Conventional Mortgage is about to end - what is next?

Question

So I have been very busy this year (my first year) and have acquired a few investment properties, and a few more are in works...

If this continues, and I expect it to be the case, I shall exhaust my conventional 10 loans by Fall 2018. So what's next???

I have been actively listening to BP podcasts and reading and there are a few options but i am still unclear.

It is much more evident what to do if you are into BRRRR, because then you have an option to seek the short term private loan or even borrow against the credit card or your relatives. You know that in 6 mo or a year, you will most likely be able to refinance and pay off the loan.

But, I am strictly passive investor and invest into the TK properties, where there is no room for improvements and thus I will not be able to repay the loan quickly.

So, what are my options?

1. Partner with someone who's still able to borrow conventionally. I have started looking but truthfully, for TK investments where the cashflow is about $200 per unit, finding someone who is interested is a long shot..

2. Not investing into a SFH, but instead finding those small MFH's. This way you are only applying for 1 loan per few units. This is definitely intriguing, but not as easy to find a TK MFH. Plus, you will still eventually run out of loans and hence my post :)

3. Do not invest into TKs

Please share your thoughts and prior experiences - thank you  - your insights are invaluable!

Rick Pozos · Answer

@David Khalfin do you know who runs your 401k? Not what company, but WHO individually. Do you know what companies your 401k owns? What do each of the companies do? What is their financial stability? What will the effect of higher interest rates have on their bottom line?

With turnkeys, especially out of town, it is exactly the same thing. You can only go on what they tell you.

It is very easy to take their advice and not do anything else. With a strong stock market or a strong real estate market, no problems. But, over the next few years when the stock market takes a 20% or 30% hit or the real estate market "corrects" itself you will wonder if maybe you should have spent a little more time finding out what the fundamentals were.

I am a huge optimist. I believe that with the right knowledge of where you are in the cycle(of whatever business) you can make a great return. Knowledge is key.

Andrew Syrios · Answer

After the 10 Fannie backed loans, the best place to turn are community banks. The rate will be a bit higher, and the amortization will probably be lower (around 20 years, at least in the midwest, on the coasts it's usually better. You could also look into national SFR lenders such as Lima Capital and Corevest.

Jay Hinrichs · Answer

@Rick Pozos  I agree in paying these things off.... as quick as possible.. this refi till you die and max leverage will come back to bite folks in some markets as conditions in the market place swing..

plus if you go the community bank route  net worth is a big component and not max leverage..

Rick Pozos · Answer

You might want to start looking for deals instead of turnkey type of properties. Turnkeys are market rate properties. There is usually little or no equity. If there is some equity, you could sell two when you get to 10. Now you have 8 and now you have some cash to pay off one more of the turnkeys. Now you freed up 3 mortgages.

Also, you can put all your cashflow into 1 of the properties as well as an extra $1,000. per month instead of putting money into a retirement plan at work. (Isnt real estate your retirement plan anyway??)

Before long you will have another of your properties paid off. Now you can go get 4 more.

Just think how much more equity and cash flow you could have if you did a little rehab and found the deals yourself. When you buy turnkeys you are giving up equity for ease of getting into a deal.

David K. · Answer

@Rick Pozos,

I agree with you. if I ever learn how to do brrrrs out of state on my own, and will see the monetary benefits that it promises then I will move the money out of my 401k. But until then, I have no choice but to let my money be managed by someone else.

David K. · Answer

@Tae C. - everything i have done so far has been with the money that I have had. But that is probably a bad thing because I have been able to move quickly - I am at the point where I am now able to start making conclusions about the direction I took. TK's are probably not going to allow me to quit my job. I would probably need like 30+ doors to replace my current income from the job, and that is if I am able to maintain 5% vacancy and no more than 10% all repairs. One of my properties that I closed in November, instead of getting my first rent in December, I was hit with the failed water boiler and the bill for $850. So, now I have no leverage left in that unit for the rest of the year...

So, the choice is to slow down and forget about quitting my job but continue investing into TK's for future retirement, or find the way to invest into BRRRRs.

David K. · Answer

@Rick Pozos - thank you! I get it that finding rehab deals will be way more rewarding, It's time to start thinking bigger and get off my lazy behind :)

I, however, am not sold on the idea to re-route my 401k money into RE, at least not until I know what I am doing.

Tae C. · Answer

@David Khalfin

How have you been able to scale so quickly with turn keys?  As people have already mentioned, without much extra equity in the property left at purchase, that’s pretty hard to do...are you simply just saving up cash like crazy from your W2 until you have enough for the next property?

Conventional Mortgage is about to end - what is next?

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