Financing... where am I going wrong?

Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes

I have a young portfolio of 5 single family properties worth $775k. I owe $416K. I am trying to refinance and cash out to invest in more properties. The best financing I can find is about 6%, 75% LTV. This eats a significant portion of my cash flow and makes it impossible to eventually hire a property management firm once I do acquire more properties.

I would need to find money around 5% on the high end in order to make it worth it to me. Am I asking too much? Is this impossible to find outside of conventional financing?

My goal is to partner with a lender so I can flip deals to them and quickly move on properties as they come available. Conventional financing has been too slow in the past, and they are oftentimes a pain to work with.

What are you guys seeing on your deal that you finance? Thanks!

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Ola Dantis

Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes

@Joey Allison

You could pace yourself and maybe start with a property that has the highest equity and move that property into a disposition phase in your portfolio. Test the market with that property and see what other investors can offer you for that property in an off-market creative financing type situation.

Forget about getting better finance rates for a second, you become the bank on that one property, get a good downpayment for that property and use that capital for your next property.

Alternatively, you can start thinking of how the BRRRR strategy can work for you.

Capital (Cash Flow) preservation is most important and if your cash flow is decent right now, you may want to consider a more paced approach as opposed to divesting your portfolio all at once.

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Ernesto Hernandez
Realtor · San Francisco, CA · Member since 2017 · 408 posts · 361 votes
7y
What rates and terms were you hoping to find?
1 Reply
DJ M.
Realtor · Southeast Michigan · Member since 2017 · 232 posts · 180 votes
7y
Who would have thought that as you become more leveraged, your cash flow would go down???
In all seriousness though, thats just way the cookie crumbles on investor properties, my friend. In this market its hard to find deals where you will still cash flow decently when you are leveraged to the max. Cant have your cake and eat it too, if you know what I mean.
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Joey Allison
OP
Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes
7y
@Ernesto Hernandez I was wanting to be around 5% with 80% LTV. Somewhere in that ball park. I could possibly go 5.5%. Anything higher than that starts to cut into my cash flow too much.
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Joey Allison
OP
Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes
7y

@DJ M.I understand how the math works. What I was trying to find out is if there is money out there that cheap outside of conventional financing.

0 Reply
Caleb Jordan
Lender · Arlington, TX · Member since 2018 · 465 posts · 184 votes
7y
Originally posted by @Joey Allison:
I have a young portfolio of 5 single family properties worth $775k. I owe $416K. I am trying to refinance and cash out to invest in more properties. The best financing I can find is about 6%, 75% LTV. This eats a significant portion of my cash flow and makes it impossible to eventually hire a property management firm once I do acquire more properties.

I would need to find money around 5% on the high end in order to make it worth it to me. Am I asking too much? Is this impossible to find outside of conventional financing?

My goal is to partner with a lender so I can flip deals to them and quickly move on properties as they come available. Conventional financing has been too slow in the past, and they are oftentimes a pain to work with.

What are you guys seeing on your deal that you finance? Thanks!

What amortization is that 6% at? That can make a huge difference. There are some loans that are interest only for first 5 or 10 years. If principle pay down is not a huge part of your strategy that IO might help monthly cash flow.
Is that 6% a conventional lender or something else. 6% is decent for non traditional financing, but you can find 5s assuming you look good to the lender. You do have one strike agaisnt you in finding lowest rate. Cash out loans are generally seen as riskier, so they can be a bit higher than a rate and term refi.
1 Reply
DJ M.
Realtor · Southeast Michigan · Member since 2017 · 232 posts · 180 votes
7y
Originally posted by @Joey Allison:

@DJ M.I understand how the math works. What I was trying to find out is if there is money out there that cheap outside of conventional financing.

You can never be too sure... Have you tried private money? (ie. family & friends) Or trying to find a money partner? Other than that its probably going to be hard to find too much better, but I dont know your personal situation.
Terms for friends & family can really be anything you both agree to, and bringing on money partner would be something like your sweat his money for a 50/50 split. or something to that effect. I like family & friends money better, personally.
1 Reply
Joey Allison
OP
Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes
7y
@Caleb Jordan
That's interesting. I haven't come across a partial interest only loan. All my options were amortized over 30 years. I would be interested in a partial interest only loan. That would help a lot.

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Joey Allison
OP
Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes
7y

@DJ M. I have tried looking into private money. Most of the people I know who have money don't understand the dynamics of lending on real estate. Typically, they would lend on a deal where its a short term loan, small money deals. I haven't been successful finding friends with money yet lol
1 Reply
Caleb Jordan
Lender · Arlington, TX · Member since 2018 · 465 posts · 184 votes
7y
Commercial or hard money are best places to start looking for that. I don't do any loans in AZ so I'm not familiar with that market.
0 Reply
DJ M.
Realtor · Southeast Michigan · Member since 2017 · 232 posts · 180 votes
7y
Originally posted by @Joey Allison:

@DJ M. I have tried looking into private money. Most of the people I know who have money don't understand the dynamics of lending on real estate. Typically, they would lend on a deal where its a short term loan, small money deals. I haven't been successful finding friends with money yet lol

It gets easier once you can show some solid deals you have put together, which it sounds like you have. Make a PDF or PowerPoint presentation of your deals and their #s, if you havent done so already. Have you ever tried reaching out to any agents that work with investors? They usually have money guys in their rolodex. I know I do. Even tight money will come out for the right deal. Got any local REIAs around you?
I may be preaching to the choir with all of this. If I am, feel free to ignore me :)
1 Reply
Joey Allison
OP
Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes
7y
These are great Ideas. I appreciate all of that! I will create a presentation and ask agents to see if they have anyone in mind. @DJ

@DJ M.
0 Reply
Scott Henrikson
Real Estate Agent · Rapid City, SD · Member since 2019 · 43 posts · 11 votes
7y
@Joey Allison focus on brrrr to grow. You get up to 10 30 yr fixed mortgages before you need to go commercial. Commercial works better for duplex on up. I currently can get a 25 yr amortization on commercial which helps on cf but rates are 1% higher then secondary markets. Brrrr really is the best way to keep your money going. Those properties are ugly but they work in the end!
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Scott Henrikson
Real Estate Agent · Rapid City, SD · Member since 2019 · 43 posts · 11 votes
7y
@Joey Allison conventional financing is the cheapest money right now. Hard money has come way down but you’ll still need to refi in most cases. In my area duplexes are making solid cf. try those in commercial lending. Anything larger in multifamily is bloated. That’s my area anyways! Once you figure your answer out it’s gold! And there is an answer you like somewhere.
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DJ M.
Realtor · Southeast Michigan · Member since 2017 · 232 posts · 180 votes
7y
@Joey Allison Just be careful you dont cross any lines as far as SEC funding rules go, and youll be fine.
Good Luck!
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Jerry PadillaBusiness Member
Lender · Rochester, NY · Member since 2014 · 3k+ posts · 1k+ votes
7y
@Joey Allison
6's and up are the rates that I have seen with portfolio. The higher the LTV, the higher the rate as well.
Conventional does require more paperwork than commercial, but in the long term you save a lot in interest.
Maybe the loan officer you were working with, didn’t focus on investor financing? Which can make the transactions more difficult.
[email protected]585-204-6923
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1 Reply
Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
7y
@Joey Allison
You could pace yourself and maybe start with a property that has the highest equity and move that property into a disposition phase in your portfolio. Test the market with that property and see what other investors can offer you for that property in an off-market creative financing type situation.
Forget about getting better finance rates for a second, you become the bank on that one property, get a good downpayment for that property and use that capital for your next property.
Alternatively, you can start thinking of how the BRRRR strategy can work for you.
Capital (Cash Flow) preservation is most important and if your cash flow is decent right now, you may want to consider a more paced approach as opposed to divesting your portfolio all at once.
3 Reply
Joey Allison
OP
Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes
7y
@Ola Dantis I appreciate this advice. Thank you for taking the time to offer your thoughts. Are you suggesting seller financing by “being the bank”? Because I do own 1 property free and clear, but I’d like to hold it as a rental. Thank you!
1 Reply
Ola Dantis
Multifamily Syndicator · Houston, TX · Member since 2016 · 1k+ posts · 2k+ votes
7y
Originally posted by @Joey Allison:
@Ola Dantis I appreciate this advice. Thank you for taking the time to offer your thoughts. Are you suggesting seller financing by “being the bank”? Because I do own 1 property free and clear, but I’d like to hold it as a rental. Thank you!

Yes BINGO!
Oh, LOL, ok if you'd like to hold that then I guess you can go to the next property in your portfolio.
Alternatively, you could figure out a number that would work for a HELOC on the house you own free and clear. Just note that you might be better off with the sweet cash flow you have now with the FREE AND CLEAR before acquiring another property (the idea isn't to scale for scaling sake, it is and should be more strategic). Hope this piece makes sense to you.
The idea here is to be super creative and open-minded in order to achieve your goal of scaling up...
1 Reply
Shaun Weekes
Loan Officer / Processor / Life & Health Agent · Rancho Cucamonga, CA · Member since 2014 · 1k+ posts · 757 votes
7y
Originally posted by @Joey Allison:
I have a young portfolio of 5 single family properties worth $775k. I owe $416K. I am trying to refinance and cash out to invest in more properties. The best financing I can find is about 6%, 75% LTV. This eats a significant portion of my cash flow and makes it impossible to eventually hire a property management firm once I do acquire more properties.

I would need to find money around 5% on the high end in order to make it worth it to me. Am I asking too much? Is this impossible to find outside of conventional financing?

My goal is to partner with a lender so I can flip deals to them and quickly move on properties as they come available. Conventional financing has been too slow in the past, and they are oftentimes a pain to work with.

What are you guys seeing on your deal that you finance? Thanks!

Where are you properties located?

0 Reply
Alex BekezaBusiness Member
Lender · Los Angeles, CA · Member since 2018 · 2k+ posts · 1k+ votes
7y
@Joey Allison Depending on FICO, loan size, etc you can find commercial programs with rates in the low 5s although it may require some discount points paid at closing.
[email protected]818-606-8823
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Joey Allison
OP
Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes
7y
@Shaun Weekes Arizona
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Cole Raiford
Rental Property Investor · Gulfport, MS · Member since 2018 · 113 posts · 133 votes
7y
@Joey Allison I just did two conventional refi's at under 5% through a regional bank. Shop other banks and see what they can offer. However, it may be that your particular situation (DTI, credit score, etc) is such that you won't qualify for as low of a rate as someone with a better financial position than you, so comparing yourself to others isn't always apples to apples.
If your cash flow is hurt too badly by a standard 75% refi then you probably bought in an area that is too expensive for the rents you are receiving. Nothing you can do about it at this point. You have to choose between cash in pocket and cash flow.
1 Reply
Mark S.
Real Estate Investor · Saint Paul, MN · Member since 2017 · 543 posts · 474 votes
7y
@Joey Allison I talked last week with one of the national banks that has offices in AZ and was quoted a commercial real estate loan rate at 4.5%, 20 year amortization with the typical 5 year reset. 25% down. The underwriting guidelines were pretty strict but the rate is great.
0 Reply
Joey Allison
OP
Rental Property Investor · AZ · Member since 2019 · 46 posts · 25 votes
7y
@Cole Raiford Thank you for the reply. My issue us rate. The LTV at 75% is a non-issue. I will continue to shop around. I have very grood credit so I am confident we can find a deal somewhere. Thank you.
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John MorganPro Member
Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
7y
@Joey Allison
I’m doing the same thing as you. I have 7 SFRs and own two outright. I did a cash out refi on one paid off property in June for a 15 year fixed at 4.125% paying two points. It was a very easy quick process to do the cash out refi. I paid cash for a house after I got the cash right away, then rehabbed it and placed a tenant in it a month later. I just called my same lender and he quoted me 4.125% for another 15 year fixed with 2 points. Or 3.75% with a higher charge. His loan quotes beat out almost all the lenders I’ve looked at. PM me if you want his contact info. He’ll give you a free loan quote to compare against other banks. I plan on doing a few more houses like this. It’s so much easier to get good deals when you make cash offers vs getting loans.
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