Not maxing out on 10 loans

17 Replies

Hi BP people, I hear many people say to get your 10 conventional loans first then switch over to commercial / portfolio. Seems this way is very slow in reguards to scaling and sitting on the sidelines every 6 months waiting to refinace. I know about delayed finance but it doesnt recoup any of the rehab costs.

My question is how many investors dont actually go all the way to ten and make the jump to portfolio/ commercial way sooner? If so are you still buying 1-4 units or larger? Seems like less restrictions and easier to scale on the portfolio loan side. Appreciate any thoughts.

I would say the majority of investors don't utilize their 10 conventional loans unless they are doing turn-key style properties and plan to leave 20% in each deal. The majority of the investors that I know who plan to recoup any of their rehab costs end up switching over to commercial after a couple of deals. 

The downside with commercial is that most of the commercial lenders only do 15-20 year notes. However, I'm starting to see commercial lenders doing fixed interest rates loans and longer terms. They also don't have strict seasoning requirements, which is a great perk. So there's definitely a big up-side to the commercial lending if you don't want to leave as much money in the deal. 

Originally posted by @Ryan Keenan :

Hi BP people, I hear many people say to get your 10 conventional loans first then switch over to commercial / portfolio. Seems this way is very slow in reguards to scaling and sitting on the sidelines every 6 months waiting to refinace. I know about delayed finance but it doesnt recoup any of the rehab costs.

My question is how many investors dont actually go all the way to ten and make the jump to portfolio/ commercial way sooner? If so are you still buying 1-4 units or larger? Seems like less restrictions and easier to scale on the portfolio loan side. Appreciate any thoughts.

 But you can roll your rehab costs in.  Just buy with short term money, lease it up, then refinance out with your Freddie/Fannie loan. Easy Peasy. 

@Cassi Justiz

Thank you for your response! With commercial and portfolio lending what terms are the ones to strive for? I've called around and I'm seeing 15 , 20 and 25. But every 5 years it adjusts is this normal?

Thanks!

@Patti Robertson

Thanks for responding! The only problem is having to wait the 6 month seasoning period which I'm currently doing right now. It will only allow me 2 deals a year.. I really want financial freedom alot quicker ! I know delayed finace you can only pull out what you paid and not rehab costs so just wondering about other investors not waiting to get the 10 loans.

I had a goal to get my 10 fannie/freedie loans and then I realized that with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. 

@Ryan Keenan the 2nd investment property I purchased was a duplex in the name of my LLC and closed it in a commercial loan. I would agree with others and that it is uncommon to scale to 10 units and have them all be in your name. Depending on your DTI banks may cut you off at 5 or 6 so don't use 10 as a hard number.

Everything varies depending on your goals. If your goal is to scale as quick as possible then doing the BRRRR method and refinancing as quick as possible is one route. Most hard money lenders will only lend to an LLC. I know of a few lenders here in Ct that can do 75% cash out after 3 months of seasoning instead of 6 months. Feel free to reach out with any questions.

@Ryan Keenan I had this same question when I was getting started. I bought 5 properties in my first year an a half. They were cash flowing great but my lender (small community bank) told me that they were going to start pushing me commercial. I wanted to keep the 30yr residential loans and looked for alternatives. I ended up partnering with a local credit union that agreed to finance me residential as long as I gave them my next couple deals. They're keeping them "in-house". Shop around. I spoke with at least 10 different local banks until I found my "partner". It's difficult to get everything you want out of one bank. I have HELOC's through one bank, commercial lines of credit through another, mortgages with three different banks and standard bank accounts through another. It's a lot to keep track of but if you take the time to shop your requests, someone will come through with a financial product you can benefit from.

@Lane Kawaoka

Def agree with being close to the investment. I actually read david greenes book on long distance investing and was seriously looking into north carolina but it just felt way to risky!

I have 8 units and had 1 eviction so far in my short 7 years of being a land lord.. I just wanna scale faster

@Michael Doherty

Thanks for your response! After your second property did you go back to conventional financing? What made you refiance your second one with a commercial loan?

This question of seasoning period and scaling has been very frustrating to figure out.. for me I have 8 units and the plan now is to buy with a personal line of credit and my own money.. I wanna make sure the buy has minimal rehab and use the delayed finacing to atleast pull out the purchase price leaving roughly 10k in repairs in and do this till banks cut me off.

Soo many questions, what kind of rates and terms are you getting ?Are you sticking with commercial/ portfolio the rest of the way? I've called atleast 20 banks and I find most of the bankers dont really understand what I'm looking for but banks that do especially the small ones offer 10 year fixed 20 amortzation... or 15yr 20yr 25 year adjusting every 5 years.

Theres also lenders that will do 30 year fixed 0 to 3 month seasoning but high 6 to 7s in terms of rates . This can be kinda tuff here in ct when investing in sfr...

If you dont mind me asking who are you using for 3 month seasoning? And what's the fastest and best way to scale in your opinion? I know the brrr is great but what type of financing?

Thank you for what you can share!

Ryan

@Danielle Wolter

Hey thanks for responding! My lender understands it just when I told my lawyers office of what i wanted to do she had no idea! Said it cant be done and what's the point of it

What sort of FICO’s are acceptable in some of the shorter 6-month take out loans.  Is there any soft money for these types?  I have a few loans hitting the one year mark of seasoning and wondering what’s out there. 

@Ryan Keenan , there are banks that will allow you to re-finance the same day you buy it as long as you are using an LLC and you leave 25% in the deal. I am told at my bank, that I can have 10 of these. Personally, I would rather leave the 25% in the deal (in some cases the 25% is already in built in from getting a decent deal) and get premium interest rates with no seasoning, then to keep in my name or treat as commercial. Of course this only works with 1-4 units, so if your 8 are in one building, then forget I said anything.

Originally posted by @Lane Kawaoka :

I had a goal to get my 10 fannie/freedie loans and then I realized that with 300 dollars per property (2 months of work to buy a turnkey rental) you are going to need 20-40 of these to replace your income. I have 10 of these and have systems in place but have 1-2 evictions a year and 3-4 big things that happen. Image if I had 30, just 3 x those numbers.

Directly investing in a turnkey rental or small MFH is a good way to start to learn and build up the war chest to go into my scaleable investments such as private placement syndications. Whatever you do, try to be as close to the investment as possible. 

Off topic.. But if it's 10 SF homes you're talking about, an eviction or two a year sounds like a lot. That would be a 10-20% rate. Are you sure your PM is screening effectively?

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