Schaumburg, IL · Member since 2014 · 1 post · 0 votes
Ive puchased 14 homes during the meltdown. Purchase and rehabs were all self financed, and they have all been producing steady rent, 92% collection since 2010. I've depleted most of my funds and wanted to explore options on acquiring additional funds to expand. Where would you guys recommend for me to start? Thanks in advance
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
11y
So you own 14 properties free and clear and have no other mortgages except your primary residence?
I believe you can do cash out refi's as regular conventional loans on 3 more of your properties and can go up to 75% with great terms (30 yr fixed, low rates).
I would do that on your 3 most expensive properties first. That should reset your cash position quite a bit.
Going forward, though, I would strongly recommend that you buy using another strategy. I buy all my houses using hard money loans where I can roll the purchase and rehab into the loan. The only thing I come out of pocket for is the points and closing costs.
Then I refi the hard money loan - rate and term - into a conventional (when less than 10) OR a commercial loan.
But at the end of the day, I'm getting all in on 130k to 140k properties for about 65% to 70% LTV or better which means I'm only out of pocket about 5 to 6k in points/closing costs. That will stretch your money a lot further next time!
Now there are some deals where I come out of pocket even more just because I need to get down to the LTV for the hard money lender or the end loan. But the key is that I know that limitation is there and can avoid using my reserves as much as possible if I do.
Where else can you pick up a 135k house for 6k that makes you about 400 to 450 a month gross profit? How is that not a great way to build wealth?
You will walk away from deals because of the LTV component. But whats better? To be able to grow and maintain a large cash reserve? Or to have to stop buying and figure out a way to put some cash together again?
I say keep it all in your pocket. And for what I've seen, its just so much easier for local banks to do rate/term refi's than it is to get them to do cash out refi's. Thats a dirty word in the banking industry since the bust.
Real Estate Agent · Decatur, GA · Member since 2014 · 33 posts · 7 votes
12y
@Ac Choudhary search the forums for Portfolio Lenders or Hard Money lenders. There are many other threads that can help you with the details on both of these.
The other option I know if is to find other investors to work together on. If you can't get a loan maybe they can and you can either bring money or experience to the table.
Or you could find enough investors to buy the property for cash.
Some of the early podcasts on Bigger Pockets talk about creative financing options. Check them out.
Accountant · High Ridge, MO · Member since 2014 · 26 posts · 2 votes
12y
Do not ever discount a good banker. I good banker relationship could be just as important as a mentor. In fact my mentor introduced me to my current banker and it has been an awesome experience. Developing this relationship before you need the money is probably the biggest key. I started talking to bankers with a 6 month time frame in mind and it paid dividends because it instantly showed I had a long term mind set.
I am assuming that at this point you have some decent equity in all these homes and therefore could maybe use that to finance your expansion. With a good banker they should not have a problem taking seconds on some of your other properties to finace what you are trying to buy so long as they stay in their own LTV guidelines.
I would recommend talking to other investors in the area for recommendations.
Investor · Cypress, TX · Member since 2014 · 496 posts · 205 votes
12y
Talk to local banks and credit unions about portfolio or blanket loans. You should easily be able to finance 60-65% of the current appraised value out of your portfolio at a decent rate. Maybe more.
Lender · Nat'l Commercial Mtg Lender - Round Rock, TX · Member since 2014 · 916 posts · 235 votes
11y
If you find a local bank or credit union that does blanket loans, they typically only go as high as 60% to 65% Ltv. If you need 70% to 75% than you will need to go to a bigger bank.
Lender · Nat'l Commercial Mtg Lender - Round Rock, TX · Member since 2014 · 916 posts · 235 votes
11y
@Anna Shaver when you do the numbers, the ltv is pretty close to being the same whether it is on each property or across all properties. Blanket loan to value ranges from 60% to 75%. The minimum loan amount on a blanket loan is typically $500,000.
Visalia-Fresno, CA · Member since 2009 · 1k+ posts · 863 votes
11y
@ac
@Ac Choudhary go with a commercial loan and cross collateralize the properties. I did one recently to some of properties but was refinancing a bunch of individual portfolio loans. 4.75% rate, fixed 7 years with a 65% LTV. It was a long process took about 5 months.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
11y
So you own 14 properties free and clear and have no other mortgages except your primary residence?
I believe you can do cash out refi's as regular conventional loans on 3 more of your properties and can go up to 75% with great terms (30 yr fixed, low rates).
I would do that on your 3 most expensive properties first. That should reset your cash position quite a bit.
Going forward, though, I would strongly recommend that you buy using another strategy. I buy all my houses using hard money loans where I can roll the purchase and rehab into the loan. The only thing I come out of pocket for is the points and closing costs.
Then I refi the hard money loan - rate and term - into a conventional (when less than 10) OR a commercial loan.
But at the end of the day, I'm getting all in on 130k to 140k properties for about 65% to 70% LTV or better which means I'm only out of pocket about 5 to 6k in points/closing costs. That will stretch your money a lot further next time!
Now there are some deals where I come out of pocket even more just because I need to get down to the LTV for the hard money lender or the end loan. But the key is that I know that limitation is there and can avoid using my reserves as much as possible if I do.
Where else can you pick up a 135k house for 6k that makes you about 400 to 450 a month gross profit? How is that not a great way to build wealth?
You will walk away from deals because of the LTV component. But whats better? To be able to grow and maintain a large cash reserve? Or to have to stop buying and figure out a way to put some cash together again?
I say keep it all in your pocket. And for what I've seen, its just so much easier for local banks to do rate/term refi's than it is to get them to do cash out refi's. Thats a dirty word in the banking industry since the bust.
Ive puchased 14 homes during the meltdown. Purchase and rehabs were all self financed, and they have all been producing steady rent, 92% collection since 2010. I've depleted most of my funds and wanted to explore options on acquiring additional funds to expand. Where would you guys recommend for me to start? Thanks in advance
If they were all self financed then I assume you have free and clear 14 properties. Have you considered using up your 10 fannie mae financed properties as an option to obtain cheap fixed rate capital that can be set on auto pay (no headaches as long as your cash flow is managed)?
Adequately planned (if married) you could obtain up to 20 financed properties on conventional financing. Typically a borrower can cash out on properties 1-4 and a couple if structured correctly can cash out up to 8 financed properties however when you get to the 5-10 financed properties for each borrower the cash out option fades from existence. Some of my borrowers working in cooperation with private/hard money lenders have lien'ed properties up to the max 70-75% LTV that can be refinanced so they can use that note and refinance out of the hard/private money to get in essence a "work around cash out," on properties number 5-10.
Example, borrower who is subject to financed properties #5-10:
- gets hard money lender to cash out to 70% of ARV (with relationship established they should only charge 1-2 pts for use of money for 1-2 months)
- Fannie Mae take out loan 30 years fixed @4.5% to payoff hard money lender
The reason you need to have a work around is that 5-10 you cannot cash out, only Purchase or "Rate/term," refinance (a refinance with no more than 2k cash back to borrower).
Then again you could also go to portfolio/commercial lenders for 1-4 as well but these are usually 3,5,7,10 year fixed ARM loans or balloon loans with rates in the 4.75 -6.00% which is still great just gotta manage your reset risk dates accordingly. The main benefit is they usually can finance as many properties as you can find as long as you buy and manage right.
On cash out non-owner is it 6 months title seasoning to use new appraised value instead of purchase price for fannie/freddie? Thanks!
It would be 6 months to use the "lower of," purchase price or market value so if you buy it right the value used will probably be the purchase price. So the solution would be to wait 12 or find a local credit union or community bank/portfolio lender who doesnt adhere to FNMA/FHLMC financing guidelines.
If you're added to title recently on a previously owned property you might need up to 24 months of title seasoning to go off regular cash out guidelines (up to 75%/70% LTV cash out) but till the 24th month it could be as high as 50% LTV. They call this restriction a "continuity of obligation."
I bought a fix and hold last month for 165k. I just put 70k into the property, appraisal came back at 315,000 so good equity there. I have a portfolio loan on it at 5.5% over 25 that balloons in 5yrs. Local bank lent $195k so I have around 40-50k locked up in property. So I would have to wait 12 months for fannie or possibly just look for another portfolio lender it seems...
I bought a fix and hold last month for 165k. I just put 70k into the property, appraisal came back at 315,000 so good equity there. I have a portfolio loan on it at 5.5% over 25 that balloons in 5yrs. Local bank lent $195k so I have around 40-50k locked up in property. So I would have to wait 12 months for fannie or possibly just look for another portfolio lender it seems...
Yes, with conventional financing, however why not go back to that portfolio loan and ask them to consider a new 80% LTV on 315k (show them some solid comps) and get a new loan with the portfolio lender?
From a borrowers point of view once you develop a relationship with a portfolio/community bank its pretty easy to continue to get additional funds or it should be if done right. Sometimes the bank's president is in the same branch if the bank is small enough.
Involved In Real Estate · Philadelphia, PA · Member since 2012 · 10 posts · 0 votes
11y
@Albert Bui Yea, you are right. I think their issue was more of a DSCR limitation (rent is about $2,200) and I was hoping for a better rate and 30 year am. I'll see what they say in a month or so. Thanks for the advice.
I also have a large portfolio of SFRs. My goal immediate goal is maximizing income.
I've considered the strategy you're suggesting, refinancing and pull money out to buy more properties, however I have not done it because by using borrowed funds to acquire additional properties you are increasing your risk and not necessarily increasing your income (because you're paying interest on borrowed funds + taking additional loans).
This, to me, seems like a better strategy when you're focus is on appreciation than on maximizing income.
I also have a large portfolio of SFRs. My goal immediate goal is maximizing income.
I've considered the strategy you're suggesting, refinancing and pull money out to buy more properties, however I have not done it because by using borrowed funds to acquire additional properties you are increasing your risk and not necessarily increasing your income (because you're paying interest on borrowed funds + taking additional loans).
This, to me, seems like a better strategy when you're focus is on appreciation than on maximizing income.
What are your thoughts?
To make it it scalable you can always seek returns that are 2 or 3 dollars of net income per every dollar of debt service so that your borrowing propels you forward 2 steps or more so that risk is mitigated to a certain degree.
But yes if you were borrowing 1 to make 1.25 then risk is highly elevated.
Involved In Real Estate · Philadelphia, PA · Member since 2012 · 10 posts · 0 votes
11y
@Account Closed it only makes sense to pull the cash out if you can use it for another investment that makes sense and fits your investment criteria. I don't think it makes sense, however, to keep the cash locked up in the property you already own just for the purpose of 'income' - you are basically just buying cashflow with a larger down payment. I want my property to still cash flow at 100% financing by forcing appreciation (not 100% leveraged)
Lender · Mokena, IL · Member since 2014 · 1k+ posts · 261 votes
11y
Greetings AC,
Where you start depends on your credit score, personal debts and how much income you actually show on your tax returns. In the traditional banking world personal debts are counted against you, and income is taken into consideration when determining approval or denial.
Lender · Bellevue WA & Orange County, CA · Member since 2013 · 2k+ posts · 1k+ votes
11y
asset based loans or private money is prohibitively expensive and there is a place for it but for buy and hold there is plenty of conventional and portfolio money around so that the ABL is only needed for bridge purposes.
Usually ABL is synonymous with hard money what are your terms and rates is it more competitive or just a physiologically friendly way to mention hard money ?
On cash out non-owner is it 6 months title seasoning to use new appraised value instead of purchase price for fannie/freddie? Thanks!
Actually Mike, recently Fannie Freddie have updated this and yes now it is 6 months to use current market value (if you can find enough comps to appraise where you want).