Hey BP community! I came across a promising opportunity on a duplex a couple days ago and I have an offer pending. I think we would be well on our way to closing on that duplex but the owner has 3 other duplexes in the same neighborhood listed right now and it seems as though he is more interested in moving all four properties in one transaction. I don't personally have the financial means to purchase all four structures but I am working on a potential partnership that would provide more investment capital to put an offer on all them. Given that each duplex is it's own property and we would be purchasing all four in one transaction, what options do we have in structuring loan(s)? We'd like to put 20% down and finance the remainder of the purchase. Should we just look at taking a traditional 30 year mortgage on each structure? I've done some research on blanket loans but I don't know how difficult it would be to sell the properties autonomous of one another down the road if they're all on one blanket loan. Is that an option we should explore further? What are the pros and cons of holding four independent mortgages vs a blanket loan? Are there other options we are overlooking?
Blanket mortgage for multiple properties being acquired at one time is a good way to go.
There are pit falls, you need a release amount for each property so they may be sold at a reasonable price with a reasonable reduction of the loan. Another down side is that your leverage floats at the same interest rate, if rates increase, all of your properties are effected.
The up side is some financing costs can be reduced, settlement costs, but each property still must be appraised, title search and insurance, 20/25% down as to the total loan to value of collateral (TLTV), so in the end, they aren't significantly cheaper, points may be less, that depends too on other underwriting factors.
Loan servicing matters are easier, an excuse for a better rate if you can negotiate that, but on your side, your accountant then allocates interest and principal reduction from total loan figures.
Unless you're looking at a portfolio purchase, it's better to nibble loans off as needed.
You can refinance several properties at one time, but consider what was just mentioned, that release amount being key. :)
The beauty of working with small portfolio lenders that do blanket loans is they can modify them as need be in the event of a partial sale.
Back to the deal at hand. Why not see if the seller would sell you all 4 duplexes on a land contract with the funds you do have as your down payment. Keep the deal for yourself vs. diluting it with partners. I once purchased 3 duplexes (decent ones) with around $5k in actual cash and a note for $15k secured by the equity in 3 properties I had financed with a small bank on a blanket loan.
I just closed a 12 unit complex this month with no cash down using a note secured by the equity in these 3 duplexes, which are now financed with my bank on yet another blanket commercial loan. Full circle!
Here's the link on the 12 unit success story.
Let me know if you have any questions and keep us updated.
Advice from what investors use to do isn't the best today.
You certainly want to go with a release amount, paying X dollars for the release of property # 3 instead of having some small commercial bank taking you through a refinance again for the remaining properties, a release filing is probably less than $50, what are they charging to refinance? LOL
Land contracts and Contract For Deeds are not even a good arrangement any longer, really for either party. Not all states have the same issues with consecutive or simultaneous deeds being executed but you can have issues of circumventing foreclosure laws in all states. Use a Subject-To transaction, take title, grant a security agreement and follow servicing, collateralization and foreclosure laws.
Originally posted by @Bill G.:
"Advice from what investors use to do isn't the best today."
I'll assume this isn't aimed at my advice. The LC on the 3 dups I mentioned was done 3 years ago and the 12 unit LC was done 2 weeks ago. Not exactly something that I "use to do".
Land contracts with the plan to refi has worked well for me in building my portfolio with very little cash and no partners. I've went from 4 units to 42 in about 3.5 years. I've already refinanced 6 of my 13 deals.
Thanks for the great feedback guys.
@Bill Gulley you're no/low money down strategy is very interesting and I appreciate you disclosing your strategy in such detail. It's certainly something I'll look at incorporating into the arsenal.
Thanks again guys!
@Brandon Hicks Zurek yes, computing blanket mortgage release amounts is to be determined before you close the loan. If a lender will go off of the sale/appraised value initially made, that is a good thing, often they will want to skew the release amounts to reduce the TLV more than on an even allocation. This is because you could sell off the 2 better homes leaving poorer collateral still outstanding at say 75/80% LTV on each, they'd rather see something like 60 or 50% left on those properties.
So it depends on the collateral, your ability to pay and a comfort level they may have. Should anyone have the intent to sell off properties, they should say so, work with the lender. In reality, you and the lender are partners of sorts, both need to make money.
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