How To Keep Getting Loans

Question

I am just starting out. I have been researching for about a year now and my strategy (at a very high level) is to BRRR my way to financial freedom. I am not excluding other strategies but I intend to focus most of my time and energy on BRRRs. That said, I am concerned I will not be able to carry enough loans to acquire enough doors. E.g Let's say I aim to acquire 10 SFH per year, my first 2 years. I.e, 20 loans in total. Is that even possible? If so, what type of lender am I looking for?

My understanding is that a common bank will struggle to meet these needs. Rather, a portfolio lender might be a better option. However, I have heard that portfolio lenders can make it difficult to sell the property, should you decide to do so. Then there is private lending..

My question is this: In light of this high level strategy and the need for many many loans, what is the typical (if there is such a thing) route for lending?

I do understand that acquiring MFHs would alleviate this issue to a degree, however, I am asking in principle. How would this be achieved?

Bill B. · Answer

Worry about it when you have 10 performing rentals. You’ll have figured out the basics of business and have a track record to show lenders. Don’t buy 10 x 100k properties. If your average property is $300k you’ll have $3mil in real estate when you have the first 10 properties.

You might that your financials or your track record won’t even support 10 loans. Then you’ll know that’s a problem to overcome before worrying about loans 11-20.

David M. · Answer

Account Closed

hmmm..  Its like every other advice.  Find a good lender (message me for a referal) and get pre-approved.  Then, find a corresponding property, get it under contract, then apply for the loan.  What advice / course of action has your aggressive studying the past two years told you to do?

If you want to chat let me know.  Good luck.

Joe Splitrock · Answer

@Aaron Kaminer you are wasting time worrying about the wrong thing. All you should be worried about is deal number one. Odds are good you never even do one deal. That is just what the statistics say.

If you are successful, loans will be no problem. Your biggest problem with 10 SFH per year is having enough cash or equity to sustain the lending. You will need to buy these properties under market and/or force appreciation through rehab. A lender is going to want 75% LTV, which means you need 25% equity left in the property.

Your issue is finding deals, not finding lenders. Find one, then worry about number two.

When you were learning to ride a bike, your goal was going 20 feet without falling. You didn't worry about how to qualify for the Tour de France.

John Brodeur · Answer

@Aaron Kaminer,

People often use commercial loans or portfolio loans when they reach thresholds that exceed normal bank conventional loans. There are small credit unions and regional banks that offer portfolio loans, ad well as large national non-bank lenders.

These loans operate much more like commercial financing where they will lend on the performance of the property NOI vs. your personal finances (debt to income ratio). Sometimes they are called debt service coverage ratio loans, and for sfr, or small multifamily you can often get similar terms to a conventional bank loan (30 yr fixed), but you will pay higher interest rates and often higher closing costs.

DM me if you have additional questions as I just started using this type of lending and there are some additional differences and considerations.

David M. · Answer

@Aaron Kaminer

Well, I believe you can only have 10 conforming loans under your name.  That is where you need to get nonconforming loans.

You can obtain/refi as many loans as you can qualify, more or less.  You need to find a good lender that can keep track of what is coming and going and process the loans quickly.  Mine would probably love the business.

Don't forget that with the 6mo "seasoning" timeline, those refi's for the 10 sfh will be spread out.

I honestly don't see how mfh would alleviate any of this, unless you are saying you won't have the funds/financial capability to scale..

Does this help?  Be happy to chat.

Kevin McMaster · Answer

The process changes over to portfolio lenders or private money (wealthy partner) ….

Account Closed · Answer

I am in a very similar situation, I've been aggressively studying for the past couple years and now it's time to get real experience. I plan on doing the same thing with using BRRRR to maximize the purchasing power of what money I do have. My question to you is how do you plan on getting your first loan? I have looked at several hard money lenders and most would like to see 1 deal done for a short term fix and flip loan. It seems that the hardest part in starting out is getting the loans necessary.

Timothy Hero · Answer

Non-qm lenders, aka "private mortgage lenders" don't report on credit or have a max loan amount. They don't look at DTI, taxes, etc. 30-year fixed as well.

Zach Stroud · Answer

I just used Caliber Home loans. They have the Smart Vest program that allows you to borrow on over 10 properties. Their parent company, New Rez,  keeps the loan on the books. They required 80% LTV and the property must cash flow at least one dollar above the monthly payment for them to approve it. My rate was about 4.5%.

Jason Hirko · Answer

Absolutely. I can refer you to some if you'd like.

How To Keep Getting Loans

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