Best way to leverage paid off properties

19 Replies

Hi,

I've been buying and holding my rentals for 6 years now (mostly duplexes) and have poured money into paying them down and off.  Currently have 4 out of my 8 paid off.  I want to purchase more and maybe get into something bigger like 4 plexes.   My question is how best to leverage my props?  I don't have much saved up for a down because I've been throwing cash at the mortgages.  Any advice?  

I would do a heloc and stop paying off your properties. This should let money rejuvenate  and add up fast to pay off your property

Why can't you refinance them?  Did I miss something?

Home equity line of credit (HELOC)

A second mortgage with a revolving balance, like a credit card, with an interest rate that varies with the prime rate. Pronounced HE-lock.

Medium mogul logo web smallPeter MacKercher, Mogul Realty | [email protected] | 314.210.4414 | http://stlmogul.com | MO Agent # 2010004223

Borrowing money on your seasoned property is probably going to be your easiest source of decent loans.  Selling one or two and getting a bigger property would be another option.

Easy answer. Get a line of credit and never, ever, pay off a mortgage.

Imagine earning 40-80%...or even 100-200% return because you have so little in each property. Pay them off and suddenly earn 10%.... Easy answer.

This is what we did to grow our portfolio.  We bought with cash and then did the rehab.  We sought out the loans after placing a tenant.  We used portfolio lenders at local banks.  It was slow at first because we would only get 80% of what we had in the properties, but after a few, we could get 85% of the current agreed upon value without an appraisal.  Emails with pictures and we closed within two weeks.  

Having the property paid off took all of the stress out of the property. Then when we got the loan we made anywhere from 25% to 80% ROI's. One property was even an infinite return because I got $15,000 more out of the refi than I had into the property and it still cash flowed >$300/month.

This helped us grow while we lived in a good rental market.  I know it is contrary to some of the math focused investors here, but we paid them all off with the proceeds of another house sale recently.  I feel like I locked in my gains here.  This secured our retirement, and now all of the money goes toward future growth.  

Originally posted by @Paul Wurster :

This is what we did to grow our portfolio.  We bought with cash and then did the rehab.  We sought out the loans after placing a tenant.  We used portfolio lenders at local banks.  It was slow at first because we would only get 80% of what we had in the properties, but after a few, we could get 85% of the current agreed upon value without an appraisal.  Emails with pictures and we closed within two weeks.  

What kind of terms do you get with portfolio loans?

Paul,

Your reply makes the most sense to me and my strategy. I'm working with a local lender now. We are doing sort of a portfolio I guess but they still limit me to how many doors I can have a loan on (10 doors). And they will do 80% LTV and I suspect as our relationship grows they may do more and be more flexible with me as you mentioned your bank is with you.

Thank you for your reply, its good to hear from some else that has a similar sounding strategy.   

@Mike Margetts   I would go to a couple of your local lenders and see if they can provide you with at portfolio loan on all six of your properties.

Medium wolfcat properties llc logo cJoseph Catalano, WolfCat Properties, LLC | [email protected] | 716‑402‑1843

@Joseph Catalano  hi Joe, do you know any local lenders here in Buffalo, NY or Rochester, NY that will do just what you suggest?  I soon will have 5 properties all free and clear, and I need to pull some of the cash out to replenish the till so I can repeat the process.

Thanks,

-Dave

@David Stott  

I have not used a portfolio loan.  However, M&T has been very good to me in setting up some of my financing for a couple of properties that we are putting offers on in the next couple of weeks.

I have been told that small community banks are much more willing to make these types of loans for local investors.

Medium wolfcat properties llc logo cJoseph Catalano, WolfCat Properties, LLC | [email protected] | 716‑402‑1843

I'm on the other side, the idea of going back into debt after having F&C income properties is not appealing. Simply using the cashflow from the F&C properties to purchase additional units reduces stress. At this time the main problem is finding deals.

@Mike Margetts  Your equity means nothing until you use it. The last recession should have taught us a lesson. If you are sitting on 4 properties free and clear, you need to refinance all of them and use the money to buy 10 more by spreading the money as down payments on 10 more houses. That's maximum leverage. If you let the equities sit there, you can lose the equities or have it all diminish if we have another downturn. If you plan to buy 10 more houses, just buy and flip them so that you always have cash. I learned that lesson when I accumulated 40 rentals and was always broke. The moment I began flipping, I had so much cash and I have not had another rental since, even though I have bought over 400 houses.

 

@David Kleinfeld  The loan terms were all ~5% interest on 20 year amortization loans with a 5 year balloon.  

Don't go to the banks looking to fill out a loan application.  Go there with your successful business looking for investors.  The banks are looking for you.  As long as your deal is safe and profitable, you are doing them the service by walking in.  I think there is a current blog on running your real estate investments like a business vs a hobby.  That is spot on.  The most successful people have a game plan and work it.  Those who dabble and quit are really just hoping that it will all work out.  

Originally posted by @Paul Wurster :

@David Kleinfeld  The loan terms were all ~5% interest on 20 year amortization loans with a 5 year balloon.  

Don't go to the banks looking to fill out a loan application.  Go there with your successful business looking for investors.  The banks are looking for you.  As long as your deal is safe and profitable, you are doing them the service by walking in.  I think there is a current blog on running your real estate investments like a business vs a hobby.  That is spot on.  The most successful people have a game plan and work it.  Those who dabble and quit are really just hoping that it will all work out.  

 ....and "hope" is not a business plan.

Originally posted by @Paul Wurster :

This is what we did to grow our portfolio.  We bought with cash and then did the rehab.  We sought out the loans after placing a tenant.  We used portfolio lenders at local banks.  It was slow at first because we would only get 80% of what we had in the properties, but after a few, we could get 85% of the current agreed upon value without an appraisal.  Emails with pictures and we closed within two weeks.  

Having the property paid off took all of the stress out of the property. Then when we got the loan we made anywhere from 25% to 80% ROI's. One property was even an infinite return because I got $15,000 more out of the refi than I had into the property and it still cash flowed >$300/month.

This helped us grow while we lived in a good rental market.  I know it is contrary to some of the math focused investors here, but we paid them all off with the proceeds of another house sale recently.  I feel like I locked in my gains here.  This secured our retirement, and now all of the money goes toward future growth.  

 Where did you begin looking for these portfolio loans? I currently have(own) three properties valued at about 60k that are cashflowing $800 a month. I am looking to purchase a couple more and I would like to leverage these five properties to pick up one or two more. I have only owned the existing properties for about 5 months, so I only have about 4 months of rents collected. As for leveraging, I would like to not pay more than 5%-6%. Is this realistic? Does the borrowing go against me personally, or against my portfolio?

@Joshua Woolls  My lovely wife just started calling local banks and credit unions.  The first one we used was recommended to us by our property managers.  This helped us out because in the South, relationships matter more than just the numbers.  Then we presented the income statement for the property.  We showed that it was a great property even with the loan.  

Our loans were 5% interest.  That was a few years ago.  I'm sure you could do better than that now.  The borrowing goes against you personally.  Your portfolio is you.  They are not separate.  

I've heard of some limited lenders doing cross-collateralizing loans. Essentially using your equity to purchase other properties no cash down. It's not heloc, its specifically for what you're asking. Don't remember the ad on the radio but it's out there. Anyone familiar with this strategy?

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you