8 doors in 1 year, what should I do next?

Question

I’m looking to pull some cash back out and purchase more properties while still cash flowing.

I purchased 2 SFH and 3 duplexes with 25% down in the KCMO area.

One SFH is worth about $35k more than purchased and the other about $40k more. So not a ton of equity, interest rates at 4.7%.

Duplexes have about $60k in appreciation across the 3.

There’s about $210k of my money in the portfolio I’d like to get back. With closing costs, do you think cash out refi is a good idea? Any other ideas I should consider?

John Teachout · Answer

consider other options as well. ie, a HELOC on your primary if that's a option. Good interest rates and small if any closing costs. Our HELOC is prime plus zero so right now I can borrow money from it for 3.25%. Of course the interest isn't fixed but I expect rates to stay pretty low for a while.

Alex Olson · Answer

@Nic S. I think your situation depends on what you are looking to do. If you go the commercial rate, your loans will have a 5 or 10 year term to it (amortized over 20-30 years) so you will be refinancing every 5 years or so. Not a huge hurdle but something to consider. Be very cautious if you get any rates lower than 3.5% in Kansas City. If they are lower than that they may be charging you ridiculous points and junk fees. Run the scenarios on a calculator so you know. Hope that helps.

JD Martin · Answer

Depends on your lender and your state but costs between $2-5k are pretty common. Most of the time you're going to be paying for a new appraisal, title work, city/county deed costs, closing attorney (if required), title insurance, plus any points the lender charges and loan fees.

Nic S. · Answer

@JD Martin closing costs is something I'm going to speak to my lender about. In general how much should someone like me expect to pay in CC? I owe $51K on the house, it was purchased in Jan of this year.

John Teachout · Answer

A cash out refi would be an excellent idea but be prepared for a slow process. I'm about 2 months into a loan process for an sfr we're buying.

Just be careful not to get too overleveraged. If you get in a situation where you have vacancies and can't pay the mortgages, you'll know you're in that pickle.

James Hamling · Answer

If it was myself, I would write up a.... well i don't have non-descriptive technical words so i will just describe it. I would write up a concise lending presentation packet with the pertinent information of each property, if possible and enough funds I would include a private appraisal report for each property (it is key to use the appraisers the lenders use, the exact firms, don't try to be cheap try to impress with professionalism). I than network/ meet with the commercial lenders in that market, as many as possible (this matters for later business).

In the presentation packet I pitch that I am looking to refi all properties into a singular commercial mortgage, I have the requested funding and rates via spreadsheet breakdown. ALTHOUGH in conversations with each i will discuss future potentials, in a manner if interviewing them for a potential good fit for future business. In that I am looking for portfolio lending and a line of credit to utilize for cash transactions to roll finished properties into a commercial mortgage.

So I am making 1 presentation for the financing at hand, but I am using that current business to discuss and explore future potential. You never know what can happen in those conversations, seriously, just talk with them and explore because the business in hand has proven you are REAL business so your in best position to fish for what could be. A lender may say they are not so much into the line of credit BUT if you could find a multi-plex of 40+ units, well, they would really be into that for their portfolio lending side and "by the way" no worries on a big down seeing as you have those other properties with them.....

Having commercial lending partners, well lets just say it can be game and life changing.

James Hamling · Answer

@Nic S. My "go-to" would definitely be attempting to step up to the next level and achieve commercial financing. This will not only unlock some capital but also considerably lower that interest rate ideally effecting a net 0 on cash-flow.

I have commonly seen rates sub 2% at the commercial mortgage level, anything in that range would be a significant impact from where your at now.

JD Martin · Answer

Did you buy this house for cash or do you have a current note on it? I generally haven't found that it makes a lot of sense to do refis in today's markets on small amounts of equity, say under $50k because your loan & closing costs eat a significant amount of the proceeds. How much do you owe on the property?

Nic S. · Answer

@James Hamling wow! Being in sales myself I totally appreciate the pitch you outlined above. Thanks again for your input; I'll get started on expanding my commerical network.

Nic S. · Answer

@James Hamling thanks for the input. I’ve never done commercial terms but I’m somewhat familiar. In this case, what are you suggesting exactly? A portfolio cash out refi with a commercial lender?

8 doors in 1 year, what should I do next?

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