Scaling up. Have too many mortgages, what to do?

Private Lending & Conventional Mortgage Advice
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Scaling up. Have too many mortgages, what to do?

David Boroughes
Rental Property Investor 路 Newport, RI 路 Member since 2015 路 72 posts 路 48 votes

I have several conventional mortgages on rental properties I own. I'd like to keep buying, but the banks are saying too many mortgages and debt to income doesn't look good (they go off tax returns, not leases for income). I heard it mentioned on here before, but not sure if this is possible. Could I portfolio some of these mortgages into one loan and thus open up the ability to qualify for additional conventional mortgages somehow? Maybe the portfolio loan is for an llc that owns the properties, or something to that effect. Any advise on how to scale up at this level would be appreciated. Thank you,

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Brie SchmidtBusiness Member
Moderator
Real Estate Broker 路 Chicago, IL 路 Member since 2013 路 6k+ posts 路 5k+ votes
6y

@David Boroughes - buy the new properties in a LLC using a commercial loan

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  • Brie SchmidtBusiness Member
    Moderator
    Real Estate Broker 路 Chicago, IL 路 Member since 2013 路 6k+ posts 路 5k+ votes
    6y
    Originally posted by @Sean McCluskey:

    @Brie Schmidt Do you mind sharing the name of your lender? That鈥檚 a phenomenal rate

     US Bank.  I have 23 loans with them.  They are a little strict on the upfront qualifications, if you don't check every box for them they will not work with you.  But once you get that over they are super easy to work with

    Podcast Guest on Show #132
    Second City Real Estate4.821 Reviews
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    1Reply
  • Brandon Ingegneri
    Rental Property Investor 路 Providence, RI 路 Member since 2015 路 1k+ posts 路 594 votes
    6y

    Once you make the transition to commercial loans, you'll never go back.  Yes, you do pay a little more, but after you establish a relationship with a lender, the process is exponentially easier and more expedient moving forward.  There is much much less red tape as opposed to traditional financing, and no debt will show on your personal credit.  It is all debt service based which is ideal for someone establishing real estate as a business where long term debt will be capitalized on your books. 

    2Reply
  • Gagan M.
    Member since 2019 路 15 posts 路 7 votes
    5y

    What is sweet spot for commercial mortgages? I am finding that loans of 1M+ qualify for agency rates and are the low rates of 2-3%. What about the under 1M loans?

    I would like to devise my commercial strategy based on the best possible commercial loans.

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  • Anthony ThompsonPro Member
    Buy and Hold Investor 路 Cranston, RI 路 Member since 2013 路 1k+ posts 路 1k+ votes
    5y

    I'd have to disagree with Brandon a bit. While there are advantages to commercial mortgages in the ease of application, the fact that they don't have fixed rates is a big disadvantage in my opinion.

    Yes, rates have been low for years. And they could be for years more. But it's hard to predict the future - they might not be, too. With a regular residential mortgage that's not any concern at all. In fact, any inflation is likely to affect your wages as well, which means you're using cheaper money in the future to continue to make payments that were fixed in place X years ago.

    Another disadvantage of many commercial mortgages is that a lot of them require annual personal financial statements, including tax returns, income and expenses for all properties, and a detailing of assets and liabilities. With a regular residential loan, once the loan is in place, you're all set going forward. With a commercial loan, you'll have a yearly PITA time-consuming obligation - regardless of whether you've made all payments 100% on time.

    Commercial loans have their place, and as you get bigger you'll be forced into the arms of commercial lenders so they're somewhat inevitable, but they're not necessarily always better than regular residential mortgages. 

    1Reply
  • David Robinson
    Specialist 路 Huntsville, AL 路 Member since 2020 路 200 posts 路 105 votes
    5y

    @David Boroughes I work with multiple commercial lenders that offer 30 year fixed rates, and can do a 10 property portfolio loan, and close within 21 days. Message me if you would like to connect.

    1Reply
  • John Morelli
    Lender 路 Deerfield, IL 路 Member since 2020 路 44 posts 路 31 votes
    5y

    @David Boroughes What you are referring to is simply a rental portfolio loan, which most multifamily lenders offer as a standard product, and a number of regional and national banks. The properties are cross-collateralized (otherwise referred to as a blanket lien), and is serviced as a single loan with multiple collateral assignments. 

    This is not a terribly difficult loan to obtain from the right lenders. Your personal income is generally not considered for income producing property, and the loan is not underwritten the way a consumer mortgage is underwritten. 

    Form an LLC to vest the properties in, and act as "borrower" for the loan, with you acting as "Sponsor". Standard stuff. The cost is nominal - under $500. There are a few other small steps.

    Most community banks with an appetite for real estate will offer the same loan structure, albeit limited to term loans (3, 5, 7, 10 years). You must be an educated Investor and know what you are seeking. 

    1Reply
  • David Boroughes
    OP
    Rental Property Investor 路 Newport, RI 路 Member since 2015 路 72 posts 路 48 votes
    5y

    @John Morelli Perfect! Thank you. You make it sound easy! 

    @Anthony Thompson My dilemma, do I try and consolidate a few conventional mortgages into one commercial loan? I, too am old enough to have lived through when these adjustable rate loans took you to a worse place than a fixed, however, now it seems no one really considers that an issue, I still say it's something of a gamble. Once I refi into the commercial product and pay off these 30yr fixed rate loans (at 4-4.5%), just to save maybe 1-1.5% there will be no going back if the rates creep up. This is why I am in this 'stuck' position. 

    @Brandon Ingegneri Thanks for the note. One of my biggest questions is whether or not a commercial type loan would show on my debt to income for future qualification purposes, are you saying they don't appear on credit reports and therefore will not impact my DTI?

    0Reply
  • Brandon Ingegneri
    Rental Property Investor 路 Providence, RI 路 Member since 2015 路 1k+ posts 路 594 votes
    5y

    @David Boroughes that is correct

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  • Brandon Ingegneri
    Rental Property Investor 路 Providence, RI 路 Member since 2015 路 1k+ posts 路 594 votes
    5y

    @Anthony Thompson all of my mortgages are fixed for 20 years. Not every 5 with a reset.

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  • Anthony ThompsonPro Member
    Buy and Hold Investor 路 Cranston, RI 路 Member since 2013 路 1k+ posts 路 1k+ votes
    5y

    @Brandon Ingegneri who are your lenders offering 20 year fixed commercial? Also, do they require annual personal financial statements & tax returns?

    For a few years I knew of one offering 30 year fixed to an LLC and on SFs only, but they were acquired and the new parent company stopped the program unfortunately.

    @David Robinson I'd be curious for more info on your lenders offering 30 year fixed commercial; please PM me more info.

    1Reply
  • Brandon Ingegneri
    Rental Property Investor 路 Providence, RI 路 Member since 2015 路 1k+ posts 路 594 votes
    5y

    @Anthony Thompson

    4.5. Yes I do provide annual financials.

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  • Anthony ThompsonPro Member
    Buy and Hold Investor 路 Cranston, RI 路 Member since 2013 路 1k+ posts 路 1k+ votes
    5y

    @Brandon Ingegneri who are your lenders offering 20 year fixed commercial?

    1Reply
  • David Boroughes
    OP
    Rental Property Investor 路 Newport, RI 路 Member since 2015 路 72 posts 路 48 votes
    5y

    @Anthony Thompson Any idea WHO these lenders are? I guess I'll have start pounding the pavement...

    0Reply
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