How to get a 5th mortgage?

23 Replies

I own 4 condos in Chicago, I live in one and rent the other three out.  I would like to start buying investment property in Florida but was told by my lender that you can only have 4 mortgages on homes.  Other than buying these florida investment properties with cash, does anyone know of a good way I can finance future deals?

some lenders go up to 10 properties. look for portfolio lenders in FL

@Jeff S  - Ask around, lenders will do up to 10 properties.  The issue is the lending requirements change once you go past 4 AND you will not be able to cash out on any of your investment properties when you hit the 5th.  

Medium second city real estate logo   white close upBrie Schmidt, Second City Real Estate | [email protected] | http://www.SecondCity-RE.com | IL Agent # 471.018287, WI Agent # 57846-90 | Podcast Guest on Show #132

Some lenders do go up to 10 but I would look for a broker with multiple loan programs. The financing is not as easy to get as you'd think. None of the big banks are going to do it, thats for sure.

The other issue you're going to have is being an out of state investor. Normally, this is an easy answer when talking about going over 4 properties. Try the 5-10 financing. If you can't get it (the lending guidelines are a lot stricter/tougher to qualify), then look for a portfolio lender.  But local banks aren't as keen on lending to out of state investors as they are local borrowers.

Just another layer of risk they have to deal with.....

The 5-10 financing is the best way to go - lower rate, locked in for 30 years and amortized over 30 years too so your cash flow there is going to be the best.

Thanks everyone.  

I am moderately experienced and have quite a few mortgages.  The very first question I ask any lender is whether they use Fannie/Freddie underwriting guidelines to make lending decisions.  If they answer yes, I thank them for their time and move on.  I don't waste their time or mine going any further.  It isn't worth it.  I don't ask about rates or terms until AFTER I ask this question.

Your issue is exactly why I do this.  I already know that I have too many mortgages.  I respect their time and realize that what they are doing does not match with what I am doing.  If they use Fannie/Freddie underwriting, they are simply bundling mortgages for resale.

If they say that they don't use Fannie/Freddie for ALL mortgages, spend some time talking with them.  You are likely going to want some type of portfolio loan product.  That means that the bank holds the mortgage in their own portfolio versus selling it as part of a mortgage backed security.

You may find rates a little higher.  You may find there is an adjustment written in 3-5 years down the road.  You may find a balloon payment at some point.  These are trade-offs.  If you get the deal done, it should be one that makes financial sense anyway.  If it still makes sense with these differences, get it done.  Don't sweat about having to pay a little more because if you don't close the deal, you are making nothing anyway.

I don't sweat over the differences.  I find the right deal, find the funding, and close it.  This has worked very well for me.

Good luck!

Originally posted by @Brie Schmidt :

@Jeff S  - Ask around, lenders will do up to 10 properties.  The issue is the lending requirements change once you go past 4 AND you will not be able to cash out on any of your investment properties when you hit the 5th.  

 What if a married couple with 8 properties and 4 separated properties under each of their names? So husband has 4 properties and wife has 4 properties. Are they qualifying for cash out refinance at this point assuming that they have 6 months reserve for each properties and good credit?

If you are married and have the first four loans in your name, you can have your spouse apply for the next mortgages. You could also pay cash and do a "delayed financing". This program is not offered by many lenders but it is backed by Fanny/Freddy. The delayed financing has to happen inside 6 month of closing.

I am new to all this.
I am dealing with small hometown banks. Setting everything up on 15yr notes at 4.2% refi every 5yrs.

I will have my third mortgage in a week. All 3 with different banks.
My question is. Once I reach 10 total I won't be able to cash out? Or is it 10 with each bank? I also have them set up in a LLC.
Thanks

Originally posted by @Thomas Oliver :

I am new to all this.
I am dealing with small hometown banks. Setting everything up on 15yr notes at 4.2% refi every 5yrs.

I will have my third mortgage in a week. All 3 with different banks.
My question is. Once I reach 10 total I won't be able to cash out? Or is it 10 with each bank? I also have them set up in a LLC.
Thanks

You are apples and oranges here. To clarify, Fannie/Freddie guidelines are for mortgages that are set up to be bundled and later sold as mortgage backed securities. In order for that to be permitted, they are underwitten to set guidelines at the onset to set up for the eventual bundling/sale to occur. Fannie/Freddie limit the mortgage number as well as how the property can be titled, among other things. To my knowledge, they don't permit property to be owned by an LLC. I am sure others will bring up how to work around that, but that is off topic so I won't. That is the apples part.

What I suspect you are saying is that you have mortgages placed with smaller local lenders, titled in the name of an LLC. I strongly suspect that these mortgages are held by these local lenders in their own portfolio and are not going to be sold in the future as part of a MBS to Fannie/Freddie guidelines. So for that reason, your small local bank is underwriting to their own underwriting guidelines, giving them much more flexibility as to how property is titled, how many mortgages, etc. This is the oranges.

Sounds like you are on the same path I am.  See my earlier post too.  Hope that helps.

I am new to all this.
I am dealing with small hometown bank. Setting everything up on 15yr notes at 4.2% refi every 5yrs.

I will have my third mortgage in a week. All 3 with different banks.
My question is. Once I reach 10 total I won't be able to cash out? Or is it 10 with each bank? I also have them set up in a LLC.
Thanks

Adam Johnson thanks for the input. I had read your earlier post.
Yes you are correct the banks are holding the notes in there portfolio my banks will only loan 80% of the sale price tho. That does turn into a cash on hand problem.

I will not purchase anything for more than 80%of the apraised value. Now what I have been trying to do is take my cash and pay cash and borrow that back to get around this.
I have ran into a couple of good deals that I didn't have the down payment.
I have been considering a hard money lender to loan me the 80% then refi through my bank for a good interest rate. Due to once I own it they'll loan me 80% of the value.

Please tell me if I'm thinking wrong.
Thanks

All about that bank, no brokers!

Sad attempt at a Meghan Trainer spoof!

Going to people who lend money not those that arrange financing is the solution.

@Thomas Oliver  - you are on the right track.  This is basically what I do with nearly every purchase we make.  There are those that will hate this strategy, that's ok.  It has worked well for us and we will continue to do it.  We started out without cash, so we had to figure it out and have.

Most everything we buy has some sort of distress, whether it is property condition or poor management or a combination of the 2. We try to purchase using either owner-financing or using hard money. We also buy at a huge discount off of either the current value or what the value will be shortly after we get our hands dirty and get it back under control. Within the first couple years, we refi out of either the owner-financing or the hard money. At the time of the refi, we generally have created additional equity and therefore keep the LTV low because of the new appraised value at the time of the refi.

It is important to be on title to the property, because the "rules" are generally more favorable to refinance a property you own (are on title to) versus trying to gain approval for a new money mortgage.  If you do it right, you can do a "cash-out" refi and walk away from the closing with some money in hand.  We turn around and put that money toward getting another similar deal started, then repeat a year or 2 down the road.

Since I started out in this business flat broke, I like to get any money I put into a deal come back to me fairly quickly.  It doesn't always have to be from operating income.  In fact, it is usually simply being replaced by the banks money in the form of debt which is, in turn, being paid off by the cash flow from the property.

Thanks for the advice Adam.

I am working with just a little cash.
I do have great credit. A 6 figure annual salary and just about all my debit payed off.
Also a good standing with my banks.

I built 3 rentals last year.
I'm closing on 6 on the 20th. So in less than a yr I have went from 0 to 9 properties.
The ones I'm buying are forclosed and empty. I'm stealing them I hope. Lol. The figures say I am. Lol. The plan is to refi in a yr or so and take that cash for a bigger purchase.
Thanks
Thomas

@Jerry Padilla  can lend on up to 10 properties, he can help you out too...

We have recently moved to a new State, so we are starting all over in a new market. I have determined criteria for this market, and have a plan, and have a specific area to invest.  Now we are a week from closing on a 5th property and the underwriters are asking for a ton of additional information.  Others are right in this window, so I will elaborate.  

For example, even though this is a personal loan, they want the K-1s for our LLC. Well, this is a series LLC and therefore it doesn't look the same as others. I have had to write to my CPA twice to explain it to the underwriters. From there, they want my oldest and largest credit card closed, and want to see "proof" that it is closed. Yeah, that will hose my credit for some time, and I'll be out $25k in credit.

Since we live in the SpaceCoast, my husband has an explanation that is fitting: like a launch sitting on the pad, there is a lot of shaking going on, smoke is pouring out, and for some time the rocket just sits there.  All we have done to prepare for this moment will soon propel that nose cone high into the stratosphere.  But until then, there is just a lot of smoke and shaking going on.  Once we obtain liftoff, and we in this thread are nearly there, the income from the houses will start paying for the next one. 

  I am so ready to move out of the regular lending space and into something different!  

Kerry Baird, UR Home Investments | http://www.urhomeinvestments.com

@Jeff S. Talk to lots of local lenders.  When you have a banking relationship with a local bank they will eventually develop a loan product for you... like a portfolio loan.  I created about 15 portfolio loans and then refinanced them into one commercial loan.   It took about 4 years to create the pool of portfolio loans lots of hustling.... and selling myself to the banks.


Frank

Originally posted by @Brie Schmidt :

@Jeff S  - Ask around, lenders will do up to 10 properties.  The issue is the lending requirements change once you go past 4 AND you will not be able to cash out on any of your investment properties when you hit the 5th.  

 Hi Brie, can you clarify on your post?  Are you saying that once you get past 4, you can't cash out on any of the investment properties?  So if I have 5 loans, I can't do a cash out refi on any of them?  The only way to pull out equity is to sell them?

@Mike H. In your experience, how much higher is the interest rate for the 5th loan vs the 4th loan?

I believe standard mortgage policy allows 1 primary mort and 4 investment home mortgages. So really it's 5 mortgages and your ok, after that it's tricky. I currently have 5 total.

Originally posted by @Hedy Kromer :
Originally posted by @Brie Schmidt:

@Jeff S  - Ask around, lenders will do up to 10 properties.  The issue is the lending requirements change once you go past 4 AND you will not be able to cash out on any of your investment properties when you hit the 5th.  

 Hi Brie, can you clarify on your post?  Are you saying that once you get past 4, you can't cash out on any of the investment properties?  So if I have 5 loans, I can't do a cash out refi on any of them?  The only way to pull out equity is to sell them?

 Yes.  You can only do a cash out refi on your primary residence.

You can find some banks to do a HELOC but they are few and far between

Medium second city real estate logo   white close upBrie Schmidt, Second City Real Estate | [email protected] | http://www.SecondCity-RE.com | IL Agent # 471.018287, WI Agent # 57846-90 | Podcast Guest on Show #132

You have a lot of options in soft or hard money. A blanket loan will work as well.

@Hedy Kromer

I think the rate when going from the 1-4 program to the 5-10 is about the same. They're both still conventional loans on investment properties. I think the difference is that the 5-10 program has tougher guidelines to qualify.  If the rate is higher, it wouldn't be much.

Now if you're talking about using the portfolio loans (i.e. commercial loans with local banks), then you are going to pay higher rates. And the rates vary from bank to bank. I'm getting anywhere from 4.75 to 5.5% these days with the local banks.

But keep in mind thats just one part of the equation for your terms. The other key things to point out with the portfolio loans are that they are typically amortized over a shorter period of time (20 to 25 years  but very few go to 30). and they also typically reset or need to be renewed after 5 years which means your interest rate may go up based on where rates are at that time.

So those are a couple of huge advantages of using the 5-10 program over portfolio. Longer amortization period, lower rate = more cash flow (but less principal paydown). And locking in the rate for 30 years at today's rate is probably going to save a lot of money in the long run as well - given that rates will likely go up from these levels.