Portfolio Loan or individual mortgages?

Question

Good day BP!

Yesterday I had an opportunity present itself that looks pretty fair on the napkin.  Still getting some numbers to create a more thorough analysis, but my question comes in for financing.

The opportunity is three duplexes.  I haven't quite been able to wrap my brain around financing with a small handful of properties.  Will I need to mortgage each property individually? If I use HML to purchase all three, would it be considered a type of portfolio loan?  If I wanted to sell a property later and not all three, what would my options be?  Ideally, I'd hold them all for 10+ years to maintain the income. What would my best option be for attaining financing for this type of situation when I've already got two mortgaged SFRs?  Any insight into this or something I might be completely overlooking would be greatly appreciated.  Thanks in advance! (And if there are any lenders out there interested in helping with this acquisition in TN, shoot me a message!)

Anthony

Jeff Stephens · Answer

Anthony--congrats on an exciting new opportunity!  I have two thoughts for you:

• Generally speaking, I'd personally steer clear of portfolio loans (multiple properties under a single loan) if at all possible, because it will limit your flexibility in your exit strategies later.  I've never done one of those, mind you, but as I've evaluated it, I've always decided against doing one.
• Have you totally, fully, 100% explored and exhausted possibilities of seller financing? I find many people dismiss it way too early.  Many sellers, if properly educated as to the benefits, can really appreciate what seller financing can do for them.  In my experience, most people say "no, I don't want to do seller financing" at first, like a knee-jerk reaction. But I don't give up there.  I respect their wishes and present other options, but I always still present offers involving seller financing, just so that they can see how those options compare. I've had sellers who said "absolutely no way" at first change their minds and say yes.

Jeff Stephens · Answer

@Anthony Martin It sounds like you've done a good job exhausting the seller financing option, so that's good. I've found that my biggest lever when having seller financing conversations is capital gains tax. If structured properly, a promissory note structure can help the seller defer gains. Sometimes they're not thinking about this, so it can be a good talking point, and once they realize the impact of the tax, it can seem like a more attractive plan for them.  Good luck!

Jerry Padilla · Answer

@Anthony Martin

I don't see why they wouldn't qualify as long as they are in livable condition. I didn't know if they were very low purchase prices, which can sometimes make financing difficult.

Anthony Martin · Answer

@J Warrens I did try the seller finance option, I actually really wanted it for this opportunity to try and decrease out of pocket expenses.  Unfortunately, response was pretty solid with "I'd rather kill the cow than milk it for months." so I think that option is off the table for this seller.

One of my concerns was trying to unload a property later and not knowing how that would work with a portfolio, so individuals might be the way to go!

Anthony Martin · Answer

@Jerry Padilla

I was given a package price rather than individual prices for each property.  Here's what I have so far

2 duplexes - 4x 1 bd/1 ba

(Bldg 1 market value - $96K, Bldg 2 market value $115K)

$120K asking

75% occupancy

rents - 2 @ $450, 1 @ $650, 1 @ $0 (vacant - median rents ~$485)

3 Duplexes - (above units) + 2x 2 bd/1 ba

(Bldg 3 market value - $134K)

$230 asking

66% occupancy

rents - 1 @ $750, 1 @ $0 (vacant - median rents $775)

I think I'm really just trying to find out if I need to have a separate mortgage on each property or what my options may be.  I'd definitely prefer to have conventional lending with lower rates in place than to have to worry about higher interest with HML and the stress of refinancing in the next few years not knowing how rates may change.

Jerry Padilla · Answer

@Anthony Martin You can go up to 10 mortgaged properties with conventional lending. Typically, conventional lending has lower rates with longer terms than HML. What are the purchase prices of the duplexes?

Portfolio Loan or individual mortgages?

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