Refinancing single family rental portfolio

Investor · Salt Lake City, UT · Member since 2019 · 38 posts · 20 votes

Suppose I own a medium sized single family rental portfolio and I’ll be ready to refinance it in 2 years.

I’m hearing conflicting reports:

1- refinancing a single family rental portfolio will follow the retail comparables approach requiring comps on each unit

OR

2- refinancing a single family rental portfolio will follow the NOI/Cap Rate valuation model like multifamily.

I’d love to hear from commercial bankers and/or others who have refinances single family rentals. Thanks much.

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Greg Kasmer

Rental Property Investor · Philadelphia, PA · Member since 2021 · 778 posts · 504 votes

Pete - I've refinanced a few (3) single families at a time and the lender used a comparable approach, but not sure if that would have changed if I would have had others to refinance (I was comfortable with the mortgage on my other properties). I think the most accurate way to determine the approach would be to ask your lender based on your specific situation - number of properties, etc... My thought is that when you refinance 5+ properties (multifamily size) that may trigger more of an NOI/Cap rate approach with a lender. Good Luck!

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Reed Rickenbach
Real Estate Broker · Memphis, TN · Member since 2020 · 202 posts · 203 votes
3y
If there is no prior relationship with the bank, you'll likely be facing an NOI/Cap Rate valuation - mainly focused on DSCR. And rightfully so.
I have seen instances where the borrower had a strong financial position and used retail appraisals for their cash-out refinance.
Most likely for a portfolio loan, your asset's ability to cover debt service will be the main focus. Probably 1.2 - 1.25x for DSCR.
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Greg Kasmer
Rental Property Investor · Philadelphia, PA · Member since 2021 · 778 posts · 504 votes
3y
Pete - I've refinanced a few (3) single families at a time and the lender used a comparable approach, but not sure if that would have changed if I would have had others to refinance (I was comfortable with the mortgage on my other properties). I think the most accurate way to determine the approach would be to ask your lender based on your specific situation - number of properties, etc... My thought is that when you refinance 5+ properties (multifamily size) that may trigger more of an NOI/Cap rate approach with a lender. Good Luck!
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Pete Abilla
OP
Investor · Salt Lake City, UT · Member since 2019 · 38 posts · 20 votes
3y
Quote from @Reed Rickenbach:

If there is no prior relationship with the bank, you'll likely be facing an NOI/Cap Rate valuation - mainly focused on DSCR. And rightfully so.
I have seen instances where the borrower had a strong financial position and used retail appraisals for their cash-out refinance.
Most likely for a portfolio loan, your asset's ability to cover debt service will be the main focus. Probably 1.2 - 1.25x for DSCR.
I'm actually hoping for a NOI/Cap Rate valuation method because the portfolio is in an area where market comparable model won't be helpful since it's in a pretty stable (good areas but not high appreciating) market.
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Pete Abilla
OP
Investor · Salt Lake City, UT · Member since 2019 · 38 posts · 20 votes
3y
Quote from @Greg Kasmer:

Pete - I've refinanced a few (3) single families at a time and the lender used a comparable approach, but not sure if that would have changed if I would have had others to refinance (I was comfortable with the mortgage on my other properties). I think the most accurate way to determine the approach would be to ask your lender based on your specific situation - number of properties, etc... My thought is that when you refinance 5+ properties (multifamily size) that may trigger more of an NOI/Cap rate approach with a lender. Good Luck!

I should've been more clear - we're looking at refinancing 50+ single family rental portfolio - and I'm hoping for the NOI/Cap Rate valuation model, but I've heard conflicting reports that maybe the comparable approach might be used.
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Stephanie P.Pro Member
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
3y
Quote from @Pete Abilla:

Quote from @Greg Kasmer:

Pete - I've refinanced a few (3) single families at a time and the lender used a comparable approach, but not sure if that would have changed if I would have had others to refinance (I was comfortable with the mortgage on my other properties). I think the most accurate way to determine the approach would be to ask your lender based on your specific situation - number of properties, etc... My thought is that when you refinance 5+ properties (multifamily size) that may trigger more of an NOI/Cap rate approach with a lender. Good Luck!

I should've been more clear - we're looking at refinancing 50+ single family rental portfolio - and I'm hoping for the NOI/Cap Rate valuation model, but I've heard conflicting reports that maybe the comparable approach might be used.

The portfolio lenders we use require the comparable approach. Each property needs to be appraised individually.
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Erik EstradaBusiness Member
Lender · Member since 2022 · 6k+ posts · 1k+ votes
1w
Hi Pete
Most standard DSCR rental portfolio lenders will use the sales comparison approach for value. There are a few local boutique lenders that will underwrite the portfolio based on income approach, however they are very rare.
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