Non Bank Finance for Rental Portfolio

6 Replies

We are a Houston, TX based real estate investment business. We have identified an exploitable niche purchasing damaged / distressed houses and re-positioning them into cash flowing assets.  We are buying inexpensive houses using our cash, rehabbing them with our cash and leasing them primarily through Housing Authority Sec 8 program. These assets have no debt on them. We are looking for a Lender to Cash Out Refinance these assets with a clean First Lien. Our strategy is focused on removing risk from portfolio assets before seeking to apply leverage, which will be used to continue to grow the portfolio. 

Some of the issues we have run into are lender requirements for size of loan. Many of the assets we purchase are below the minimum threshold of lenders we have spoken to. Some on Bigger Pockets. While we have not had any of the assets formally appraised, we believe the assets will appraise much higher than our basis in them. That's what we all shoot for right? Assuming that assumption is correct, we would apply no more than 60% LTV based on appraisal and maintain a reasonable reserve account. Because the value of some assets may be below the arbitrary $75K minimum threshold we've seen in the market, we think it would make sense to bundle some assets together in a rational sized package. We believe this is ideal for a Private Lender that is not burdened by traditional bank regulations seeking an attractive yield for longer term money. With low LTV, counter-party risk minimized by Sec 8 as payee and reserve account allowing ample time to release / address turnover, this is a proven strategy.

We are seeking interest from potential lenders and advice or questions on how we can further enhance our positioning. We have a slide deck prepared for potential lenders. Final thoughts. We run our business by the numbers and believe in creating real value in re-positioning assets. In other words, we don't slap lip stick on the proverbial pig and hang a For Rent sign on it. We believe in repairing systems to lower our long term maintenance and operating cost, which also enhances the true value of the underlying assets. We believe that we are providing a public service by providing a quality housing product to a lower income clientele. We take pride in serving this niche with dignity and respect. 

We welcome all questions and expression of interest. 

Jesse Arriaga 

Managing Member

New View Investments. LLC.

Have you spoken to a local bank, a portfolio lender? See fi they are open to a blanket lien across a number of the properties (1 loan, multiple liens). It has worked in the past in other markets. As you are not looking for a high LTV and you have the cashflow, it could be perfect for a portfolio lender.

@Jesse Arriaga

Unfortunately all the commercial and portfolio lenders I am aware of, have those same minimums. 

Jerry, 

We understand the minimum, but would like to find someone with underwriting discretion to bundle more than one property into a rational sized loan.  That, in my opinion, is the discretion a Private Lender would have when evaluating a potential transaction. 

Thanks,

Jesse

John, 

The banks we have spoken with don't have the underwriting discretion to bundle. We may not need to bundle once we get formal appraisals. We don't want to pay for an appraisal in advance that would not be accepted by our lender. 

Thanks,

@Jesse Arriaga - there are many non-bank perm lenders that would do blanket loans on 1-4 unit properties.  They all have different criteria around these types of loans:  Min # of properties, max # of properties, min value/property; vacant or fully leased, dscr, location, etc.

If you have a total loan amount of $500k+, then $45k/property is the min value needed.  Otherwise $60k/property is likely the lowest a lender will consider.

@Jesse Arriaga

You won't find many lenders that are going to expend the kind of effort you're looking for on sub-75K properties when they can make more money working on higher value and thus higher loan amount properties.  
I would disagree with you that it's not really an "exploitable niche" because no one wants to buy those loans on the secondary market.  As  you may know, the key to this part of the business is to do the loan and get rid of it after close, either to a wholesale lender or a hedge fund that will buy.  Either of them make the rules and they've found that the lower loan amounts either cater to a borrower that is distressed and can't buy a more expensive property (they're riskier) or the amount of time it takes to originate/close/service isn't profitable.  Either way, minimum loan sizes aren't going down.

Your best bet is to get a local bank to cash out the portfolio.