Getting ideas how to finance a five SFR deal

6 Replies

I have the opportunity to potentially acquire a package of 5 SFRs. After calling my regional lender, I was told that now they limit mortgages to four instead of ten but they said if I put the properties on one contract, it gets handled as one mortgage. I have to dig deeper into this before I believe the one contract one mortgage option. My question is, what other financing options are on the market for SFR packages. I will hit lenders tomorrow and would like to ask intelligent questions to cut to the chase without wasting time. Any idea is appreciated.

There are lenders that will go up to 10 conventional mortgages. There are also lenders who will do commercial type mortgages for an unlimited number of properties, as long as the numbers work. You may have to make a LOT of calls - dozens - to find someone in your area, but they do exist.

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Yes, I will do a lot of calling tomorrow. There are banks and credit unions in this area. I prefer to get a 30 year mortgage for the flexibility but might have to look into arm options. I don't know the commercial loan sector at all. Do 5 properties necessitate five closings with their respective closing costs? My realtor recommends 5 contracts to keep them as separate entities for later conversions into 5 LLC's to shield better from liability issues. I don't know enough about this to have a clear opinion. Paying closing costs five teams sounds like a waste to me.

Some things lumped into closing costs you will pay five times anyway, even if you just have one closing as those will be aggregated. Things like real estate taxes, transfer taxes, title insurance, appraisal fees, origination fees / points, plus other costs as well - each property will have those either way you do this. But since you did not realize that, maybe you'll be biting off more than you can chew.

As for legal advice being given by a real estate agent, best to consult an attorney for legal advice.

I suggest you

1. use one contract, list all properties

2. use one blanket mortgage, have a release fee for each property.

3. use one LLC, absolutely not separate entities. Check a Series LLC out.

4. use insurance to protect your assets, not LLCs!

5.close all in one transaction and settlement.

6. The lender will need 5 appraisals.

7. In your contract, state the value of the land and improvements for each.

Your closing costs will be more as they have 5 searches as to title and you'll have 5 title policies. They may charge more for escrow administration as there are 5 properties, there can be one deed of trust, the same to each property but there will be 5 separate warranty deeds filed. The rest of settlement should not be effected so the total cost should not be as much as 5 separate closing but costs will be higher.

You won't get a consumer loan, 30 year fixed, secondary market type to your LLC, you will be getting a commercial loan.

Bulk property sales from individuals are usually a good opportunity to use seller financing, unless it's an estate or liquidation being required. :)

I did a lot of calling in the last several days having had no idea how many banks and credit unions exist in my area. I learned that financing is available for my deal, it seems to be a matter of what route I prefer to walk. Basically, I was offered 2 kinds of financing options from various institutions. The most often one was 5 conforming mortgages, each with its own application. I see economy of scale only with inspection, survey, and attorney fees resulting in relatively high acquisition costs for a package deal. The other option was a commercial type loan with usually shorter amortization periods. The interest rate would be determined at final loan approval but the range I was given is between 6 and 7%. Acquisition costs are lower due to the one loan only nature but the PITI payment becomes higher hurting especially the buy and hold idea.

LTV ratios are between 75 and 80%

I am tending towards the conforming mortgage route due to its lower interest rate options, even if the initial costs are higher and will reduce the COC. I intend to hold the properties long term and the need for refinancing in 4 or 5 years keeps me at unease. My inkling with the huge amounts of money chasing the market is that inflation will be back.

Most banks restrict the number of investment properties to 4 and have minimum loan amounts that are higher than I am looking for. But the exceptions are around. Another surprise is that some "mortgage loan specialists" are so "busy" that they don't call back and others act surprised to be getting a call.

I also heard from various mortgage brokers that the commercial type loans that were common a few years ago have dried out.