Portfolio loan vs cash out refi-What would you do?
Reggie ReardenPro Member
Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votesPortfolio loan vs cash out refi-What would you do?
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Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes
6yOriginally posted by @Reggie Rearden:
I'm in need of some wisdom from experienced investors. I'm trying to find out which route to take between Portfolio loan, refi, or if there are other options.
Here's my situation:
Property #1- Single unit commercial building in which I hold a free and clear title. Currently rented out.
Property #2- Five unit commercial building with all (5) units leased. Has a current mortgage and has a great deal of equity due to forced appreciation and a crazy low purchase price.
Property #3- Single family residential house. Rented- with a lease renewal as of this week. Has a current mortgage and has some equity.
My goal is to purchase at least 2 more REI's this year or a multi family, at the minimum. I'm wanting to access the cash, purchase REI's with cash then Refi on a 15- 20yr term.
Based on the above information, what are the suggestions from the experienced investors? Note, my wife and I have only a few years of investing under our belt but we are prepared to take a big step forward. Feel free to PM me and I will share the numbers if you need them to give accurate advice.
Thanks in advance.
The best way to proceed would be cash out refi on each individual property. You will be able to pull the most cash out this way and have the more flexibility if ou decided to sell one of the properties at some point. Porfolio loans are not easy to get and are not very user friendly. You also want to make sure each property is help in a separate LLC. Make sure to discuss that with your accountant and attorney.
11 Replies
- Developer · Charlottesville, VA · Member since 2018 · 4k+ posts · 4k+ votes6y
Originally posted by @Reggie Rearden:
I'm in need of some wisdom from experienced investors. I'm trying to find out which route to take between Portfolio loan, refi, or if there are other options.
Here's my situation:
Property #1- Single unit commercial building in which I hold a free and clear title. Currently rented out.
Property #2- Five unit commercial building with all (5) units leased. Has a current mortgage and has a great deal of equity due to forced appreciation and a crazy low purchase price.
Property #3- Single family residential house. Rented- with a lease renewal as of this week. Has a current mortgage and has some equity.
My goal is to purchase at least 2 more REI's this year or a multi family, at the minimum. I'm wanting to access the cash, purchase REI's with cash then Refi on a 15- 20yr term.
Based on the above information, what are the suggestions from the experienced investors? Note, my wife and I have only a few years of investing under our belt but we are prepared to take a big step forward. Feel free to PM me and I will share the numbers if you need them to give accurate advice.
Thanks in advance.
The best way to proceed would be cash out refi on each individual property. You will be able to pull the most cash out this way and have the more flexibility if ou decided to sell one of the properties at some point. Porfolio loans are not easy to get and are not very user friendly. You also want to make sure each property is help in a separate LLC. Make sure to discuss that with your accountant and attorney.
- Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes6y
Each property is in its own LLC. We've been approved for the portfolio loan. The lender said they would combine the 2 currently mortgaged properties into 1 loan. I'd then have access to the remaining LOC. The other property that is owned feee and clear would have its equity wrapped up in the loan as well. I'm just wanting to get advice from others before I sign the dotted line.
- Lender · San Diego, CA · Member since 2019 · 874 posts · 355 votes6y
Originally posted by @Reggie Rearden:
I'm in need of some wisdom from experienced investors. I'm trying to find out which route to take between Portfolio loan, refi, or if there are other options.
Here's my situation:
Property #1- Single unit commercial building in which I hold a free and clear title. Currently rented out.
Property #2- Five unit commercial building with all (5) units leased. Has a current mortgage and has a great deal of equity due to forced appreciation and a crazy low purchase price.
Property #3- Single family residential house. Rented- with a lease renewal as of this week. Has a current mortgage and has some equity.
My goal is to purchase at least 2 more REI's this year or a multi family, at the minimum. I'm wanting to access the cash, purchase REI's with cash then Refi on a 15- 20yr term.
Based on the above information, what are the suggestions from the experienced investors? Note, my wife and I have only a few years of investing under our belt but we are prepared to take a big step forward. Feel free to PM me and I will share the numbers if you need them to give accurate advice.
Thanks in advance.
Reggie,
To clarify some of your statements, a portfolio loan can also have a cash-out option. A portfolio loan is a mortgage loan originated by a bank/lender and held in the bank's portfolio over the life of the loan these loans can have a cash-out option. These loans are not on the cheap side but are have little more flexibility with underwriting.
Other options are to cash out and purchase at the same time with the same lender or cross collateralize an asset to purchase. But if you are referring to a blanket loan where you secure a single loan with multiple properties at a minimum 5 properties are required and these loans can have balloon payments or strict prepayment penalties for 1 asset or the entire loan.So if cash is what you are looking for to purchase more RE, you need to know the equity of each property and multiply it by 65-70% minus current mortgages and that is what you can get out of each property minus closing costs. So if you are refinancing with little equity and the new loan is higher than the current rate this might not be the best case right now to pull cash as the cost for little cancels it out so it becomes an expensive loan without much benefit.
When you say purchase cash and refinance to a 15-20 year loan you run the risk of not been able to finance the property and you just might be stuck with it with all your capital in it. You also might run into title seasoning issues.
My suggestion is to pull cash for a solid downpayment and closing costs and get a purchase loan with 15-20 y term and also a quick question when you say commercial property are you referring to retail etc or 5+ units residential?
- Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes6y
Originally posted by @Guifre Mora:
Originally posted by @Reggie Rearden:
I'm in need of some wisdom from experienced investors. I'm trying to find out which route to take between Portfolio loan, refi, or if there are other options.
Here's my situation:
Property #1- Single unit commercial building in which I hold a free and clear title. Currently rented out.
Property #2- Five unit commercial building with all (5) units leased. Has a current mortgage and has a great deal of equity due to forced appreciation and a crazy low purchase price.
Property #3- Single family residential house. Rented- with a lease renewal as of this week. Has a current mortgage and has some equity.
My goal is to purchase at least 2 more REI's this year or a multi family, at the minimum. I'm wanting to access the cash, purchase REI's with cash then Refi on a 15- 20yr term.
Based on the above information, what are the suggestions from the experienced investors? Note, my wife and I have only a few years of investing under our belt but we are prepared to take a big step forward. Feel free to PM me and I will share the numbers if you need them to give accurate advice.
Thanks in advance.
Reggie,
To clarify some of your statements, a portfolio loan can also have a cash-out option. A portfolio loan is a mortgage loan originated by a bank/lender and held in the bank's portfolio over the life of the loan these loans can have a cash-out option. These loans are not on the cheap side but are have little more flexibility with underwriting.
Other options are to cash out and purchase at the same time with the same lender or cross collateralize an asset to purchase. But if you are referring to a blanket loan where you secure a single loan with multiple properties at a minimum 5 properties are required and these loans can have balloon payments or strict prepayment penalties for 1 asset or the entire loan.So if cash is what you are looking for to purchase more RE, you need to know the equity of each property and multiply it by 65-70% minus current mortgages and that is what you can get out of each property minus closing costs. So if you are refinancing with little equity and the new loan is higher than the current rate this might not be the best case right now to pull cash as the cost for little cancels it out so it becomes an expensive loan without much benefit.
When you say purchase cash and refinance to a 15-20 year loan you run the risk of not been able to finance the property and you just might be stuck with it with all your capital in it. You also might run into title seasoning issues.
My suggestion is to pull cash for a solid downpayment and closing costs and get a purchase loan with 15-20 y term and also a quick question when you say commercial property are you referring to retail etc or 5+ units residential?
The lender I'm working with said he'd recommend doing a blanket loan where he pays off the 2 properties that have a current mortgage. I would then pay the new lender 1 payment since they hold both properties. He would also take title to my one property that I currently own free and clear. I would be getting access to the remaining equity from all 3 properties as a LOC. I will be reducing my interest on the 5 unit retail commercial building from 5.75% to 3.5%. The 3.5% would also include the SFH being refi as part of the portfolio. The loan proposal is a fixed rate 3.5% for 15 years with a LTV of 80%. I hope I didn't get anyone confused!
- 6yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Originally posted by @Reggie Rearden:
I'm in need of some wisdom from experienced investors. I'm trying to find out which route to take between Portfolio loan, refi, or if there are other options.
Here's my situation:
Property #1- Single unit commercial building in which I hold a free and clear title. Currently rented out.
Property #2- Five unit commercial building with all (5) units leased. Has a current mortgage and has a great deal of equity due to forced appreciation and a crazy low purchase price.
Property #3- Single family residential house. Rented- with a lease renewal as of this week. Has a current mortgage and has some equity.
My goal is to purchase at least 2 more REI's this year or a multi family, at the minimum. I'm wanting to access the cash, purchase REI's with cash then Refi on a 15- 20yr term.
Based on the above information, what are the suggestions from the experienced investors? Note, my wife and I have only a few years of investing under our belt but we are prepared to take a big step forward. Feel free to PM me and I will share the numbers if you need them to give accurate advice.
Thanks in advance.
I would do individual loans to max the cash, once you've added this years properties, look at a portfolio again. If your parent company is in the same LLC it would make that single loan MUCH easier...
- Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes6y
Originally posted by @Ronald Rohde:
Originally posted by @Reggie Rearden:
I'm in need of some wisdom from experienced investors. I'm trying to find out which route to take between Portfolio loan, refi, or if there are other options.
Here's my situation:
Property #1- Single unit commercial building in which I hold a free and clear title. Currently rented out.
Property #2- Five unit commercial building with all (5) units leased. Has a current mortgage and has a great deal of equity due to forced appreciation and a crazy low purchase price.
Property #3- Single family residential house. Rented- with a lease renewal as of this week. Has a current mortgage and has some equity.
My goal is to purchase at least 2 more REI's this year or a multi family, at the minimum. I'm wanting to access the cash, purchase REI's with cash then Refi on a 15- 20yr term.
Based on the above information, what are the suggestions from the experienced investors? Note, my wife and I have only a few years of investing under our belt but we are prepared to take a big step forward. Feel free to PM me and I will share the numbers if you need them to give accurate advice.
Thanks in advance.
I would do individual loans to max the cash, once you've added this years properties, look at a portfolio again. If your parent company is in the same LLC it would make that single loan MUCH easier...
This is how our LLCs are set up:
ABC LLC controls all the other LLCs. (Master)
DEF LLC owns 1 commercial property
GHI LLC owns 1 commercial property
JKL LLC owns 1 residential property. I'm adding another residential property to this LLC and will continue doing so until my attorney says its time to create a new entity. This is dependent on equity owned by the LLC.
All of the profits shoot up the ladder to ABC LLC, in which it turns around and purchases another property. ABC LLC essentially holds all of the profits until I'm ready to buy again. Just for a little more clarification, I have to keep an excellent credit score and limited debt as part of my W2 employment is to why I have several LLCs. I can not have any legal issues and try to stay as FAR away from being associated with my assets as possible.
- 6yRonald RohdePro MemberAttorney · Dallas, TX · Member since 2016 · 5k+ posts · 2k+ votes
Ok I would just clarify "control" do you mean "manage" or "is the sole shareholder"?
That sounds like a good structure with pass through accounting/taxes/income. Do you have any Fee entities to charge those LLCs?
- Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes6y
@Ronald Rohde I apologize for just seeing this response. The LLC that "controls" the others is the managing LLC. Our attorney set it up this way so the "Managing" LLC controls all other LLC's. The Managing LLC is just an added layer of protection, from my understanding, for legal purposes for when something happens. Me and my wife own the Managing LLC which owns the Asset LLCs. I think its like a Series LLC.
- Investor · SC · Member since 2020 · 2 posts · 0 votes6y
@Reggie Rearden Hi Reggie! I am not familiar with the area but I am interested in investing in the area. Would you mind sending me a pm or sharing me that name of the banks in the area that are investor friendly?
- 6yJared RineBusiness MemberLender · Sacramento, CA · Member since 2009 · 1k+ posts · 277 votes
@Reggie Rearden...if you're looking to max equity, I would do these individually, not bundle them into one loan. Agree with @Greg Dickerson.
Jared Rine United Lending Partners53 Reviews - Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes6y
Originally posted by @Jared Rine:
@Reggie Rearden...if you're looking to max equity, I would do these individually, not bundle them into one loan. Agree with @Greg Dickerson.
Instead of doing a portfolio loan, we ended up having enough equity in our SFH to payoff our 5 unit commercial building. We're in the process now of getting a LOC against 80% of the equity of that commercial property. The Holding company we own will hold the LOC. Looks like we're finally getting the ball rolling!
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