Purchasing a Portfolio in KS - How to Finance?

9 Replies

Hi BP Readers -

We are about to go under contract on 7 properties in Kansas, about 20 units. Mostly college rentals, and we're getting them at a significant discount to market (even considering some deferred maintenance). There are also some value-add opportunities in a few of them. Lower than market rents, capacity to add rooms, etc.

However, we don't know how to finance them. We don't want to do 7 traditional mortgages; but would rather bundle these up as a portfolio. Any suggestions?

Thanks!

@Gabrial Carter - you should look at a commercial mortgage for this purchase.  I've done bundled purchases in the past and as long as you're not looking to sell properties off individually this is not problematic.  If you do plan to sell selectively at some point, you should either aim to do so at the end of the term (typically 5 years) or see if the lender will write in payoff amounts by property into the loan.

You'll need to check with local investors/PM companies etc. to find who the good commercial lenders are and then start calling until you find one interested in the loan.

Hope this helps!

@Gabrial Carter

Two things leap out at this post; deferred maintenance and college rentals.  Many lenders shy away from college rentals and you have to be careful how your lease is worded.  Any mention of college or student or renting the property out by the room will preclude it from most financing.

What is each individual property worth?

@Gabrial Carter I would have them financed as a package loan. The paperwork and other associated accounting/legal headaches will be less. As @Michael Seeker has mentioned, you should not have any major issues with selling these off one-by-one. 

Thanks Michael! We were thinking that we'd need to go to commercial lending on this, but your suggestion about payoff amounts by property is a great one. We were thinking of selling off one of these in the next year or so.

Originally posted by @Stephanie Potter :

@Gabrial Carter

Two things leap out at this post; deferred maintenance and college rentals.  Many lenders shy away from college rentals and you have to be careful how your lease is worded.  Any mention of college or student or renting the property out by the room will preclude it from most financing.

What is each individual property worth?

Thanks Stephanie!

Before we finalized the offer on the properties, we ran out a 3 year capital expense plan to account for improving the properties that need it, either with deferred repairs or value add improvements. Also, my partner on the deal and the property manager both have had/currently have college rentals in this market and systems for managing them and mitigating the risks.

As for value, they vary a bit (some are SFH, others triplexes or duplexes) but the market value of the portfolio is about $700, and we are going under contract for $490K.

Originally posted by @Gabrial Carter :
Originally posted by @Stephanie Potter:

@Gabrial Carter

Two things leap out at this post; deferred maintenance and college rentals.  Many lenders shy away from college rentals and you have to be careful how your lease is worded.  Any mention of college or student or renting the property out by the room will preclude it from most financing.

What is each individual property worth?

Thanks Stephanie!

Before we finalized the offer on the properties, we ran out a 3 year capital expense plan to account for improving the properties that need it, either with deferred repairs or value add improvements. Also, my partner on the deal and the property manager both have had/currently have college rentals in this market and systems for managing them and mitigating the risks.

As for value, they vary a bit (some are SFH, others triplexes or duplexes) but the market value of the portfolio is about $700, and we are going under contract for $490K.

 Your initial question was how to finance them.  I don't see you getting a blanket or a portfolio loan, because most of them in our tier of lending are not going to allow deferred maintenance and none of them that I know of will allow "student housing".  You may be able to get your partner or the property manager to get you in touch with their current lender to see if they would do it.  Try the local credit union.  

Best of luck

Stephanie

@Gabrial Carter this is no mans land for lending. In mfh you don’t get Fannie non recourse lending until you are over 1 m loan size.

There is a pilot Fannie Mae program for sfh portfolios but it’s minimum size is 50 units.

Originally posted by @Lane Kawaoka :

Gabrial Carter this is no mans land for lending. In mfh you don’t get Fannie non recourse lending until you are over 1 m loan size.

There is a pilot Fannie Mae program for sfh portfolios but it’s minimum size is 50 units.

I made some calls today and have 5 local banks / credit unions that will put a commercial loan against this portfolio. A couple of them even know who the sellers are.

However, now I have to figure out how to get the 25-30% down payment together. I think the best option is a private lender to float this until we can refi in 6-12 months to capitalize on the built in equity at purchase and value add opportunities.

I'm interested in this Fannie Mae pilot program you mentioned though, will be sure to look it up.

The lending in this space is becoming more mature. If not a local bank, there are a few other options. Feel free to DM me and I can connect you with recourse and non recourse options.

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