Financing... where am I going wrong?

27 Replies

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!

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. 

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. 

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.


@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

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 :)

@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!

@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.

@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. 

@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. 

@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!

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...

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?

 

@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.

@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.