Significant Increase in Posts For Financing...

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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes

Has anyone else noticed the increasing number of people on Bigger Pockets requesting financing, especially to tap into the equity of their current portfolio? I’m seeing a significant uptick in this trend, and it's got me thinking—is this a sign of underlying distress in the market?

While equity financing can be a smart move in the right circumstances, the sheer volume of people turning to it lately seems to suggest something deeper might be going on. Are these investors feeling the pinch?

I’m curious to hear what others think.

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Eric Gerakos

Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes

I think that many investors who have bought property in the last few years are equity rich and cash poor. Now that rates are finally dropping they anticipate there will be buying opportunities and are trying to find cash. I agree that leveraging your primary residence with a HELOC to buy investment properties with tight margins is a great way to lose your house.

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Brian Kloft
Investor · Arizona & Oregon Coast · Member since 2023 · 128 posts · 113 votes
2y
Quote from @Jay Hinrichs:

Quote from @Brian Kloft:

@Chris Seveney I will speak to this as I am one of those people. I am not the typical person you hear from on here who does the BRRR. I sold a business and took that money and bought houses back around 2011 and a few years ago 1031'd those into small multi unit properties with big value add that we have completed and out portfolio value has grown significantly. We are actively looking for good new value add opportunities. I thought I had found one last month but during inspections we found major foundation issues and canceled. During this deal we were working on financing. We don't have a huge cash pile, but we own most of our RE free and clear. Our way to buy the property at the lowest rate was to finance the property that we were buying at only a 50% LTV and do a 50% LTV loan on another property. With such low LTV loans we get a very good rate. We were going to buy the new property with 105% debt this way. After 60 days it was still going to cash flow positive. For us, even with doing something like this it would still leave us with a super low LTV for our portfolio (below 15%). For us this is how we plan to finance those deals that we find that are great deals. I expect more great deals to be coming up and I want to able to have a way to do them. We will not be like many you hear on here that are leveraging everything up at 80% plus. For us we want to stop at around 30% LTV. We like the safety and security and less work of the smaller portfolio with low risk. It makes sleeping at night no problem.

your the exception not the rule.. As @Mike Dymski often comments on PRUDENT debt and thats what you have congrats.

Yup, I know I am not the typical person in my approach, but I would like to see more people consider this which is part of why I say it. People mostly hear the high leverage people so that is the only idea they know and I want them to hear an alternate idea. You are starting to hear the more conservative approach more often with the current economic conditions.
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Clayton Silva
Lender · CA · Member since 2018 · 637 posts · 393 votes
2y
Quote from @Chris Seveney:

Has anyone else noticed the increasing number of people on Bigger Pockets requesting financing, especially to tap into the equity of their current portfolio? I’m seeing a significant uptick in this trend, and it's got me thinking—is this a sign of underlying distress in the market?

While equity financing can be a smart move in the right circumstances, the sheer volume of people turning to it lately seems to suggest something deeper might be going on. Are these investors feeling the pinch?

I’m curious to hear what others think.
As someone who tracks their loan closing data, I see that currently about 65% of my business is some kind of cash out for investors. Most of them are very financially healthy investors and most of them are feeling that the market is a bit inflated right now. Each one tells me that they are looking to tap into equity while values are still high and many of them are sitting on the sidelines with their cash out proceeds waiting for good deals to start popping up. I work with investors all over the country and see the same thing over and over. Many of my usual long term rental buyers have switched to fix and flips lately in order to build up their cash balance sheet more and wait for good deals to come. I am not sure if they are correct in their assessment of the market, but definitely worth noting as it is happening a lot right now.
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Clayton Silva
Lender · CA · Member since 2018 · 637 posts · 393 votes
2y
Quote from @Nicholas L.:

@Chris Seveney
definitely seeing these posts. a lot of folks saying they're going to buy using a HELOC for the down payment and some other type of financing for the rest.
is it distress? maybe - i think it's also probably just a reflection of the increase in home prices. additional equity allows for, for example, that HELOC - and I think a HELOC doesn't feel like debt the same way as other types of payments.
and BP has made everyone feel like they're missing out if they're not buying "deals," no matter how expensive.
When advising clients on cash out vs. HELOC, I always recommend starting with the goal in mind. Are the funds being used as down payment for a long term buy and hold or a short term flip or a BRRRR? From there if HELOC seems to be the answer then we go to a blended rate calculator and see if it still makes sense to do a HELOC or if the cash out is going to be a better product. There is much more nuance to investing than just HELOC vs cashout and I think investors miss a lot of the finer details and often select the wrong tool for their objectives.
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Dustin TuckerPro Member
Lender · Savoy, TX · Member since 2020 · 187 posts · 78 votes
2y
@Chris Seveney Yes chris its seems like 3 out of 5 of our current clients are looking for refinance or cash out, definately points to the underlying stress in the market. I think its just going to continue with rates dropping next month. Also, the feds revised -800,000 jobs news doesnt help either.
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Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
@Chris Seveney
We are in self storage. We use cross collateralization and have sold locations for financing.
A. Our first sale 2 years ago was out of concern of the economy. It was a brand new “A” location. Only 20% occupancy at the start of the rent up phase. Great location. Could have held for a year and got an additional $500,000 but decided to take our development gains. Paid down debt and bought development land parcels. Two potential “A” development locations and a 75 acre country subdivision plot. We make a lot more developing than operating locations.
B. Recently sold 3 “C” locations. Great location unmet demand. But new building cost only gives a 5% return in “C” markets. Low debt. Paid down more debt. Kept aside funds for more Teak land in Belize. Lower risk , passive income over 25 year window. Also set aside funds to develop a new “A” location with better returns and market expansion than the “C” market we sold.
We don’t refi, we cross collateralize which is the same. Also sale and don’t 1031 since it isn’t flexible enough for development financing.
So we refi’d or sold to reduce debt exposure due to our perception of the economy. Also we “Pruned” our assets and moved up in quality and future embedded development profit. We are just one data point.
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Henry ClarkPro Member
Developer · Member since 2020 · 4k+ posts · 4k+ votes
2y
@Scott Trench
BP or any forum participants will always lean towards the “positive” viewpoint. People want to get rich and not do the homework.
A failing I see in BP participants, which cannot be corrected is proper due diligence. B thru D below.
A. Do this and you will become a millionaire or reach financial freedom.
B. Do at least 5 deal analysis.
C. Develop a path to scale. Keep updating this as you get more experience.
D. Calculate failure on each deal. Let’s invest in Broadway plays or defunct brand names for a 18% return. Risk analysis.
B thru D aren’t sexy. Plus they are not required to get a “high” doing an investment. These might be covered in the Bootcamp training but most people will never take that path.
Kind of like raising earthworms or Ostriches for skin care oil. Profit potential is unlimited. You can’t fight that.

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Nicholas L.Pro Member
Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
2y
@Clayton Silva
that is a good way to approach it, and there may be investors for whom 100% financing makes sense. i just know it's not the brand new investors who have zero reserves, and can ONLY afford something if they finance using a HELOC as a down payment.
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Clayton Silva
Lender · CA · Member since 2018 · 637 posts · 393 votes
2y
Quote from @Nicholas L.:

@Clayton Silva
that is a good way to approach it, and there may be investors for whom 100% financing makes sense. i just know it's not the brand new investors who have zero reserves, and can ONLY afford something if they finance using a HELOC as a down payment.

Right? I did a great 100% financing deal for a client in WI but he had over 30% of the total project cost in cash reserves
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Mike Dymski
Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes
2y
I am not on the forums enough to notice but as rates decrease, loan transaction volume will increase. We have a debt driven economy. Thankfully, investors owned property and low rate debt during this period of record inflation. Those who don't own appreciating assets got pummeled.
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Brian Kloft
Investor · Arizona & Oregon Coast · Member since 2023 · 128 posts · 113 votes
2y
Quote from @Clayton Silva:

Quote from @Chris Seveney:

Has anyone else noticed the increasing number of people on Bigger Pockets requesting financing, especially to tap into the equity of their current portfolio? I’m seeing a significant uptick in this trend, and it's got me thinking—is this a sign of underlying distress in the market?

While equity financing can be a smart move in the right circumstances, the sheer volume of people turning to it lately seems to suggest something deeper might be going on. Are these investors feeling the pinch?

I’m curious to hear what others think.
As someone who tracks their loan closing data, I see that currently about 65% of my business is some kind of cash out for investors. Most of them are very financially healthy investors and most of them are feeling that the market is a bit inflated right now. Each one tells me that they are looking to tap into equity while values are still high and many of them are sitting on the sidelines with their cash out proceeds waiting for good deals to start popping up. I work with investors all over the country and see the same thing over and over. Many of my usual long term rental buyers have switched to fix and flips lately in order to build up their cash balance sheet more and wait for good deals to come. I am not sure if they are correct in their assessment of the market, but definitely worth noting as it is happening a lot right now.

Sending you a pm to talk more about loans.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
2y
I've definitely seen an uptick in HELOC questions. It's only natural because the market took off like a rocket, and people became "rich" with equity.

I warn that borrowing against equity - typically earned by chance and not investment savvy - is too risky. They risk losing the investment and impacting their personal finances if things go wrong.

@Scott Trench , I'm happy to hear you are moving BP in the right direction, but I wonder if you'll ever get there. I have personally never listened to a Money podcast, and I suspect the majority of members don't either. Even if they do, they may not hear your message enough to fight against the message of "low—and no-money-down" most commonly shared in the forums. When given the choice, most budding investors will seek the easy path.
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Bud Gaffney
Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
2y
Great question. It excites me because I've been interested in portfolio loans for some time now! I miss when they used to do HELOC's on investment properties. Looking forward to following this thread!
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Robin SimonBusiness Member
Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
2y
this might be somewhat unrelated and I might be a bit of a broken record here but I continue to stress this feedback that I really don't understand why it can't be changed - The financing options/terminology/content is very confusing and poorly defined here on BP -
If you look at the financing options of "Find a Lender" and on the website / forums - there are terms and interchangeable content that has to be super confusing to people from a financing perspective - probably at least partially leading to excess questions and request posts - as it is extremely hard for a new or somewhat new investor to clearly understand all the options and numbers..
My 2 cents
(see below - what is the difference between a "Bridge Loan and "Fix & Flip" loan? What is the "Portfolio Loan (Balance Sheet Loan)" and when would you choose that for your "Long-term Rental" - and then when would "Refinance (Investment Property)" be appropriate? and so on...
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Brian Kloft
Investor · Arizona & Oregon Coast · Member since 2023 · 128 posts · 113 votes
2y
@Scott Trench I will say that on the pod casts, over the last year, I have seen a shift to a more conservative approach to investing from the refi to the max all the time and keep buying. I have heard several guests on the podcast that are more in the line of Coach Carson that was recently on. (I remember his name more than the other guests because I already was listening to his podcast as well.) From my point of view, as an investor that prefers lower leverage and not needing to have 1000 properties, it has been nice to hear that compared to what used to be a steady diet of keep BRRRRing and never stop. Now here on the forum it is a different story. While with the show you have control, on the forums you don't really have control over what the members say. On the forums I have met others that have low LTV, but there are not as many of them; plus those that like to keep everything highly leveraged are much louder. When I have injected my ideas of lower leverage to those that are worried about high leverage, I have had a number of people insisting and trying to convince me that being leveraged at 80+% on all of their properties is less risky than my having a lot of my properties paid off. That is some of what you are fighting against to change perceptions. (I understand that I am in a different phase of my investing journey where I can be safer and younger newer investors will be doing much higher LTV and trying to grow their empire.) The sheer volume of those on the forums that talk about high leverage dwarfs those that talk about low LTV. However that is also just natural in that more active members are going to be those younger investors that are in the high leverage growth phase and are asking questions and seeking help because they are new at it, vs many of the investors that have already built their larger portfolio and have consolidated it, now have low leverage and are just enjoying the fruits of their labor don't come on as much other than to help others since they don't need to ask questions as much.
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Ify (Bobby) Anizoba
Specialist · Atlanta Metro Area, GA · Member since 2020 · 38 posts · 23 votes
2y
@Chris Seveney It seems like there's increasing pressure for people to acquire more rental units, even though many don't have the cash on hand to do so. With the economy being tight for a while, we're seeing a rise in posts about HELOCs and cash-out refinances. It's important to scale your business and grow your portfolio, but be cautious not to overextend yourself. Everyone should please be mindful of the risks so you don’t end up losing everything.
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Gino BarbaroPro Member
Rental Property Investor · St Augustine, FL · Member since 2014 · 2k+ posts · 1k+ votes
2y
@Chris Seveney
I think it's the opposite. It may be with investors on this platform, but the reality is that refis are down. With the ten year at around 3.8, refis have been down for the past 18 months.
It's a great way to scale your portfolio if you don't over lever yourself and if you have another opportunity to invest in. we've refinanced over 25 million from the portfolio, and the LTV is around 65%?
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Robin Thornton
New to Real Estate · FL · Member since 2018 · 18 posts · 15 votes
2y
Thank you for this post @Chris Seveney. I am new to REI and this confirmed what I was thinking about my own situation. I've been learning from BP since around 2017 but I didn't do any REI until 2021 when I inherited my 1st rental property (SFH). You are right @Nicholas L. because up until then I've often felt like I should be analyzing a certain number of deals per week and if I didn't then it meant that I was stuck in "analysis paralysis." Due to the loss of loved ones, I disconnected for almost 2 years. When I reconnected... "40 out of state rentals in Cleveland to replace your W2" @Account Closed I do not want to hear those chickens coming. Anything can happen like the stories I see about people's property taxes suddenly increasing by as much as 450%. Did I miss a discussion on that in these forums?
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
2y
@Ify (Bobby) Anizoba
I think it’s a mix of people wanting to acquire more real estate because they have equity I. Their first deal but we are also seeing a lot of investors asking for bail out loans who are cash poor as some of their investments are not performing / cash flowing well and want to take equity from one to cover their costs.
The issue with this is they have no exit strategy they are just trying to buy time and hope something good happens. It’s like a sinking ship out at sea and they are slowing down the sinking but doubtful they are saved
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