High W2 Income w/ 3 new rentals - What do I do?

Question

Hi BP,

Over the past year me and my business partner built 3 new homes in the ATL area. My business partner works in real estate full time and I bring most of the money to the table through my high W2 income.

There are 3 properties (single family homes) that will be hitting the rental market for us in the next few weeks and I wanted to figure out a few financing options given our position. My goal is to try and get the lowest interest + principal payment right now so that we can refinance in 2-5 years once rates come down to a better level.

None of the properties are rented out right now but we've owned all for almost year as we were completely renovating & building additional units on the land. We work with Kiavi right now but find their long term rental products aren't as competitive as their short term loans.

Does anyone have any advice on using conventional lender for investment properties, packaging all the properties up together in a portfolio, etc? . All and any advice would be great!

Thanks you in advance for the help!

Steve Vaughan · Answer

I would get all 3 leased up for the rent roll and look into portfolio financing or a blanket loan DSCR vs DTI.

Typical LTV max on a performing or in service rental is 75%.

May need to show 3 months+ of rental performance or history flowing through your business (hopefully) bank account.

How did you fund the initial builds?   Sounds like a great start!

Nathan Grabau · Answer

I would walk into local banks in your area with less than 5 branches and ask to talk to someone about lending options. You can probably find one to write interest only loans for you. I would start the conversation by asking what they are interested in lending on and then saying what you are trying to accomplish. If they start to put you in a narrow box and seem to lack flexibility, I would move on to the next bank on your list. What you are looking for is a local bank that lends their own money and it is a few people around a table deciding whether they will fund a loan or not, in this set up, there is a lot more flexibility to design a lending product that meets your goals.

Sunny Malik · Answer

Hey everyone - wanted to let people know what I ended up doing.

We ended up selling the properties as we had other projects where we thought they would be a better hold.

I wanted to thank you all for your input and appreciate the community providing guidance. If anyone wants to talk to me about the rates and process I went through, please let me know!

Sunny Malik · Answer

@Steve Vaughan - we used Kiavi for the initial loans and the intention was to sell them but then we decided we wanted to hold onto the properties given their long term potential.

Mohammed Rahman · Answer

Hey @Sunny Malik - if your local market is anything like it is here in NYC, I recommend reaching out to local lenders that can factor in POTENTIAL rental income. I recommend doing this before your units are actually rented out because the lender will always use the maximum potential rent for your area when factoring it into your loan. For example, if your maximum potential rent is $3k/month but you've rented it at $2800/month, the lender will have to use $2800/month.

Yes, a portfolio loan is what you should aim for but from my experience, the total volume of the loan will matter to your lender.

As an investor and a realtor, my advice would be to get in touch with someone in your network (preferably an agent) that has a network you can tap into. Usually agents will have specific connections at local lenders that can work out a product for your needs.

Steve Vaughan · Answer

I'd talk to small banks and CUs local to the property. Get their criteria and performance seasoning requirements.

I was asking how you funded the builds.

Ty Keller · Answer

@Sunny Malik I'm a portfolio mortgage lender and live in Cumming as well.  The blanket investor loan might be a good option for you, or a DSCR on each.  We can use the 100% gross rents on your rentals for DSCR loans.  The short term bridge financing available is also pretty attractive.  Would be happy to take a look at your situation and give you a recommendation on a path forward.

Matthew Wolk · Answer

As everyone has stated, DSCR them!!

Sunny Malik · Answer

Hey everyone - just wanted to say thank you for contributing! I have a few things in the mix right now that I'm evaluating and doing my due diligence on. Once I execute and have everything taken care of, I'll provide a recap to the group so others can learn & add feedback on what they think was good and bad about the approach.

Nate Sanow · Answer

If the goal is to free up capital via the refi, and not as worried about rate and term, just the cash out, you can look into a long term Bridge loan up to 24 months.  This can help offset the cost of a pre-pay penalty, which a lot of 30 year fixed loans might have.  In this current climate I’m looking at a process of brrrr-ing into bridge not permanent finance, to get my HML lender off the books and available for more deals, and allow myself to pivot quickly into lower rate loans that I believe to be coming back sometime 2023.  Yes, risky-ish if rates go up, so good personal underwriting of the deal matters & looking into a forecast of multiple exit strategies is helpful, too.

High W2 Income w/ 3 new rentals - What do I do?

Most Popular Reply