank or credit union financing (at least 5 yr term, could be amortizing loan or LOC, but not short term rehab financing) on SFRs where the total investment is below $30K.  This would be using either a blanket loan w/ several properties as collateral, or a single-house loan.  And this financing would need to be obtainable within the first year after having paid cash for the property.

If you have done this, please describe the terms of the loan.

Thanks.

Chris Martin · Answer

The first time, we didn't. It is set up as a true collateralize pool over about a dozen properties. Implementation wise it is a single D-T w/ Future Advance Clause, secured by tracts (exhibits) in a similar setup as you might see for a developer (even though we aren't a developer). We could potentially release single parcels if we want, but there is no explicit "agreement" per the D-T that the lender do so. Instead, we take draws (to acquire), fix, lease and stabilize properties, then group up a tranche (for lack of a better word) and "backfill" the pool from proceeds of the tranche.

From the outside, some may say this tranche stuff just looks like a cash-out refi. Nothing special. But not really. First, no cash is involved. Effectively, we convert Short Term Debt (from the pool) to LT Debt (5 or 7 yr.) by creating (originating) a set of new single parcel D-Ts for each stabilized property. Also, there was no real initial financing (no D-T) since funds came from "in-house" via the collateralized pool. The net effect is we look like "cash" buyers even though the acquisition is 100% financed.

Steve Babiak · Answer

Chris Martin - when you do these blanket loans, do you have the agreement set up where there is some amount that will release a single piece of collateral (so that if a good offer comes in you can sell)?

Chris L. · Answer

Hey Bryce,
I will have the loan paid for in less than 5 yrs most likely within one year.  However, should that not come together I will refi the loan.
Chris

Bryce Y. · Answer

Chris Martin Chris L.

What is your plan for when the balloon comes due?  Refi again?

Jon Klaus · Answer

And local banks want the full relationship with the local investor. They are thinking long term depository relationships.

Steve Babiak · Answer

In the event that a bank has to foreclose (worst case scenario for them), it is easier to serve notice of foreclosure to somebody locally than to somebody located remote.  Might be other reasons too.

Chris L. · Answer

Hi David,
These properties were rehabbed and rented.  I bought them from a retiring landlord couple.  
The bank did partial appraisals on these properties.  Cost me $5500.  
They will also do cash out refi's.  However, this bank will only loan in the NE Indiana area and you actually have to live here.  About 3yrs ago, a BP member was going to buy 5 of our properties.  I was coordinating everything and he was just about to buy a ticket to fly in and my banker caught that he did not live here.  You not only have to buy here but you have to live here.  I do not understand that criteria at all.

As far as helping others, I really enjoy doing that.  If I can create a win scenario for them and a break even for me then I am all for that.  My most recent student was a 21 yr old friend of my son.  He bought 3 of our properties for 87K.  He is a college student but has saved his money and had almost 25K in the bank.  He was making about $10 per month in interest from the bank.  After everything is calculated, he now makes about $500 per month from the rental properties.

Chris

David Beard · Answer

Were these properties already in rentable condition?
Is this bank willing to do cash-out refinancing on rehabbed properties already owned?
Did they do full-blown appraisals on all 42 homes?

David Beard · Answer

But you're dead-on that the ability to get full up-front financing on an already rehabbed property is a huge help in this financing environment that frowns on cash-out refi's and such.  It is one of the chief benefits of the turnkey vs DIY model of acquiring rental properties.

Chris Martin · Answer

David Beard Regarding "has anyone been able to "sell" this concept to a bank that otherwise had policies in place that didn't accommodate this type of lending?" That's effectively what I did 5 or so years ago with my current lender. They initially really didn't get the model. 'You buy property... then you what? (pause) Hold it? (unspoken) really?' This bank was used to dealing with developers. I knew this going in. I read their 10-Ks, FDIC reports, last 4-6 10-Qs. You have to know who you are talking to. The task was to differentiate myself and my company and stress the value of the recurring revenue model (and profitability) vs. the builder business model. It took me a few meetings and a lot of Quickbook reports and 'pitching'. BTW other banks where we had a banking relationship dissed me. We don't bank there anymore (these banks have since rebranded after a "change of control").

Anyone getting financing on <30K properties?

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