I have 8 rental and want to refinance need suggestion, thanks

9 Replies

Hello,

I heard that you can only finance a max of 10 rental properties under the current guild line.  I currently have 8 and would like to take some of them and refinance under a business mortgage to free up some room for future purchases with normal financing.  Is it worth do that?  Also, would it be better to get individual new mortgages or group a few or more into one business mortgage?  I have 5 of them in the same location so I wouldn't mind grouping them since I don't see myself selling them any time near future.  Any suggestion on which commercial mortgage company to go to refinance and what to look out for?  Any input and suggestions would be appricated.


Thanks,

KJ

@Kevin Jones the short answer here is NO - it will not be worth doing.  Now for the explanation on it.

If you refinance all of your properties - you pay closing costs to get that commercial property.  Then you pay closing costs again when you purchase a property with your "conventional" loans.

Or you can just keep your current "conventional"  loans and just use a commercial loan when you purchase your next properties.  Then you pay closing costs once.

Either way, you will need commercial/portfolio money pretty soon.  This is a normal thing.  No need to pay closing costs twice though.  I hope this makes sense.

@Kevin Jones

Pros and cons here.  If you already have these properties, you can do a commercial blanket loan to combine several properties into one loan, one set of closing costs, one payment to a lender, etc...  This will free up slots for Fannie/Freddie.  Commercial loan costs will be higher than conventional.  If you get a good rate, you can actually save quite a bit of money in the long run and up front from only closing once.  

The down side is that your properties are all now treated as one... you lose flexibility to refi or sell them down the road.  It can be done but it does require cooperation from the existing lender and how to split up the loan for one property.  Essentially, if you sell one it is like paying off that portion of the loan principal, but your payment stays the same unless you refi the whole loan... 

In short, if you have short term goals for these properties, you are probably better keeping them as individual properties and buying any properties over #10 under your LLC or entity. If you plan to hold on to them for a number of years, the blanket loan approach may be worth considering. Contrary to what many advise on Bigger Pockets, you do NOT have to have a commercial loan when purchasing under an LLC. There are plenty of DSCR options that allow you to purchase under an entity and the lender reports the loan to the business' credit, not your personal credit. These loans have similar closing costs to conventional and are far cheaper than commercial loans.

Cheers!

First thing to clear up is that the 10 financed properties rule is for conventional mortgage (Fannie Mae / Freddie Mac). There is no limit to the number of loans a bank can give you if they are holding the loans in house and not selling them on the secondary market.

It is also worth pointing out that ANY property that is secured against ANY type of personal loan would count against the financed property limit. It is not just conventional mortgages that count. For example, if you group 5 properties and all five have liens against them for one loan, that counts as 5 financed properties. That is only if they have a personal loan, which would show up on your credit report. If you get a loan to a business, they most likely would not show up or count. That being said, you may still need to disclose the properties on your loan application if held in your personal name. 

I will also mention that a HELOC against a property also make the property a "financed property". If the property has a conventional mortgage and HELOC, that is two loans, but only ONE financed property.

One strategy I used to "open slots" was doing a cash out refinance on two properties, then using cash to pay off two other properties. I also paid off my HELOC using this strategy so I am back down to 9. If I put a balance on the HELOC, I am back up to 10.

Another option is just don't "open up slots". Just run up to the ten property limit, then switch to commercial loans that are not Fannie/Freddie backed mortgages. You are basically going to end up there anyways, so why trade in all those fixed low rate mortgages just to open new slots that you may not even be able to use?

@Kevin Jones that are some great points in the prior post, but one thing I wanted to mention was using equity in some of the properties to pay-off the outstanding loans of the other properties.  This assumes you have a fair amount of equity and smaller loan balances in others.  This is another way to possibly reduce the of financed properties you own.  Good luck!

Good advice from some honest lenders here. 

I'd just add that my wife and I have purchased or borrowed separately to help not max out.  If you're married, that may be an option. 

If you're not in a community property state, a community property agreement should be a pretty simple thing to get recorded in your counties. 

Kevin

Lots of great responses and input already shared on this thread. One thing I would add against pooling properties into one loan (portfolio loan) is that they will be cross-collateralized and the properties will not "stand on their own" independent of other properties. The potential danger here is that you never know what the future holds and if you get into trouble on one or a few properties, it can put the entire portfolio at risk. 

To me, the extra cost and inconvenience of separate closings is worth it!. 

Hello everyone.   Thank you so much for all your response!!  This was my first post and now realize that I needed to put more details so that you can advise me without assuming my intention.  I do have a pretty good amount of equity built up and my intention is that since the rate is low now, I plan on refinance to pull the equity out into cash so that I can use it to buy an apartment complex when that opportunity arises. If you have any additional advice, I will welcome it.  Again, thank you all for taking your time to post a reply!!