Challenges with financing more than 6 rentals

[Peter Stur]

Last year I switched from the fix & flip method to buy & hold (specifically the BRRRR method thanks to the Bigger Pockets Podcast). I am now up to 5 rentals but most lenders are telling me that I will have issues trying to refinance once I get to 6 - apparently I need to have a lot more reserves in the bank, need to show a lot more income on my tax returns, need to show two years of rental income history, etc.

I see investors on this platform all the time talk about scaling their business quickly and having portfolios of 10, 20, 40+ rental properties. My goal is to get to that level but definitely running into some roadblocks.

I started with only a few thousand dollars in the bank and did most of the rehab work myself in order to get through my first few flips. I buy all my properties with hard money lending and then refi to 30 year mortgages after the rehab is complete. Thankful to have gotten this far without having lots of cash to play with, but now I’m struggling to get to that next level without having the cash reserves, high income, and long term rental history.

Any advise in regards to lenders/lending options with more than 6 rentals would be greatly appreciated.

[Tim Roberts]

@Peter Stur I have about 40 different lenders that I currently work with.  Before you get into using a Commercial Lender to loan on any rental properties you own, you will want to have the 10 properties financed through Fannie/Freddie.

When your income covers your credit debt; primary residence, cars, toys, student loans, and credit cards qualifying for a Freddie/Fannie loan should be relatively easy.  Depending on when you purchased and rented your other 6 properties you will either qualify with 75% of lease agreements or your filed tax returns on the schedule E.  You will be better off to finance the loans before you show the costs for the remodel on your tax returns.

With the income vs debt (debt ratio) in check buying rental homes with traditional financing (Freddie/Fannie) comes down to money for the down payment and the reserves.  I generally like to work with Fannie on the 8-10th financed properties.

Specific to reserves; set one account that you have enough money for the reserves and then let it be in your account for 30 days (lenders call this seasoning). The other thing I would suggest If you have equity in your primary residence is getting a Home Equity Line of Credit and leave the balance at zero. When you buy the next rental you draw against the HELOC for the down payment and the money in your checking account would be your reserves. Once the loan is closed and funded you pay down the line back to zero (or close as you can) with the reserves in the checking account. Then build your reserves back up and buy the next property.

There are other accounts that we can use to show reserves if this requirement becomes a high number; a 401k account is allowed with proof you can borrower against it.  Most of the time, if you have $100k in an account and are vested 5 years then you can show you have the ability to borrow $50k and this becomes a reserve account.  You don't have to borrower against it, only show you have the ability.

I can give you feedback on how you can access loans more easily if you can give me a better understanding of your current situation and portfolio.  Feel free to direct message me and we can set up some time to talk by phone.

Tim