Multi Family Refinancing

Multi-Family and Apartment Investing
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Multi Family Refinancing

Thomas Ebenhoch
Troy, NY · Member since 2016 · 15 posts · 2 votes

I own a 3 unit multi family home in Upstate NY, bought in 2016 with a FHA 203k loan. Purchase price was $127K, renovations from the 203k brought the loan total up to $154K. The house was appraised by the county for $160K before my purchase.

The loan mainly covered exterior improvements new siding, new concrete pathways, gutters, etc. I also have renovated each unit and the building is fully occupied, with me living in one of the units.

The unit rent total with me living in one of the units is $1850, it increases to $2700 if I move out.

I really have no idea what the house is worth now, there are not too many comps in the area. But if I had to guess somewhere in the 200-230K range.

My plan is to buy another multi family like this, so I am looking for any advice on refinancing, HELOC loans, cash out refi.

I'm a big fan of the BRRRR idea, but I am just unsure about the refinancing portion. Any help or advice for a guy just starting out?

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Brandon Ingegneri
Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
8y

There really isn't anything to explain.  You basically repeat the formula over and over again.  Eventually, when you have a large enough commercial line, you will consolidate all of your smaller lines, and you will then use physical liquid cash and your one large line to put yourself what I enjoy calling a "Position of F*** you". Once you have liquid assets with a bank in excess of $300,000 all of the rules change, and then they present opportunities instead of hurdles.  The entire game changes and you are in the driver's seat. 

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  • Jeff JohnsonPro Member
    Investor · Utica, NY · Member since 2011 · 7 posts · 5 votes
    8y

    Hi Thomas,

    I would recommend going to your small local community bank or credit union and talking with there commercial department. They are more apt to refinance your property, usually 70 -75% of appraisal. Hope this helps!

    0Reply
  • Omar Khan
    Rental Property Investor · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    8y

    @Thomas Ebenhoch The re-finance option is essentially like a HELOC (home equity line of credit). That path is dependent on how much equity you've built up into your existing property.

    With FHA-loans, you can put a deposit as low as 3.5% when acquiring a property. Assuming, you are buying a $200K property, that comes out to $7K (+ closing costs). By doing a simple cash flow analysis you can try to figure out the relative attractiveness of 3-4 unit properties in your area. For instance, purely on a cash-on-cash basis, if a 3-4 unit property will cash flow in the $500 range, then you can "recover" your $7K (+ closing costs) in as little as 14 months. Obviously, this is a very simplified approach that does not take into account factors like the rental state in your market, your financial conditions, you ability/willingness to take risks, etc.

    IMO,  credit unions and mortgage brokers will be your best bet as they can "creatively" finance (depending on how good a deal you have). 

    It all boils down to your financial position, equity in existing property and the #s on the properties you have in mind. 

    Best of luck and keep us posted!

    1Reply
  • Guy Azta
    Investor · Los Angeles, CA · Member since 2016 · 89 posts · 73 votes
    8y

    Seems like you did a good deal there. I only refinanced once and have mixed feelings about it. I bought an SFR a while back and I heard so many people talking about refinancing, I thought "wow, what a great idea. You buy one house, you get money and then you buy another. Like magic!". The pro is that yeah, you can end up with another house like that. And that pro cannot be dismissed. The main con is that you now owe more on the first one. In your situation you may have a large enough margin to justify it (margin between potential income to new refinanced mortgage). In my situation the margin was not as good, and to this day, the property I refinanced, while cash flow positive, is not very profitable. I'm sure it will eventually change, but it taught me to be very careful with any refinancing. Adding insult to injury, the house I bought with the refinanced money is not very profitable either. Now, before you think I'm a horrible investor, the main reason for the low cash flow is since those houses came with existing tenants, paying rent way under market, and I don't have the heart to remove them or bring the rent to market value, so the wound is clearly self-inflicted, and I could have been doing far better. The main point is to be careful.

    There really are many points to consider. Always make sure the numbers work and I'd advise don't plan that your next purchase would be as profitable and then see if it's still worth your while

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  • Brandon Ingegneri
    Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    8y

    Begin a relationship with a small, local bank and tell them that you want a HELOC. They may want to see that your current mortgage has seasoned for 6-12 months before dishing out other investments. I would avoid telling them initially what you are looking to use this line for. I would leave it slightly vague saying that you'd just like to have it available for some upcoming projects that you are considering at "The property". From there, you've got to find a house that you can buy at a deal. The equity will be a key factor. Once property #2 is complete, you want to do a cash out refinance of that property which will essentially restore your HELOC. After you have done this several times, you can get a commercial LOC and bundle the equity of several properties into one larger LOC.

    1Reply
  • Thomas Ebenhoch
    OP
    Troy, NY · Member since 2016 · 15 posts · 2 votes
    8y

    @Brandon Ingegneri Your scenario is my general plan for the next few years. So you are saying to cash out refi the 2nd property to pay back the 1st property's HELOC? Could you explain how you could scale from there?

    0Reply
  • Brandon Ingegneri
    Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    8y

    There really isn't anything to explain.  You basically repeat the formula over and over again.  Eventually, when you have a large enough commercial line, you will consolidate all of your smaller lines, and you will then use physical liquid cash and your one large line to put yourself what I enjoy calling a "Position of F*** you". Once you have liquid assets with a bank in excess of $300,000 all of the rules change, and then they present opportunities instead of hurdles.  The entire game changes and you are in the driver's seat. 

    2Reply
  • Thomas Ebenhoch
    OP
    Troy, NY · Member since 2016 · 15 posts · 2 votes
    8y

    @Brandon Ingegneri Thanks for the advice. I looked at your profile, I see that you also own a property mgmt company. I have been kicking around the idea of creating a management company to oversee mine and my parent's rentals, and branch out to other clients. Were you involved in starting the company? Feel free to pm me if you dont want this public.

    0Reply
  • Brandon Ingegneri
    Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    8y

    Yes.  I created the company with my partner.  I began investing on my own about 10 years ago and unofficially formed the pm company in 2013.  In 2014, I officially rolled it out.  If this is something that you are considering, you have to be extremely organized, be able to have enough work for a staff, and must have the ability to bid jobs appropriately, meet timelines, and in possess an in depth construction industry knowledge.  I was a carpenter long before and during the investing career, and without that background, I would not have ventured into the PM industry.  Additionally, I am fortunate because my partner is a master electrician, and I have several close 3rd party associations with reputable, trustworthy plumbers.  If we didn't have the ability to handle any issue in house without notice after a 3am phone call, I would not have embarked on this endeavor because the worst thing that I can do, especially in a state the size of mine is to over promise and under deliver.  

    1Reply
  • Anthony Dooley
    Investor · Columbus, GA · Member since 2014 · 2k+ posts · 1k+ votes
    8y

    @Thomas Ebenhoch The first thing I would do is move out and rent your unit out to increase the income. Then simply go to a local bank and tell them what you want to do. They will order an appraisal and determine the value. Since there are few comps in the area, they can and will use the income to determine the value. I doubt that you have a ton of equity since you only bought it last year. They will loan you 75% of the value minus your current loan pay off. This may be enough to put down on another deal. If not, you may need to wait a while or find outside investors.

    0Reply
  • Thomas Ebenhoch
    OP
    Troy, NY · Member since 2016 · 15 posts · 2 votes
    8y

    That's interesting that you do everything in house. I suppose that's the end goal. I have friends who are plumbers, electricians, GC, etc. and I was thinking I could contract out repairs as needed. I would be beginning with Multi family homes.

    What kind of properties are you managing? I imagine the real money is in managing large apartment complexes and places like corporate office parks.

    0Reply
  • John Leavelle
    Investor · La Vernia, TX · Member since 2015 · 1k+ posts · 865 votes
    8y

    Howdy @Thomas Ebenhoch

    Do you have a Realtor as part of your team?  If not you should get one.  They can help you determine comps and the value of your property.  

    Combining the House Hack (FHA loan) and BRRRR strategies are very difficult to do. A lot of new investors keep trying to do this and I have not seen any be successful yet. The problem is not only the low initial down payment, but, the loan amount is typically more than what the acquisition costs an ideal BRRRR property would be. Therefore, knowing the ARV is extremely important. Your initial loan and cash investment needs to be no more than 75% of ARV to be able to payoff the acquisition loan and get the cash out to reinvest. Your estimate of $200K to $260K is borderline given the FHA loan amount. A Refinance loan with 75% LTV would give you $150K to $195K available. Your current loan of $154K may not be covered much less you being able to pull cash out. Even if the appraiser uses the income method you only are renting two of the three units. You also have not been receiving income from the property for 2 years (which would be required).

    So for you to keep moving a HELOC might be the best option. The HELOC will probably also be based on 75% LTV. Shop around to find an investor friendly lender.

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