Nonbank lending v. traditional banks

2 Replies

What are you guys seeing as the advantages/disadvantages for expanding a rental portfolio using nonbank lending (B2R, Firstkey, etc) v. traditional bank lenders? 

a) If you are buying in an entity or have used all your Fannie/Freddie (you get up to 10 under current rules - if a bank tells you 4 or 6, that's THEIR BANK's rule - keep looking for other lenders), then these non-banks can help you keep buying.  But so can local banks and credit unions if you talk to their commercial lending departments or ask about portfolio loans.

b) Your personal income and credit qualifications are not as important as the property and its income in securing the debt. And sometimes these can be non-recourse loans (ie - your liability for the debt is limited to the property - not your personal assets or ability to pay from other sources).

c) They provide a lot of flexibility to refinance and get cash out of a porfolio of properties that has been paid down so you can put your equity to work.  Once you have more than 4 Fannie/Freddie loans, you cannot do cash out refi conforming loans (except under the delayed financing exception for cash purchases).

Otherwise, their rates are higher, fixed rate periods are shorter, amortization time frames are shorter, etc. which means the deals need to be better for these to make sense.

We've recently moved to Florida.  I've talked face-to-face with a number of "small, local" lenders in my (new) local area.  My (new) local area is close by to Palm Bay, one of the "seriously underwater" MSAs, to the South.  And the area North at Cape Canaveral lost engineering jobs a decade ago, due to privatization of the Space program.  

Due to these factors, traditional and local lenders do not want to touch SFR investment properties. Not with a 10 foot pole. And they won't lend out of area. There still are deals, there are new jobs, an expanded deep-water port, and retirees flocking to Florida in droves. But, fear is fear.

The non-traditional lenders will still lend.  Hard money is active.  Cash deals are flying off the shelves.  So either we go elsewhere, or we do business differently.  At the end of the day, if we want to grow bigger, we will *all* do it differently, whether non-traditional, private money, or creative.

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.