Financing Rental Portfolio and Flips - Need Advice!

6 Replies

I have a small rental portfolio consisting of 3 SFR's and 4 MF units. All were purchased within the past 2 years with cash - no mortgages. The cash to purchase the properties was obtained through my flipping business. All rentals are owned 50/50 by myself and a partner and held in an LLC.

Me and my partner did not intend on purchasing so many buy and holds, but the deals that presented themselves were too good to pass on. As a result, much of our cash that we were using to flip properties is now tied up in the rentals. The thinking at the time was that we could just do a cash out refi after the properties were seasoned, and continue our flipping. Well, now it's proving very difficult to do that.

I've gotten the run around at several different portfolio lenders in the area, and they want 3 years of tax returns for the LLC, which we don't have (LLC that holds the rentals was formed in late 2013). They also only want to offer commercial loans with balloon payments due in 3-5 years since the properties are not titled to an individual.

I'm looking for advice on how to proceed. Our flipping business has slowed considerably because we don't have the cash to finance more than one deal at a time. We have 100% equity in the rentals that is just sitting there, but none of the portfolio lenders want to touch it.

Do I wait a year or more until the LLC has enough income tax history? Do I somehow title the properties in our personal names to get financing? I know there are tons of people on this site who are way smarter than me. What would you do?

Matt, try lending companies like B2R Finance. I think they are considered an "asset-based" lender. Also keep knocking on the doors to local banks because what you are talking about is right up their alley on the commercial side especially with as much collateral as you have with the rentals. I just did a blanket loan on 3 rentals with a local bank (commercial side). The standard where I am is 20 year loan with an adjustable rate after 5 years. Talk to folks at your local REI and see who they borrow from. Or ask for construction friendly lenders. I have found that most of the banks I speak with love the buy and hold lending, but will stay away from lending on flips. Good luck!!

Bob Couture, Real Estate Agent in MA (#9534609)
413-314-3583

Matthew Buttner I was actually in the same situation. The bank would not refinance us because we don't have the tax returns or enough income to show them. So this is what we did:

We opened a line of credit on another property that we owned free and clear. They financed 50% of the value. So now we basically have an interest only line of credit open, we are treating it like a mortgage as the buy and hold rental income pays it down.
The other thing we did was put the loan in our personal names. You don't need the loan in the LLC name. If you and your partner have better tax returns and credit scores on than the business that will help.

Why are the balloon payments an issue? Once you flip a property pay down the note. You're best case scenario with the banks is collateralizing 50% of the value. They won't want to take too much risk with you. But hey that's better than nothing and your buy and holds should be able to cover it if you bought them right

Originally posted by @Devan Mcclish :

We opened a line of credit on another property that we owned free and clear. They financed 50% of the value. So now we basically have an interest only line of credit open, we are treating it like a mortgage as the buy and hold rental income pays it down. 

The other thing we did was put the loan in our personal names. You don't need the loan in the LLC name. If you and your partner have better tax returns and credit scores on than the business that will help.

So you basically got a LOC in your personal names that was secured by a property owned by your LLC? I wasn't aware I could do that. Was it through the commercial department or personal banking? Are you using the LOC to finance flips or buy and holds?

Why are the balloon payments an issue? Once you flip a property pay down the note. You're best case scenario with the banks is collateralizing 50% of the value. They won't want to take too much risk with you. But hey that's better than nothing and your buy and holds should be able to cover it if you bought them right.

We would ideally be using the flip money for living costs and to purchase more rentals, not pay down the mortgages before the 5 years is up. With longer term financing, we could allow the rentals to pay themselves off and keep rolling the equity into new properties. At least that's the strategy I read about so much on this site (BRRRR). The investors doing that must be purchasing in their personal names because it seems very difficult to do if your properties are owned by an entity.

@Matthew B. The whole lynchpin to the BRRR strategy is the financing on the back end as you are finding out. It is not an easy as many think to find a bank that will do these loans, but they are out there.

As someone requested earlier, start by calling every single bank in your area asking if they do portfolio loans and what their seasoning requirements are.  Tell them exactly why you are looking to cash out and what you are going to use the money for when you cash out. 

 Lenders want to hear that you are going to be using the cash out funds for future projects and your track record (which you have) bears out the fact that you aren't just going to take the cash out money to buy a boat, you are going to use it to grow your business. 

The hardest part is sitting down and making the calls, but trust me once you find a bank and develop a relationship with them it will be worth the time and effort.

Michael Noto, Real Estate Agent in CT (#RES.0799665)
860-384-7570
Originally posted by : @michaelnoto

As someone requested earlier, start by calling every single bank in your area asking if they do portfolio loans and what their seasoning requirements are.  Tell them exactly why you are looking to cash out and what you are going to use the money for when you cash out. 

I made a list of 9 different portfolio lenders in my area and I've spoken with the loan officers at each. They all seem to give the same vague answers. I get the feeling they have a lot of "investors" calling about these loans and it almost seems like they don't believe anything you're telling them on the phone. Maybe I should go visit in person?

I've actually been banking with a portfolio lender for the past 2 years with the intent of using them for financing when the time came, but now they are refusing to lend on the ARV, and only want to lend on the purchase price, even though the properties are seasoned over 1 year.

we did it through personal banking; however, you can use commercial. We only had to pay closing costs on the loan. So now we have a 36 month revolving line of credit that can be renewed. Our strategy is to buy and flip a property for income to live then buy and hold to refinance and do this all over again. Basically we are going to obtain projects to pay off the credit line then once we have the cash to purchase something to hold we will do so. We are limited to that because we don't have W2 jobs. And we all know how well that goes over with banks LOL

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