Financing a 1.5 million single family portfolio

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Financing a 1.5 million single family portfolio

Giora Sela
Wilmington, NC · Member since 2017 · 31 posts · 23 votes

I'm going to buy a portfolio of 7 properties off market that is 20% below market value. I'm looking for a lander who can help with getting a flexible deal (seller hold back maybe) but most importantly the rent is well below market rate and I don't want that to be an issue with LTV

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Daniel ChristopherBusiness Member
Lender · Miami, FL · Member since 2020 · 796 posts · 96 votes
3y
Quote from @Adam Windham:

If the DSCR is going to be a constraint I'd look into a bridge loan to acquire the portfolio and then work to push up rents so you're getting above a 1.00x DSCR and thus better terms when it comes time to refinance into a perm loan. Many bridge loan options will also allow for a seller second as well so you could potentially get a higher initial CLTV.

 I second this. Also, when you build up the history to refinance into perm debt a year down the road, rates are expected to be far better by then.

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  • Robin SimonBusiness Member
    Lender · Austin, TX · Member since 2022 · 5k+ posts · 4k+ votes
    3y

    are the properties in need of any renovations to bring up to market rents, or is this just a case of poor management and rents can be raised to market without significant capital expenditure?

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  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y

    @Giora Sela

    The rents will be an issue if you want a DSCR loan. Most lenders will want 15-25% down payment and if you get seller financing and put them in 2nd they still will not go to 100% but their rates will be 2-5% higher

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  • Dennis Muno
    Lender · Denton, TX · Member since 2023 · 349 posts · 80 votes
    3y
    Quote from @Giora Sela:

    I'm going to buy a portfolio of 7 properties off market that is 20% below market value. I'm looking for a lander who can help with getting a flexible deal (seller hold back maybe) but most importantly the rent is well below market rate and I don't want that to be an issue with LTV

     Hello Giora,

    Please do you know why the rents are below market value? Has the seller indicated if and how much after costs the cashflow is? Are the rents below market value because the properties need rehab?

    Commercial/private money may be possible options

    0Reply
  • Giora Sela
    OP
    Wilmington, NC · Member since 2017 · 31 posts · 23 votes
    3y

    Properties seem well kept actually, its just a case of another landlord with a low basis just not keeping up with the market

    0Reply
  • Adam WindhamPro Member
    Lender · San Diego | Phoenix | Miami · Member since 2019 · 39 posts · 65 votes
    3y

    If the DSCR is going to be a constraint I'd look into a bridge loan to acquire the portfolio and then work to push up rents so you're getting above a 1.00x DSCR and thus better terms when it comes time to refinance into a perm loan. Many bridge loan options will also allow for a seller second as well so you could potentially get a higher initial CLTV.

    [email protected]619-304-9507
    4Reply
  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    3y
    Quote from @Adam Windham:

    If the DSCR is going to be a constraint I'd look into a bridge loan to acquire the portfolio and then work to push up rents so you're getting above a 1.00x DSCR and thus better terms when it comes time to refinance into a perm loan. Many bridge loan options will also allow for a seller second as well so you could potentially get a higher initial CLTV.


     Yep, this is the answer. 

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  • Matthew DaviesBusiness Member
    Lender · Tampa, FL · Member since 2023 · 22 posts · 6 votes
    3y
    Quote from @Giora Sela:

    I'm going to buy a portfolio of 7 properties off market that is 20% below market value. I'm looking for a lander who can help with getting a flexible deal (seller hold back maybe) but most importantly the rent is well below market rate and I don't want that to be an issue with LTV


    Hi Giora, some lenders can use market rent instead of in-place rent for purchases. You can find them at "Find a Lender" here in BP. If you don't need to do rehab it could be the way to go - note that LTVs usually max out at 75% for portfolio purchases (not always the case with some lenders). There are also release clauses associated with a portfolio loan that you'd want to be aware of. Buying using a bridge loan could be helpful if you think you can build equity and want to do a cash out refinance after. Depending on the price points of the properties it could get expensive to do a couple of closings (bridge to refi). 

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  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Giora Sela:

    I'm going to buy a portfolio of 7 properties off market that is 20% below market value. I'm looking for a lander who can help with getting a flexible deal (seller hold back maybe) but most importantly the rent is well below market rate and I don't want that to be an issue with LTV


     What is the purchase price for each property? What term are you looking for?

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  • Giora Sela
    OP
    Wilmington, NC · Member since 2017 · 31 posts · 23 votes
    3y

    Sellers have been slow to respond with information. I appreciate all the feedback so far. 

    I'm a long term buyer, buying with a bridge could work well in this scenario. What are typical loan terms on bridge? I've only done traditional/DSCR loans

    0Reply
  • Erik EstradaBusiness Member
    Lender · Member since 2022 · 6k+ posts · 1k+ votes
    3y
    Quote from @Giora Sela:

    Sellers have been slow to respond with information. I appreciate all the feedback so far. 

    I'm a long term buyer, buying with a bridge could work well in this scenario. What are typical loan terms on bridge? I've only done traditional/DSCR loans


    You may finance these with a DSCR loan on a blanket as long as the pp is above $70k each property.

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  • Timothy Hero
    Lender · United States · Member since 2020 · 1k+ posts · 499 votes
    3y
    Quote from @Chris Seveney:

    @Giora Sela

    The rents will be an issue if you want a DSCR loan. Most lenders will want 15-25% down payment and if you get seller financing and put them in 2nd they still will not go to 100% but their rates will be 2-5% higher


    This is false.

    For purchases, DSCR lenders can go off market rent and ignore the in place leases.

    As for the rates, this is false. I have several lenders offering 80% LTV right now for only 15 bps higher than conventional. (maybe you meant a 2nd would be 2-5% higher?)
    0Reply
  • Adam Bartling
    Lender · Rosenberg, TX · Member since 2022 · 287 posts · 130 votes
    3y

    @Giora Sela I have an option if the seller is taking a 2nd position. 

    Now properties must be in MSA 50K+, $250K ARV per property.

    But if the seller is holding back 30% you can get in for only closing cost.

    0Reply
  • Chris SeveneyBusiness Member
    Moderator
    Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
    3y
    Quote from @Timothy Hero:
    Quote from @Chris Seveney:

    @Giora Sela

    The rents will be an issue if you want a DSCR loan. Most lenders will want 15-25% down payment and if you get seller financing and put them in 2nd they still will not go to 100% but their rates will be 2-5% higher


    This is false.

    For purchases, DSCR lenders can go off market rent and ignore the in place leases.

    As for the rates, this is false. I have several lenders offering 80% LTV right now for only 15 bps higher than conventional. (maybe you meant a 2nd would be 2-5% higher?)

    Correct I noted if you are in 2nd position they will not go to 100% and rates are higher.

    Also if your rents are 20% below market value, lets say they are 800 vs $1000 a month, how is that false that it will impact a DSCR loan. A DSCR loan takes into account your rental income. A property bringing in 20% more income will at the same price will have a higher DSCR. The lender will not take a DSCR loan based on "future" rents.

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  • Timothy Hero
    Lender · United States · Member since 2020 · 1k+ posts · 499 votes
    3y
    Quote from @Chris Seveney:
    Quote from @Timothy Hero:
    Quote from @Chris Seveney:

    @Giora Sela

    The rents will be an issue if you want a DSCR loan. Most lenders will want 15-25% down payment and if you get seller financing and put them in 2nd they still will not go to 100% but their rates will be 2-5% higher


    This is false.

    For purchases, DSCR lenders can go off market rent and ignore the in place leases.

    As for the rates, this is false. I have several lenders offering 80% LTV right now for only 15 bps higher than conventional. (maybe you meant a 2nd would be 2-5% higher?)

    Correct I noted if you are in 2nd position they will not go to 100% and rates are higher.

    Also if your rents are 20% below market value, lets say they are 800 vs $1000 a month, how is that false that it will impact a DSCR loan. A DSCR loan takes into account your rental income. A property bringing in 20% more income will at the same price will have a higher DSCR. The lender will not take a DSCR loan based on "future" rents.

    For purchases, many DSCR lenders won't hold the under market rents against you. Some of my lenders will look at the in place leases and if they have less than 6 months remaining, they'll go off market rent.

    This is only for purchase, of course. On the refi side, being rented below market rent kills many deals.
    1Reply
  • Daniel ChristopherBusiness Member
    Lender · Miami, FL · Member since 2020 · 796 posts · 96 votes
    3y
    Quote from @Adam Windham:

    If the DSCR is going to be a constraint I'd look into a bridge loan to acquire the portfolio and then work to push up rents so you're getting above a 1.00x DSCR and thus better terms when it comes time to refinance into a perm loan. Many bridge loan options will also allow for a seller second as well so you could potentially get a higher initial CLTV.

     I second this. Also, when you build up the history to refinance into perm debt a year down the road, rates are expected to be far better by then.

    619-815-8867
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    5Reply
  • Warren Jia
    Member since 2023 · 5 posts · 0 votes
    3y
    Quote from @Giora Sela:

    I'm going to buy a portfolio of 7 properties off market that is 20% below market value. I'm looking for a lander who can help with getting a flexible deal (seller hold back maybe) but most importantly the rent is well below market rate and I don't want that to be an issue with LTV


     Hi Giora,

    My name is Warren and I'm the loan officer at YouLand. We specialize in short term (12-18) month bridge loans that sounds like it would be the perfect fit for your purchase. We can do up to 80% LTV for purchase loans. Please give me a text at 415-858-4124 if you want to discuss further. We need the property addresses and purchase price to continue with underwriting and pricing. Our website is youland.com if you want to check us out.

    0Reply
  • Michael SmytheBusiness Member
    Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
    3y

    @Giora Sela while this sounds like a great deal, it's not going to be easy to put together as you have outlined.

    How much experience do you have in managing rentals? Without at least 2 years of documentable experience (via tax returns), why would a lender take a chance on letting you run the property into the ground and force them to foreclose on you?

    You are really looking for a lender to finance a zero-out-of-pocket transaction. If you have nothing at risk, how hard will you work to properly manage this portfolio and will you put in your own money at some point if needed? If you won't put in any money now, why would a lender believe you will put money in later?

    Even if you find a bridge lender, how much of the 20% under market value will the fees and interest rate wipe out?

    Other options:

    1) Offer the seller a higher price in exchange for a 18-24 month land contract. This will give you some experience, allow you to increase rents and qualify you for market value of the properties on a DSC refinance. But, you better be sure of the values and that you can get the higher rents.

    2) Find a partner that has the 20-25% down payment to get a loan.

    3) Partner somehow with the seller.

    4) Who else has additional ideas?

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