Risks of having several mortgages in my name?

Question

I currently have 4 mortgages in my name.  3 investment properties and 1 personal residence.  I'm wanting to buy a lot more real estate (buy and hold).  I know I'm going to be capped on personal mortgages in my name after another few mortgages - at least that's what I hear (I've heard this can vary).

Should I take pause having so much debt?  I have good umbrella insurance.  Should I be concerned about so much debt on my credit report?  I feel as though all 4 of my properties are 'safe' in that they cash flow fantastically.  I have 6 figure w2 income.   I'm just trying to wargame this and make sure I'm not missing anything that I should be aware of or concerned with regarding this approach.

Other questions - is there a way to get around this 'cap' on personal mortgages? Meaning...is there a way to do this with 10,20,50+ mortgages? If not, what tools can I use to continue to grow my portfolio once I'm capped on personal mortgages from most banks? LLCs?

Steve Vaughan · Answer

My wife and I took on every other one individually to double the ceiling.

We also purchased a lot with seller financing.

Then we paid off the smallest ones to free up the cap.

Then a guy that sold us a couple with SF reached out to become our private lender.

Your options should increase as you grow and season.

Rich Emery · Answer

Such great responses from everyone!   I've clearly been listening to some of the wrong lenders that tell me I'll be capped and have nowhere to go.  I'm learning from you all that there's abundant possibilities.  Thank you all!

Carlos Ptriawan · Answer

The only problem is a lot of banks have different underwriting requirements, some would accept no more than 3 property, some lender would need to count/include HOA if the title is shared with the wife for DTI calculation,etc,etc. So if you already work with the same lender that knows your situation and your situation is acceptable, then no need for a change.I also use my own name/wife for the investments loan like suggested above.

Robin Simon · Answer

This is a very common situation - a classic path for real estate investing (and probably the best way to go) is to slowly scale via conventional mortgages in your name, but when you start to hit around the 5 property mark, you begin to scale and the balance tips toward going with alternative financing options such as DSCR loans which allow you to take risk off the table (finance through an LLC), protect your credit report (you guaranty the loan, but shouldn't hit your personal credit) and you can scale quickly and efficiently (no DTI considerations slowing the scaling process down)

Lyndsay Zwirlein · Answer

To answer your other question on amount of total debt, from a lender perspective underwriting uses your monthly payments to calculate DTI. The aggregate balance isn't really considered except for reserve requirements (see below). From a personal perspective, the only thing I would be concerned about is having access to cash/HELOC to cover expenses for everything should you ever have a worst case scenario type situation. ie several properties are vacant all at once, lots of costly repairs at the same time, etc.

For conventional loans, you'll be required to have sufficient reserves for all properties. You can google the Fannie Mae matrix to see what is needed given the # of properties you own.  With DSCR loans, this isn't an issue.  Most DSCR lenders will only consider the subject property during underwriting, meaning you will need reserves for that mortgage but they aren't concerned with mortgage balances or reserves on the other properties.  These are questions I would ask as you're working with lenders though so you don't have surprises!  Not all programs are the same.

Jared Hottle · Answer

Bankers in your area will definitely know the most. I have heard 10 in your personal name if they are being sold on the secondary market (Fannie, Freddie) I believe they take into account a certain portion of cash flow but each one in your personal name will keep adding to your debt to income ratio. Everyone is different with different situations and risk profiles but I think maxing out your secondary mortgage loans at 10 with a good umbrella policy and talking to a lawyer about quit claiming them into an LLC is advantageous as your debt will be fixed for the life of the loan and typically you can get better terms. After 10 you will need to look for commercial, in-house financing. As far as that goes I would start talking to as many local banks as you can and let them know what you are doing and see what they can do to help. Every bank will do something better and worse than others so find one that aligns with your needs and has good service and go with it.

Emma Powell · Answer

We've found the same thing and one reason we went commercial was to get loans to our LLC instead of to our personal names. My husband has several mortgages (and first lien HELOCS) in his name, and I have 0 because as a full-time investor it looks like I make negative money. In fact, now my depreciation losses are reducing his taxable W2 income, so he can't get anymore either.

It's not hurting us in any way other than not being able to refinance in our own names, so they just stay in place until we sell or refinance into an LLC loan. It took me awhile to find lenders who would do loans to residential properties to our LLC, but the rates are higher, so we have just left them there. You can use these types of loans for new acquisitions, which we do.

More, though, we've focused on commercial properties that only care about the property, our experience, and our credit scores. Much easier, though still a challenge and take longer at higher rates, but personal loans are impossible for us now. Another option to go after only seller financing deals, but I wanted to be more passive than finding those. Sometimes wholesalers bring good seller financing deals, so keep an eye on those.

Alex Breshears · Answer

As a private lender - I will tell you there are a lot more ways to fianance properties than traditionally fannie/freddie debt.  Also - at some point you can begin to scale up so you would have more units per mortgage if the number of mortgages is a concern.

Something to be mindful of as you grow is not so much how many mortgages you have, but the income you are showing and where. For example a common mantra for real estate investing is use property to write off all your active income. While great for tax purposes it sucks for acquiring leverage. If you submit official financial statements (ie tax returns) to a bank showing your existing properties making $0 or even worse losing money year after year, leverage is going to be harder and harder to obtain through normal channels. There are actually tax consultants that can work with you to figure out that magic happy medium of paying some tax to show some income, so you can obtain some leverage. lol. It's like the ultimate catch 22 lol.

I bring this up because after you are tapped out with your 10 conventional loans (fannie/freddie debt), generally the next path is going to be something that is non-conforming, which can be obtained at a small local bank/credit union, bridge debt, commercial DSCR loans, etc etc. While some of these lending products are going to look at the asset more than the borrower, if you really want to scale - then trying to build income and credit for your real estate business name is a good idea. At some point you are then qualifying for property with the LLC income (which means you will pay lower rates and have a lot less underwriting) because you actually have a business that is showing some level of income to lenders. You are perceived to be a lower risk because your business has income, your business has assets.  So while yes, enjoy real estate for the ability to pay zero taxes, but you also need to be mindful of the downstream effects of that decision on the long term plans of your real estate business.

Carlos Ptriawan · Answer

If you use something like Stessa, you can input all your houses detail and Stessa will auto create an excel spreadsheets with all the detail needed for loan officer , send that to the loan officer so they don't ask 20 questions back and forth.Also this may be useful for future Biggerpockets projects: try to have updated most underwriting of major lender in one webpage that we can query on so we can go to the proper lender without too much hassle. For example, I knew one DTI lender that can easily accept 10 investment houses and their min. lending is only 50k. Wells Fargo,etc can't do that.

Risks of having several mortgages in my name?

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