How to do a portfolio loan for multiple less expensive properties

10 Replies

I found a seller in a small town who owns 9 rental houses (11 units total since 2 are duplexes).  The houses average around $33,000 per property so let's say I could purchase the whole bundle for $300,000. Is it possible to get a portfolio loan to purchase all 9 properties?  Has anyone done this?  Is this is a good idea to do this?  What do I not know to know if this is worth pursuing?

The pros I see:  at $500 average rent per unit x 11 = $5500 per month.   Purchase price of $300k. Down payment of 25% over 30 years at 5% = Mortgage = $1562.  So 5500-1562 = $3938 net profit per month.  Rents can be increased due to below market rents. Half the houses have updates.  The rental market is strong in this area.

The cons: multiple capital expenses, multiple people to deal with, difficult to get a loan, half the houses need updates, once rents are increased can cause vacancies.

Brad

Funny math you have.I would get some real numbers first.

Are the properties owned free and clear or encumbered? I would talk to the seller and ask a few questions. Does he want to sell all at once to one buyer? Does he need all the cash now? Can he manage with $50K cash (or $10K? or $30K?), today, and the rest paid over time? If he's flexible, I would put an offer with the seller financing. Bank Financing, while a possibility, can be a PITA for many people. Have him carry back financing if possible. 

If you have a working relationship with a commercial bank, then financing multiple properties is definitely possible and people (including myself) in NC have done this with multiple differrent local/regional banks. It's much, much easier if you have working history with a bank. Walking in on a "cold call" with this kind of scenario? You'll need to add concessions (extra collateral) if you can even get traction. And expect rejections from many banks. Also expect this may take time as in many weeks regardless of your PFS numbers and liquidity. 

It might be a good deal for you.  The guy probably cannot sell the properties individually to get market value since the lender has them "all bound up" together.  Bad arrangement for the seller, good for you.

Originally posted by @Account Closed :

It might be a good deal for you.  The guy probably cannot sell the properties individually to get market value since the lender has them "all bound up" together.  Bad arrangement for the seller, good for you.

?

Where in his post does he say the seller has financing "all bound up" together? If the seller did have blanket financing, how do you know the lender doesn't allow a release? The OP didn't disclose the existing financing arrangements of the seller's property or even if the properties (one or more) are encumbered. 

In this market, which is flush with cash buyers and 1031 exchange money, as has been the case for a while, it's not hard to sell bundles of property regardless of financing seller side financing. I've sold multiple bundles (Q=2, 4, 5, 10, 25) and bought multiple (Q=8, 3 twice, …) and the tradeoff is one sale vs. listing separately in MLS and potentially having staggered closings for X months. Most prefer one sale, but the reality is that when using MLS the broker will 99% of the time say something like 'part of 9 total properties for sale, individually or bundled.'

@Brad Swearingen where are these located? (Like what town are they in).

A local bank will do this sort of deal, but it’s a lot to process. Also there’s likely zero percent chance you’ll get a 30 year amortization. Run it again at 15 or 20 year amortization and see how you like it then. That cash flow gets a lot tighter I am guessing.

Originally posted by @Chris Martin :
Originally posted by @Karen Lee:

It might be a good deal for you.  The guy probably cannot sell the properties individually to get market value since the lender has them "all bound up" together.  Bad arrangement for the seller, good for you.

?

Where in his post does he say the seller has financing "all bound up" together?

That is my reason for selecting the word "probably".

If the seller did have blanket financing, how do you know the lender doesn't allow a release? 

I don't.  But all the instances I witnessed, the lender either would not do it at all or they dragged their feet to "unblanket" a property.  

The OP didn't disclose the existing financing arrangements of the seller's property or even if the properties (one or more) are encumbered. 

Alright.....ok.......ahah....

In this market, which is flush with cash buyers and 1031 exchange money, as has been the case for a while, it's not hard to sell bundles of property regardless of financing seller side financing. I've sold multiple bundles (Q=2, 4, 5, 10, 25) and bought multiple (Q=8, 3 twice, …) and the tradeoff is one sale vs. listing separately in MLS and potentially having staggered closings for X months. Most prefer one sale, but the reality is that when using MLS the broker will 99% of the time say something like 'part of 9 total properties for sale, individually or bundled.'

Was that you on "Father Knows Best?"

 

@Chris Martin , I am not sure if the properties are free and clear but I know the owner has at least 40% equity in them.  He would like to sell the properties all at once and buy a lake house.  He indicated he likes to have his properties paid for but didn't come out and state that.  I will have to find out if he just needs a down payment for the lake house or wants the whole thing.  I don't currently have a relationship with any banks so it looks like I need to start talking to them.

Account Closed, the owner does not have them all bound up.  They each are paid off or have their own mortgage.

@Caleb Heimsoth , this is in Oxford, NC.  I have heard that Benchmark Bank, a local lender, will do "investor" type loans so I will have to talk with them.  Thanks for the suggestion of running the numbers at 15 or 20 years.  I am sure my margins will get tighter.

Thanks everyone for the help.  I have some work to do.

Brad

Originally posted by @Brad Swearingen :

@Chris Martin , I am not sure if the properties are free and clear but I know the owner has at least 40% equity in them.  He would like to sell the properties all at once and buy a lake house.  He indicated he likes to have his properties paid for but didn't come out and state that.  I will have to find out if he just needs a down payment for the lake house or wants the whole thing.  I don't currently have a relationship with any banks so it looks like I need to start talking to them.

@Karen L., the owner does not have them all bound up.  They each are paid off or have their own mortgage.

@Caleb Heimsoth , this is in Oxford, NC.  I have heard that Benchmark Bank, a local lender, will do "investor" type loans so I will have to talk with them.  Thanks for the suggestion of running the numbers at 15 or 20 years.  I am sure my margins will get tighter.

Thanks everyone for the help.  I have some work to do.

Brad

I KNOW!  But as I understand it YOU are considering a portfolio loan.  I am suggesting if you ever want to sell one of the units, and you have one loan on them all, good luck selling all for value, or getting one released out of the bunch to sell.

 

Originally posted by @Account Closed :
Originally posted by @Brad Swearingen:

@Chris Martin, I am not sure if the properties are free and clear but I know the owner has at least 40% equity in them.  He would like to sell the properties all at once and buy a lake house.  He indicated he likes to have his properties paid for but didn't come out and state that.  I will have to find out if he just needs a down payment for the lake house or wants the whole thing.  I don't currently have a relationship with any banks so it looks like I need to start talking to them.

@Karen L., the owner does not have them all bound up.  They each are paid off or have their own mortgage.

@Caleb Heimsoth , this is in Oxford, NC.  I have heard that Benchmark Bank, a local lender, will do "investor" type loans so I will have to talk with them.  Thanks for the suggestion of running the numbers at 15 or 20 years.  I am sure my margins will get tighter.

Thanks everyone for the help.  I have some work to do.

Brad

I KNOW!  But as I understand it YOU are considering a portfolio loan.  I am suggesting if you ever want to sell one of the units, and you have one loan on them all, good luck selling all for value, or getting one released out of the bunch to sell.

 

No "luck" is required. Since you aren't understanding my posts, those of us who sell a single parcel out of a portfolio will perform/file a release. Builders do this every day. Investors who work with the right banks do to. Some banks just do multiple D-T (Deeds of Trust) filings as security instrument using independent notes, but a master D-T with a release clause in the note is more common. An example, in case you want to see the filing text, is here (a random release from the second quarter of 2019.)  If you have doubts, I'd recommend talking about how releases work with your commercial banker. 

Originally posted by @Chris Martin :
Originally posted by @Karen L.:
Originally posted by @Brad Swearingen:

@Chris Martin, I am not sure if the properties are free and clear but I know the owner has at least 40% equity in them.  He would like to sell the properties all at once and buy a lake house.  He indicated he likes to have his properties paid for but didn't come out and state that.  I will have to find out if he just needs a down payment for the lake house or wants the whole thing.  I don't currently have a relationship with any banks so it looks like I need to start talking to them.

@Karen L., the owner does not have them all bound up.  They each are paid off or have their own mortgage.

@Caleb Heimsoth , this is in Oxford, NC.  I have heard that Benchmark Bank, a local lender, will do "investor" type loans so I will have to talk with them.  Thanks for the suggestion of running the numbers at 15 or 20 years.  I am sure my margins will get tighter.

Thanks everyone for the help.  I have some work to do.

Brad

I KNOW!  But as I understand it YOU are considering a portfolio loan.  I am suggesting if you ever want to sell one of the units, and you have one loan on them all, good luck selling all for value, or getting one released out of the bunch to sell.

 

No "luck" is required. Since you aren't understanding my posts, those of us who sell a single parcel out of a portfolio will perform/file a release. Builders do this every day. Investors who work with the right banks do to. Some banks just do multiple D-T (Deeds of Trust) filings as security instrument using independent notes, but a master D-T with a release clause in the note is more common. An example, in case you want to see the filing text, is here (a random release from the second quarter of 2019.)  If you have doubts, I'd recommend talking about how releases work with your commercial banker. 

 ACHOOOOOOOOOO!!!!!!  Yeah;  I know.  Good Luck.  You'll need lots of it.  zzzzzzzzzzzzzzzzzzzzzzzzzzz

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