Financing more than 10 properties
Rental Property Investor · St. George, UT · Member since 2015 · 13 posts · 5 votes
All,
I'm looking for a little assistance on several questions related to financing.
I am approaching the limit of 10 financed properties (under traditional loan programs), and looking for recommendations on how to finance #11.
Consolidation of the portfolio and paying off a mortgage is my last resort, as these are short-term solutions to a larger roadblock. Also I understand private money is an option, but this comes with a rate hike. Ideally I'm looking for a < 5% IR on a 15yr fixed. If 15yr fixed is not viable, I am open to shorter terms, or an ARM.
I have excellent credit, 35-40% Debt to Income (including mortgages), and am buying and holding properties long-term (no flipping).
Also, I have an LLC and business credit card so obviously would like to eventually start building the credit of the business.
Options I've Already Explored
- several national banks
- MACU and American Family
- Zions Bank
- local mortgage broker in St. George
Thanks for your assistance.
James
I just went through this very question with my underwriting staff and there are some interesting answers that came up. According to Fannie Mae, if you own more than 25% of an LLC that the properties are financed via a portfolio loan on, you must still count the properties in the 10 financed property rules. However if you own 25% or less, then you don't have to count the properties that are in the portfolio loan so long as the financing is in the name of the LLC.
Here is were it gets interesting, if you have the homes in a Corporation or a Sub S Corp and the portfolio financing is in the name of the corp / Sub S, then you don't have to count them into the 10 financed property rule, even if you are sole owner of the corporation?.
Why Fannie makes a distinction between an LLC and a Corp / Sub S, I don't know and it seems odd to me, but so long as I can clear my borrowers slate and do a brand new 10 conventional loans for them at great rates, sounds good to me!!! I even clarified that I read the guideline correctly and was told by the underwriter that I did, so odd, but great news!!!
I did some research with some hard money lenders about a year ago as well. I was looking for some lenders that would fund 100% of the purchase and rehab if the purchase was discounted enough that is was a smoking hot deal. After hearing about their standard LTV's and terms, I did have a few that told me they would fund 100% of the purchase and rehab if you got a good enough deal. I'm digging through my notes trying to find that research, but I may have to spend some time on the phone with them again to nail that down as I cant find my notes on it. But I remember that 3 or 4 said yes, they would do 100%. Some said they would cross collateralize to other properties in lieu of requiring skin in the game?
I want to create a clear, easy path for my investors to pick up highly discounted properties with 100% hard money for the purchase and rehab, I will provide the take out refinance, and when they get topped out, I have a handful of portfolio lenders that will take on the properties, clearing the slate for new conventional loans on the new purchases. This thereby creates a perpetual machine where one can buy as many units as they wish, all of which should cash flow extremely well and sit back, keep feeding the machine and growing your wealth. I have several local portfolio lenders that do a great job on that end, so now I need to either find my notes or make the calls again on the hard money and I have then got all pieces of that puzzle nailed down!!!
5
Have you tried local banks for a portfolio loan? In one of the podcasts the interviewee just called all the local banks until they found one that would do a portfolio loan.
@James Cerenzie James are you still looking for a portfolio lender to help you? There are good lenders out there.
I've just now hit this roadblock at 5 mortgages, with a portfolio lender! Apparently there are newer federal regulations that require additional criteria to be met to determine eligibility. My lender says I have to be able to cover a certain percentage of my rental properties mortgage payments from my personal (W-9) income to allow for vacancies, economic downturns, etc. I have no vacancies, no late payments, and excellent credit. Any advice on financing for buy and hold deals would be greatly appreciated!
Have you looked at lima one?
PM me Gretchen as I may be able to offer a solution
What happens when you hit the 10 year term and the rates go up? Just curious what the plan would be for dealing with payments from then on.
@James Cerenzie, it sounds like you are looking for what @James Miller was referring to and what @John Yousef has found. With the solid credit quality you bring to the table, I am sure there is a local Bank that would like to have a business relationship with you. The trick is these lenders are referred to as all kinds of different things; portfolio lenders, commercial lenders, small business lenders, relationship managers, the list goes on.... They are out there though and they typically hold the loans "in house" which provides them with more flexibility in the loan structure. The shorter loan term is in many cases a interest rate risk tool as these institutions do not have the long term funding in place to carry a 20-plus year fixed asset on their books. They can bring your business value though if you find the right fit. @Susanne Rieth brings up a good point though in that one downside to outgrowing the secondary market mortgage world is the decreased maturity of your funding source. It's primarily mitigated through sound cash flow analysis and ultimately capital growth from buying right and building equity.
I'll keep this short and simple, always do commercial loans with local banks. The commercial side does not have the same laws as residential loans have, and has better pay-down rate than if you did fix term residential loans. Lastly, if the bank has a problem with all the loans, you can just package them up with a refi. This lets you do a bit of the BRRR method by taking equity cash if you want or not. Some local banks will let you get a credit line that you can tap as you pay down, so you keep adding properties to this credit line and it keeps growing in terms of total credit availability. As you pay it down, or sell properties, you get extra credit you can use to do whatever you want. Lots of options on the commercial side of things, and you will pay your loan of faster than if you had a residential with the same 20 year term, which is important as you will have paid down more in 5 years than you would with the other, just incase you need to sell and take a haircut.
Rates are pretty low right now if you look at indicators like 1-yr treasury. I've seen rates drop for our products. Portfolio loans are around 6-7% for a 5-yr term/ 30yr am. (give or take 25 bps).
For buy and hold investors, PM me.
Incoming PM from me Michael. :)
@John Yousef do you mind sharing which bank offers portfolio loans at 4.25% with a 10-year term and 25 year am?
I just went through this very question with my underwriting staff and there are some interesting answers that came up. According to Fannie Mae, if you own more than 25% of an LLC that the properties are financed via a portfolio loan on, you must still count the properties in the 10 financed property rules. However if you own 25% or less, then you don't have to count the properties that are in the portfolio loan so long as the financing is in the name of the LLC.
Here is were it gets interesting, if you have the homes in a Corporation or a Sub S Corp and the portfolio financing is in the name of the corp / Sub S, then you don't have to count them into the 10 financed property rule, even if you are sole owner of the corporation?.
Why Fannie makes a distinction between an LLC and a Corp / Sub S, I don't know and it seems odd to me, but so long as I can clear my borrowers slate and do a brand new 10 conventional loans for them at great rates, sounds good to me!!! I even clarified that I read the guideline correctly and was told by the underwriter that I did, so odd, but great news!!!
I did some research with some hard money lenders about a year ago as well. I was looking for some lenders that would fund 100% of the purchase and rehab if the purchase was discounted enough that is was a smoking hot deal. After hearing about their standard LTV's and terms, I did have a few that told me they would fund 100% of the purchase and rehab if you got a good enough deal. I'm digging through my notes trying to find that research, but I may have to spend some time on the phone with them again to nail that down as I cant find my notes on it. But I remember that 3 or 4 said yes, they would do 100%. Some said they would cross collateralize to other properties in lieu of requiring skin in the game?
I want to create a clear, easy path for my investors to pick up highly discounted properties with 100% hard money for the purchase and rehab, I will provide the take out refinance, and when they get topped out, I have a handful of portfolio lenders that will take on the properties, clearing the slate for new conventional loans on the new purchases. This thereby creates a perpetual machine where one can buy as many units as they wish, all of which should cash flow extremely well and sit back, keep feeding the machine and growing your wealth. I have several local portfolio lenders that do a great job on that end, so now I need to either find my notes or make the calls again on the hard money and I have then got all pieces of that puzzle nailed down!!!
5
At this point, you'll probably have to do what everyone tells you not to: build a business entity structure (you've got 10 properties - well past time to actually build your business so you can run it!) and eliminate the limits entirely.
To get around the issue mentioned by Kevin Guild, make sure that you "control everything, own nothing". That gets you around the ownership considerations for the LLCs, since none of your business entities are owned by a human person.
Building credit for a business entity so it can get loans without the personal guarantee now becomes your greatest challenge. It can be done, but there's a LOT of details to satisfy, and it's not for "consumers" looking to avoid spending ("save" money). It's a classic case of where it takes money to make money or, in this case, to borrow money thru your business entity.
Are you saying that once I get to my limit of 10 30yr fixed loans, I can sweep all of those loans into one and continue "Feeding the Machine?" What are the terms on the 1 loan that sweeps out 10? is that still a 30yr fixed program with market rates? I'm at 9 right now and I'm looking to add 3 more properties to my portfolio this year. Any advice would be greatly appreciated!
@Kyle N. I am at the 10 limit now.
So right now I am sorta at stopping point, I haven't found a decent commercial lender that wants to do business with me, to continue to grow on the commercial side.
I checked into a blanket loan option. And this won't work either. If the blanket loan is in my name or an llc, the conventional lender will still consider these financed properties in my name.
It sounds like the gentlemen above, has a way around that, with an s corp, which sounds like the only way to really clear the slate for more conventional.
However, finding a lender that will do a blanket loan, into a newly formed s corp, is probably going to be an issue as well.
So the only legitimate way I see someone going beyond the 10 fannie limit, is if you have a wife that will qualify on her own. Then you could do 10, and she could do 10.
I unfortunately don't have that as an option as a single guy.
So don't know what my next move is.
Others have mentioned commercial ARMs at higher interest rates.
If you want to stick in Agency 30YF for a little while more...
For married persons at, or approaching, the cap of 10:
If you have an stay-at-home spouse with no day-job type mortgage-qualifying income...
First time I stumbled across this, the couple owned enough properties in a single city that the city had a bunch of extra inspection hoops to jump through for the landlord. Their solution that they found was to split the real estate empire in that city in half, so that neither individually was across the city's line in the sand.
Question: Do farm loan and farm home loan lenders (FarmerMac) also look at the 10x max (Fannie Mae, Freddie Mac).
I am also approaching 10x financed rental properties right now.
In two years we are also looking to purchase a farm (~600 acres cattle ranch in E. OK) and build a home on the farm.
Question: Do farm loan and farm home loan lenders (FarmerMac) also look at the 10x max (Fannie Mae, Freddie Mac)?
I am also approaching 10x financed rental properties right now.
In two years we are also looking to purchase a farm (~600 acres cattle ranch in E. OK) and build a home on the farm.
My wife and I own a business. We just bought our first rental property. In the next 2 or 3 years, all of our debt (minus our primary home) will be paid off and we will have an influx of cash. I spoke w/ the lender for our first property and he mentioned we can only have 10 investment property mortgages at time. I asked him about a couple of the things I saw on this forum and it sounds like a bust.
- Loans must close in your name. Title can be in the LLC/ corporation name though.
- They offer portfolio loans but not on investment properties.
- They mentioned a commercial loan for multiple properties but also said that it's not likely going to happen as it's a high risk situation.
So I'm at a loss. I could just get 9 more properties and pay them off one by one, but I'm greedy (I have no problem admitting that) and I'd like to scale a bit faster. I've considered buying the properties, getting to point where I can raise the rents a bit and selling them all. My end goal is to eventually own commercial real estate like apartment buildings but this kind of puts a wrench in the plans.
I currently have a wife that stays home with my daughter. I have 4 investment properties + primary residence, so I'm at Loan #5. All the loans are under my name, all the properties except for primary is under my name only (Primary is co-owned). You are saying I can purchase the next 5 property with my wife's name, but loan under my name, so when I reach property #10 my wife can count the rental income on those properties for her DTI?
My bank tells me rental income does not count towards income on DTI calcs. Does that differ by bank?