Refinancing with a bank to pay back a short-term private lender?

13 Replies

I am just starting out exploring options for private lending for Brrrr deals. I seem to have maxed out what I can easily borrow from banks with my current 5 units. I have good income, credit and equity, but I simply have "too many doors" to qualify for financing. My question is, if I can't get a mortgage from a bank initially, how will I be able to refinance my Brrrr property and get a long-long term, low rate, bank mortgage when it comes time to pay back my short-term private lender? Won't the same limits apply with how many properties banks will finance?

You would need to find a way to get a mortgage otherwise, yeah, you'll get stuck with the short term, high interest debt. There should be banks out there that will refinance your property even you have "a lot of rentals." You're still under 10, so you're still eligible for the Fannie Mae loans. I would ask about them. After that, local, community banks are your best bet. Interest rates might be a bit higher and amortizations lower (20-25 years instead of 30) but there are banks open to doing that. You just have to look through a lot. Ask people at your local REIA who they use. That's a great way to find local banks open to SFR investment properteis.

Thank you, @Andrew Syrios . And say after 10 units or 50 units? It must get harder and harder to complete the "Refinance" step of a Brrrr? I am Canadian and I think it is harder in Canada as well. I wonder if there are any Canadians who have run into this hiccup with Brrr?

@Amy Zapshala

Try connecting with a strong investor oriented mortgage broker. There is a few things you can look at here. Refinance all of your properties into a commercial loan is one potential. There is some banks that will do more then 5 conventional morrgages also, but your broker needs to know who and how. Could also look at leveraging a couple properties to pay one out and free up a mortgage, but that's very situational.

TLDR: need a solid broker on your side. :)

Thank you @Santi A. I've been working with a few mortgage brokers in Ontario and haven't had great success, so I'm nervous to get into my first Brrrr without this part of the formula figured out. I'll have to keep digging around for the right mortgage broker. Great to hear from a fellow Canadian! Are your investments in Western Canada? My properties are all on Vancouver Island. 

@Amy Zapshala You will probably find that a commercial lender would work with you on it as long as it cashflows greatly and you have sufficient networth to work with them.  They may want you to bring over your other rental properties into their commercial financing as part of an entire portfolio.  This is what is working for me.

Originally posted by @Amy Zapshala :

Thank you, @Andrew Syrios. And say after 10 units or 50 units? It must get harder and harder to complete the "Refinance" step of a Brrrr? I am Canadian and I think it is harder in Canada as well. I wonder if there are any Canadians who have run into this hiccup with Brrr?

After 10 you're pretty much stuck with local banks and those firms like Lima One Capital and A10 Capital specifically designed for this kind of lending (but their rates are pretty high). Community banks should do the trick. We have over 50 and we're still getting loans from them. They just have to be portfolio loans (loans they keep on their books and not sell on the secondary market) so again, the rates will be a tad higher and the amortization lower. But it still works.

"how will I be able to refinance my Brrrr property and get a long-long term, low rate, bank mortgage when it comes time to pay back my short-term private lender?"

1) Take hard money loan

2) Do you fixing and rent it out and get it stabilized so you have reliable NOI, may take a while.

3) Call a conventional lender and apply.

@Amy Zapshala Your profile states that you have 3 rentals (5 units). Do you have a duplex or triplex in the mix? One of the banks consider a duplex and triplex as one unit - this lender is an option for you. Their rental calculation is not the best in the industry though, that being said, if your income to debt service ratios are in line with their guidelines, you should qualify for more mortgages. 

My advice for my clients doing a Brrrr is to use private lenders when they have to close quickly. After the rehab is completed, refinance on the 'A' side.

Commercial lending is an option for small multi-family properties of 5 units and more. You could also get blanket financing for your 5 rentals on the commercial side and pay off some of the rentals, with some cash leftover for another investment. This is what I've done for my clients who want to expand their portfolio. 

Don't go with a hard money lender. Rates will be 9-15% and you don't build equity every month. If you're purchasing the property, sure. But if you're talking about refinancing, go with a private lender. Industry is currently averaging 6% for a fix rate and they don't report to the credit.

Hey @Amy Zapshala - if you don't qualify with traditional lenders/non-qm lenders, then there are non-bank direct lenders that can do a 30 yr fixed. The rates won't be as low as bank rates (3% - 4.5%) but still competitive and will allow you to cash-flow pretty well. The rate in the non-bank space is a product of your credit, LTV, loan type (cash-out v rate/term v purchase), DSCR (gross rent / PITI), property type (2-4 units tend to have a rate increase), and some other factors. I would expect something in the 5% - 6.75% region-- you can always buy-down to get that rate lower. This would be for a 30 yr fixed rate loan based on the property's cash-flow. Your income wouldn't come into play (nor would your DTI or the amount of doors you own).