How are people getting more than 10 loans?

27 Replies

I find that fannie and freddie cap you at 10 loans. To get 20 homes using BRRRR there needs to be many refinance loans.

How is this happening? How are folks getting around reserve funds for the next loan? 

Are private banks the answer? what kind of rates/terms are folks getting?

I have read that when people start to hit the hard cap they roll all the loans into a 'portfolio loan' or certain type of commercial loans with a small or local bank. This clears out the 10 active loan cap and you can start over again.

Hello Jason,

You need to find a reputable portfolio lender. The amount of financed properties will not factor into approval. If the properties are located in the sate that you will I would recommend trying a local community bank first. If out of state a national portfolio lender. Local community banks in my area typically lend 3-5 year balloon -20 year amortization in the 5.5 - 6% range. National portfolio lender may offer 30 year fixed in the 6.5- 8% range depending on credit and LTV.

I'm running into that also.  I have heard of Exchange Bank (locally) doing HELOCs on rentals, which may help.  I've refinanced and consolidated loans also to eliminate a loan.

Commercial/Portfolio loans are what you get after your 10 allowable conventional loans.

After 10 hit up your local mom and pop bank for a loan. They aren't Governed by Fannie and Freddie as they will keep the loan on their balance sheet... Usually terms are very close if not equal to what you would get with a Fannie Mae loan....

If you are investing in the banks backyard that is even more favorable to them I have found...

Chris

The trick is....

Get 10 loans and then seek out a commercial lender and have them do an umbrella loan for the entire portfolio. The existing loans will all be paid off and you'll have 1 loan with that commercial lender. Now you can start all over from scratch and start accumulating your 10. However, remember these commercial loans are going to be some form of ARM (adjustable rate mortgage). You won't get a fancy 30 year locked in rate (or at least I haven't been able to find one yet).

I hope this helps!

Originally posted by @Michael Ablan :

The trick is....

Get 10 loans and then seek out a commercial lender and have them do an umbrella loan for the entire portfolio. The existing loans will all be paid off and you'll have 1 loan with that commercial lender. Now you can start all over from scratch and start accumulating your 10. However, remember these commercial loans are going to be some form of ARM (adjustable rate mortgage). You won't get a fancy 30 year locked in rate (or at least I haven't been able to find one yet).

I hope this helps!

 It does help but I have a question,. So suppose for a moment that I could successfully pull this off. So now I have 1 fat commercial loan and zero additional loans. 

Then I go to get a 2nd loan in the form of a traditional Fannie/Freddie 30 yr fixed.  Wouldn't they STILL want to see reserve funds on that FAT commercial loan? So I would still have tremendous reserve fund hurdles to over come?

I don't think it would be treated any differently than when it was 10 individual loans.  You'll be required to have the same reserves whether its 10 loans or 1 large loan.  You may not even need it depending on what business structure you use when you put them all into that loan.  This may be a very lender specific question.

You got to go with "portfolio lenders" (banks that keep the loans on their books) which for single family investors is almost always community banks. I wrote an article about it a while ago that might help: https://www.biggerpockets.com/renewsblog/find-banks-fund-investments/. Good luck!

I don't do commercial, but I thought I remember reading somewhere you typically needed net worth equivalent to what your borrowing. And people typically partner with high net worth individuals to sponsor them for that... 

But I don't do commercial so no idea if this is even remotely close to accurate.

Jason J. Besides what others have said which is mostly the same stuff of “find a commercial/portfolio lender” and “this will be a local bank”

There’s another option. Pay off one or more of your loans as you go.

I'm finding with rents going up that paying off a few loans is actually doable.  Whatever you are raising the rent by - apply it each month to the mortgage that makes sense.  For me, it's the lowest balance 15 yr fixed mortgage.  Once that payment is eliminated, all of that can be applied toward the next loan.  I know I won't be making as good of return on equity paying off the mortgage, but it gets me closer to walking away from my corporate day job providing me regular income.

Originally posted by @Derek Janssen :

I'm finding with rents going up that paying off a few loans is actually doable.  Whatever you are raising the rent by - apply it each month to the mortgage that makes sense.  For me, it's the lowest balance 15 yr fixed mortgage.  Once that payment is eliminated, all of that can be applied toward the next loan.  I know I won't be making as good of return on equity paying off the mortgage, but it gets me closer to walking away from my corporate day job providing me regular income.

 I think about this all the time. There are so many ways to look at it. One thing is that in my case the loans I have are pretty large. Even with $1000 extra payment it would take 10 years or so to pay off my smallest loan.  

Then I wonder if I even want the loan paid off in the first place. Isn't that equity better used to keep for additional investments?

I too struggle with this all the time.  My properties are in Phoenix and have lower loan balances and payments.  The good thing about paying off the loans is you don't have to make that loan payment and you can use that as income.  The bad thing about paying off that loan is that your return on equity is much less.  Most real estate gurus I listen to say return on equity is the most important.  But they are all already retired and not going to a corporate job every day.  For me, the prime directive is to retire from my corporate job due to my real estate.  I see that happening by replacing my corporate income with my rental income.  Yeah, it will take longer.  But I think it happens faster than you think or calculate on paper.

You and I have the same goals. I want to leave the corporate job! Feels like it’s taking forever to accomplish

Originally posted by @Derek Janssen :

I too struggle with this all the time.  My properties are in Phoenix and have lower loan balances and payments.  The good thing about paying off the loans is you don't have to make that loan payment and you can use that as income.  The bad thing about paying off that loan is that your return on equity is much less.  Most real estate gurus I listen to say return on equity is the most important.  But they are all already retired and not going to a corporate job every day.  For me, the prime directive is to retire from my corporate job due to my real estate.  I see that happening by replacing my corporate income with my rental income.  Yeah, it will take longer.  But I think it happens faster than you think or calculate on paper.

 Derek - It seems like it depends on what you really want. I'm in a similar situation. For me, return on equity and long-term wealth building is more important. In my experience, my cash in the bank yields nothing compared to my cash in my rental properties, so unless I have another rental property or investment, I rather just keep the cash in the rental. 

Originally posted by @Matt K. :

I don't do commercial, but I thought I remember reading somewhere you typically needed net worth equivalent to what your borrowing. And people typically partner with high net worth individuals to sponsor them for that... 

But I don't do commercial so no idea if this is even remotely close to accurate.

When I applied for my LLC's commercial loan (which my LLC is now paying interest on) with a small bank, I had to fill out a personal financial statement because my LLC didn't have a high enough income and I am the personal guarantor.

I know of a guy with 25+ loans who just bought a dozen properties this year. He bought them all with one commercial lender on 5 year ARMs with a 25 year amortization. That's better than a portfolio loan IMO with awful rates. 

Originally posted by @Peter T. :

I know of a guy with 25+ loans who just bought a dozen properties this year. He bought them all with one commercial lender on 5 year ARMs with a 25 year amortization. That's better than a portfolio loan IMO with awful rates. 

Peter - that's better than my 5-year ARM with a 20 year amortization. Who is the lender?