Attention: Key Changes Are Coming for Single Family Buy-And-Hold Investors

Attention: Key Changes Are Coming for Single Family Buy-And-Hold Investors

3 min read
Nathan Brooks

Nathan Brooks is the co-founder and CEO of Bridge Turnkey Investments, a Kansas City-based company renovating and selling more than 100 turnkey properties per year.

With more than a decade of experience in real estate investing, Nathan is a seasoned investor with a large personal portfolio and a growing business portfolio. Just last year, through Bridge Turnkey Investments, he helped investors add over $12 million in value to their real estate portfolios and has goals to crush that number in the coming years.

Nathan regularly produces educational content to fuel his passion for helping other people learn about and find success in real estate investing. He has been featured regularly on industry podcasts, such as the Bigger Pockets Podcast (#87, #159, #232, and #319), Active Duty Passive Income podcast, Freedom Real Estate Investing podcast, Fearless Pursuit of Freedom Podcast, Titanium Vault, InvestFourMore Real Estate Podcast, the Best Real Estate Investing Advice Ever show, the Good Success Podcast, FlipNerd, Wholesaling Inc., the Real Estate Investing Profits Master Series, Flipping Junkie Podcast, Flip Empire podcast, Think Realty Radio, and more. He is a sought-after speaker and writer, featured regularly on the BiggerPockets Blog and found on stage regularly at events across the country.

He is also part of multiple leadership groups for top executives, including Collective Genius, an invite-only group known as the Elite Investor’s Board of Directors.

In an effort to help investors further, Nathan started Bridge Real Estate Investing Meetup (BREIM) in 2018. The group’s tremendous growth earned it the title of “Largest Meetup in Kansas City” after only three months running, and it continues to grow daily.

Nathan is a passionate leader, well-respected investor, and friend to everyone he meets. He currently lives in Kansas City on his 11-acre property with his wife and two beautiful children. He loves to enjoy the outdoors, train MMA, and come up with new business ideas to crush.

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If you are a buy-and-hold investor seeking to grow your portfolio to include 20, 30, 50, 100+ units, there is awesome news for you in the market place. As of last year, Freddie Mac decided to jump into the single-family rental (SFR) space and begin funding larger-scale rental portfolios. This is exceptionally exciting, especially considering the additional tools for a space that has been pretty void of institutional funding on the larger scale.

Several Key Takeaways From the General Terms of This Lending Program

  • 50+ units to the portfolio
  • Minimum of $5M loan
  • 75 percent LTV
  • 1.25 debt service coverage ration
  • 30 year AM
  • 5, 7, and 10 year terms
  • Minimum of $50K value per door
  • Rates in the 5–6 percent range

Why is This so Exciting?

After speaking with several institutional players in this space, they were all extremely excited about this opportunity. The program is brand new. And only a handful of deals have been brought from opportunity, underwriting, and through to the closing table. But, there are many others now in underwriting, and these lenders are figuring out what these deals looks like, how to underwrite them more quickly and accurately, and how to help serve the clients in this space.

Related: Should You Invest in Five Single-Family Units or a 5-Unit Multifamily?

What Were The Details Around the Rental Criteria Component?

For the rental units themselves, there is a focus on being in the working-class neighborhoods — with specific focus on affordability. There is a strategic focus on units that are at or below the 80 percent mark of average median income. What does this look like? It is potentially section-8 units, and or the units that are on the lower rental rate in the market place. It did sound like there was some variance to the percentage of units allowed in the portfolio that exceeded this number, but the focus was on affordability.

To be clear, I am sure there are other additional details around the rent specifics. I’ll update and or write on this more in the future as I gain more clarity by working with colleagues, friends, and clients in these types of loan programs.

What if I Don’t Have 50+ Doors or a $5M Portfolio?

There is still great news for you. Many of the banks that are funding these deals also have programs that are geared toward putting deals of say, $500K, $1M, $2M together, and then transitioning them into Freddie Mac loans once the total units and value are within the criteria. I didn’t realize there were other programs for portfolio-type loans beyond those at the local community banks in each market. There is now a larger-type program that is well funded and underwritten, that we can look forward to being able to utilize in the future as the SFR space becomes more and more robust with the larger single-owner operators and institutional buyers entering the marketplace.

Why am I so Excited About This Program?

Plain and simple: after hearing about these programs all week, Freddie Mac brings attention, additional institutional money, and interest to the SFR space. Something I keep hearing over and over is now we (in the SFR space) have a “box” for these lenders to work within. Meaning, there is a loan type now for single-family units with a look and feel much like a multi-family product. For investors with less than the initial minimum set by Freddie, there is a larger focus for institutions to find ways to help investors finance these types of properties, and at scale. There has been such a void for lending beyond the 10 Fannie Mae doors you can currently personally finance — or the local community banks that typically don’t go beyond a 20-year AM. In addition, the community banks often have much lower lending limits on the portfolios they can fund.  The Freddie Mac program could run in the $100M-plus range for those investors with portfolios in that stratosphere.

RelatedThe 7 Vital Steps to Buying a Single Family Rental House

Final Thoughts

This is awesome news if you are a buy-and-hold investor. We finally have more options in the space, which will only continue to become more robust. Having more money and attention will bring more players to the lending side. Bringing more players will hopefully, in turn, make the products more and more dialed in for SFR investors — and better priced to bring your portfolios to scale.

Where have you had issue getting long term funding for your SFR portfolios?

What kinds of terms would be most important to you in your business? Share your thoughts below!