Who can cash out on 15 properties?

25 Replies

I called my mortgage loan officer yesterday to discuss lending options for my many properties in LA.  I'm looking to grow my business, and I wanted to borrow using my rental homes as collateral.  I have zero debt.

She said for the SFR properties, bank policy is limited to 4. She didn't do multi-family, but said I could potentially go to a commercial bank.

I know someone on BP has tried this before.  What's my best bet if I want efficient access to capital to acquire more foreclosed properties?  Should I just finance new acquisitions as purchase?  Or should I lever existing home that are unlevered and buy new homes with "cash."

David

First off Welcome to Bigger Pockets David. I am in STL please let me know if you need anything. 


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Peter MacKercher, Real Estate Agent in MO (#2010004223)
(314) 210-4414

Depends on what your trying to do. I like to do a portfolio loan with a good local commercial bank on several properties. 

Peter MacKercher, Real Estate Agent in MO (#2010004223)
(314) 210-4414

@David H. - I have 10 properties (25 units) with [REMOVED]. If they don't do your area try attending a local REIA in Louisiana and ask the investors who funds them. You can also try searching online for banks in your area and start calling them. But a commercial lender should have no problem with this. Also, welcome to BP!

Brie Schmidt, Real Estate Agent in Illinois (#471.018287) and Wisconsin (#57846-90)

@Kris Hodges  I called Capital One.  Their max was 4 homes.  How did your pre-approval work and what bank were you using? It seems like doing these cash out refis are sooo hard.  They want leases on ALL of my properties, two years tax returns.... geez.  All for a maximum of 4 properties?  I'm wondering what kind of bank I need to look for to get access to liquidity.

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The federal guidelines for insuring mortgages changed and most banks have not caught up. 

Previously you could get 10 mortgages insured and most banks allowed up to 10 mortgages, then the feds moved the limit down to 4 and a few years later back up to 10. 

Most banks don't know the standards changed and will not do more than 4 loans, but recently I found a few that will. 

Also commercial loans have a higher interest rate but they are not subject to any of these limitations. 

If you are doing a personal loan (which have better rates and terms) Call about 10-15 banks and if you still cant find one use a mortgage broker. 

What exactly are your goals with this equity? Are you just wanting to buy more rental property? If so, probably easier to just get financing on the new properties you are buying, rather than messing with cash-out refis on your current homes. Wouldn't 1 or 2 cash-out refis provide you enough of for down payments?

You can go up to 10 mortgages within FNMA guidelines...just need to find a lender that will do it. A lot of lenders will stop at 4. 

Also, as mentioned, may be better off just going commercial. Just talk to the commercial lenders at local banks and/or credit unions. 

@David H.  Is correct that the commercial loans often have a higher interest rate, rates are low across the board right now. I'm seeing many 10 year commercial deals under 4%. 

Any of the smaller community banks and credit unions should be able to help with this request. Could also get a revolving line of credit partially secured by yor existing properties that you could use to fund further purchases. 

@Toben B.  Calling a broker!  What a great idea... sometimes the most obvious solutions are right under our noses.  I'll try that on Monday and see if he has ideas.

@Rusty Scott  I'm looking to grow my business through acquiring more foreclosed homes and rehabbing.  I have cash for about 1 or 2 more of these foreclosures I've been snatching up, but after that, I'm tapped out without liquidating my retirement funds.  I need to start finding a new source of capital, and I'm at the point where I feel like debt is actually safer than having these things all cash.  But, I need a lender who's going to give me a good "deal."  I think I have two choices to accelerate growth: 1) cash out refi on my positive cash flow homes or 2) borrow money to acquire homes that have termite damage and missing air conditioners.  Both are proving to be harder than I thought when I first started with my first house.

commercial rates I've gotten are in the mid 4s....however they are only fixed for 5 to ten years, and they are on 15 year ammor. Works perfect for my needs, but others maybe not.

Originally posted by @David H. :

@Toben B.  Calling a broker!  What a great idea... sometimes the most obvious solutions are right under our noses.  I'll try that on Monday and see if he has ideas.

@Rusty Scott I'm looking to grow my business through acquiring more foreclosed homes and rehabbing.  I have cash for about 1 or 2 more of these foreclosures I've been snatching up, but after that, I'm tapped out without liquidating my retirement funds.  I need to start finding a new source of capital, and I'm at the point where I feel like debt is actually safer than having these things all cash.  But, I need a lender who's going to give me a good "deal."  I think I have two choices to accelerate growth: 1) cash out refi on my positive cash flow homes or 2) borrow money to acquire homes that have termite damage and missing air conditioners.  Both are proving to be harder than I thought when I first started with my first house.

 Ok....you have some options. 

You could go to a traditional lender and get cash out refis...probably up to 4 without any issue, as you've found out. But then you are going to get a lump sum, which you'll be paying interest on when maybe you don't yet need it.

I'd prefer to call some commercial lenders, at your local community bank, and see if they'll give you a line of credit secured by several of your properties. Then you can just draw on it as necessary. 

You are likely not going to get traditional financing on homes that need major rehab when purchasing, as you pointed out

@Rusty Scott I've definitely thought about the LOC option. I've never needed the debt until about now, so I'm just now digging into the different options. I definitely like the idea of having quick access to buy a foreclosure without keeping all that cash in a checking account. That's basically what I've been doing this whole time. Inefficient, but the margins were so large on my deals that I could afford to have dry powder sitting under the mattress. I'm definitely going to start with a few calls to some brokers, and US Bank looks like it could be an option too.

It sounds to me that you only called one bank.  I have 12 banks or so in my area and it amazed me how different each bank is.  Some require 70% loan to value and others go as high as 80% loan to value.  Most go out only 20 years but I found one to go out 25 years.

I would suggest making a list of every bank and credit union in Excel and ask what their terms are, how many they would refi, do they have the option of portfolio loan, etc. You may come across one that you like that can do all 10 properties. Maybe you can get a LOC and save some money on closing costs.

You mentioned that you were surprised that "They want leases on ALL of my properties, two years tax returns.... geez. All for a maximum of 4 properties?"  I would think every bank wants this information, it is pretty standard for all the loans that I have gone for.

It's work to get mortgages but if you want the money, you'll do the work.

Tom

Welcome to BP @David H.  !

It's been a while since I went there, but if you go to memphisinvest.com and share your name and email address, you will get access to Chris Clothier's short video that explains how to build a "bank book."  I hope it's still there, it is gold.  If not, PM or email me and I'll share my notes with you.

With your bank book in hand, pay visits to your small local, regional banks and credit unions. Ask to speak to a commercial lender (that's usually the title of "portfolio lenders"). The LOC offers several advantages over a cash out refi. As mentioned, you don't pay interest while the funds aren't being used. Seasoning rules to cash out on properties that you purchase with LOC funds are different. As detailed to me by one lender, if you purchase a property with cash from cash out refi, seasoning rules apply and you can only cash out based on purchase price. However when a property is purchased with LOC funds, you can cash out refi based on appraisal with no seasoning requirements. That can be huge.

Disclosure: I have no affiliation with any company or website mentioned in this post.  Just sharing some of my own experience.

@Thomas Guertin good points. I'm getting numbers like 75% LTV 30 year AM, 4.125%. Not bad except for the limits.

I'm not against complying with a rule, but sending in 15 leases for a loan backed by one property just seems like a big stack of papers for nothing.  I'm not sure how my raw land plays into a cash flow asset that's got a 25% equity cushion.

@David H.  We use FNB of La. I've been with them from the beginning. For us it has been building a relationship slowly. The president of the branch we use has seen that we know what a good deal is and trusts us to know what we're doing. The relationship takes time. Focus on a small locally owned branch with just a few locations. 15 free and clear properties should be a great qualifier on an application. That's impressive. Great work!

Originally posted by @David H. :

@Thomas Guertin good points. I'm getting numbers like 75% LTV 30 year AM, 4.125%. Not bad except for the limits.

I'm not against complying with a rule, but sending in 15 leases for a loan backed by one property just seems like a big stack of papers for nothing.  I'm not sure how my raw land plays into a cash flow asset that's got a 25% equity cushion.

Get used to the paperwork if you want to borrow money from banks. I refinanced my mortgage on my primary residence a year ago. I didn't do a cash out, just locked in a lower rate. Loan was only 60% LTV and they wanted leases and insurance docs on every rental I owned, even though they are all in an LLC. That was 50+ leases just to lower the rate on my primary residence (it saved me about $800/month so I did it).

I understand the frustration from the OP and I would suggest to just stop and breath. If you own 15 properties free and clear at this point you have a leg up on 99.9% of the people starting out in this real estate business. Have you considered cashing out the weakest ones and reinvesting your cash in higher quality units? It is great to have 50+ leases but sometimes quality is better than quantity.  A construction company that I am familiar with has been working on becoming lean for the last couple of years. Their overall volume per annum went from over 100 million to less than 17 million. However at the 17 million they were actually producing MORE total profit. Lean production methods eliminated waste and duplication I think it is totally amazing.     

We just bought our 5th property and got a loan no problem (all our properties have loans). As some others mentioned, you can get loans on up to 10 properties right now. We have been using mortgage brokers - much easier than calling a bunch of banks myself, and they have access to lenders and interest rates the big banks cannot compete with. You said you will call a broker tomorrow, I definitely recommend that. Maybe call a few. You will still need to provide all leases, tax returns, bank statements, etc., but that is unavoidable. Good luck with your future acquisitions!

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Originally posted by @Kris H.:

@David Hoang We use FNB of La. I've been with them from the beginning. For us it has been building a relationship slowly. The president of the branch we use has seen that we know what a good deal is and trusts us to know what we're doing. The relationship takes time. Focus on a small locally owned branch with just a few locations. 15 free and clear properties should be a great qualifier on an application. That's impressive. Great work!

 Is that Brandt Sr? I talked to him the other day. He seemed like a straight shooter who knows how to make money and was familiar with the local real estate.

what are the terms of your portfolio loans like, and what was the benefit over doing individual loans?

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